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Introduction Transnational terrorists and criminals may collaborate, appropriate shared tactics, and otherwise benefit from interaction, resulting in bolstered capabilities, enhanced organizational infrastructure, improved access to resources, and expanded geographic reach. Historical examples also indicate that terrorist and transnational criminal groups may evolve, converge, transform, or otherwise alter their ideological motivations and organizational composition to appear similar. Although information on the extent and nature of criminal-terrorist relationships, including their impact on U.S. national security, remains anecdotal, many view the potential confluence of criminal and terrorist actors, skills, resources, and violent tactics as a cause for concern. Such enhancements may in turn lengthen the duration of insurgencies, extend the longevity and capabilities of criminal and terrorist organizations, and undermine the ability of fragile governments to exert full control of their territory. Some analysts have identified a series of potentially disturbing patterns that has hastened the expansion of relationships between terrorist and transnational crime groups. First, criminal syndicates appear to be growing in size, scope, and ambition. Globalization has extended their transnational reach, while major developments in technology, trade, and the financial industry have provided them with opportunities to exploit vulnerabilities in emerging criminal sectors, such as cybercrime. Many now maintain a transnational footprint and a flexible and networked membership roster that can adapt more readily to new market niches and establish more fluid alliances with external individuals and groups. Second, the nature and activities of terrorist organizations appear to have also changed. Terrorist groups today, particularly those that most threaten U.S. global interests, appear to be motivated primarily by religious rather than nationalist and ethnic separatist imperatives that were common in the 1960s and 1970s. This shift has resulted in extremist movements that elicit sympathy well beyond a specific country or geographic region. Further, terrorist groups appear to have become more resilient, due to a combination of continued state sponsorship or support, as well as entrepreneurial expansion into profitable criminal activities. Combined, these trends may suggest an increase in geographic overlap where criminals and terrorists could operate and interact. These patterns may also suggest greater blurring of distinctions between one group and the other, the adoption of activities often attributed to the other, or the ad hoc evolution of a group's objectives based on the security challenges they encounter. Key nodes, where interaction is most likely, include prisons; cyberspace, particularly online opportunities for social networking; and ungoverned or difficult-to-govern spaces, which include regions plagued by endemic corruption, conflict or post-conflict zones where legitimate governance has yet to take root, border regions, free trade zones, and urban mega cities where pockets of poverty, violence, criminality, and impunity from national law prevails. Overlap may also be facilitated by the involvement of negligent or hostile governments and kleptocratic or criminal states that may consider sponsorship or support of criminal or terrorist activity of strategic value. Perceived Threat The U.S. government has asserted that terrorism, insurgency, and crime interact in varied and significant ways, to the detriment of U.S. national security interests. In January 2012, the Director of National Intelligence (DNI) reported to Congress that transnational organized crime and its links to international terrorism was among the nation's most pressing national security concerns, specifically identifying the following areas of concern for crime-terrorism interaction: Nuclear proliferation: "We are aware of the potential for criminal service providers to play an important role in proliferating nuclear-applicable materials and facilitating terrorism." Kidnapping for ransom: "Kidnapping for ransom is increasing in many regions worldwide and generates new and deep income streams for transnational criminal networks ... and terrorist networks." Human smuggling: "Those who smuggle humans illegally have access to sophisticated, forged travel papers and the ability to constantly change their smuggling routes—routes that may span multiple continents before reaching their destinations. Smugglers undermine state sovereignty and sometimes facilitate the terrorist threat." Illicit finance: "Terrorists and insurgents will increasingly turn to crime and criminal networks for funding and logistics, in part because of U.S. and Western success in attacking other sources of funding. Criminal connections and activities of both Hizballah and AQIM [Al Qaeda in the Islamic Maghreb] illustrate this trend." DNI James R. Clapper's testimony to Congress in 2012 reiterated the findings of the U.S. intelligence community's 2010 review of threats posed by transnational organized crime. In that review, the first of its kind in 15 years, the intelligence community ultimately concluded that such illicit networks have "dramatically" increased in size, scope, and influence internationally. A public summary of the assessment identified a "threatening crime-terror nexus" as one of five key threats to U.S. national security: Terrorists and insurgents increasingly will turn to crime to generate funding and will acquire logistical support from criminals, in part because of successes by U.S. agencies and partner nations in attacking other sources of their funding. In some instances, terrorists and insurgents prefer to conduct criminal activities themselves; when they cannot do so, they turn to outside individuals and facilitators. Proceeds from the drug trade are critical to the continued funding of such terrorist groups as the Taliban and the Revolutionary Armed Forces of Colombia (FARC). Terrorist organizations such as al-Shabaab and drug trafficking organizations such as the cartels based in Mexico are turning to criminal activities such as kidnapping for ransom to generate funding to continue their operations. Some criminals could have the capability to provide weapons of mass destruction (WMD) material to other terrorist groups, such as Hizballah and al-Qaida in the Islamic Maghreb, though the strength of these drug links and support remain unclear. U.S. intelligence, law enforcement, and military services have reported that more than 40 foreign terrorist organizations have links to the drug trade. Some criminal organizations have adopted extreme and widespread violence in an overt effort to intimidate governments at various levels. DNI Clapper's testimony to Congress in 2013 additionally noted that the U.S. intelligence community is "monitoring the expanding scope and diversity of 'facilitation networks,' which include semi-legitimate travel experts, attorneys, and other types of professionals, as well as corrupt officials, who provide support services to criminal and terrorist groups." Other U.S. government documents characterize the confluence of transnational organized crime and international terrorism as a growing phenomenon. Whereas in previous decades criminal and terrorism links occasionally occurred, such connections appear to be taking place with greater frequency today and may be evolving into more of a matter of practice rather than convenience. According to the U.S. Department of Justice (DOJ), recent investigations suggest that international organized criminals are willing to provide logistical and other support to terrorists. According to the U.S. Drug Enforcement Administration (DEA), 19 of 49 (39%) State Department-designated foreign terrorist organizations (FTOs) have "confirmed links to the drug trade" as of November 2011. In 2003, DEA reported that 14 of 36 (39%) FTOs were involved "to some degree" in illicit narcotics activity. For FY2010, DOJ reported that 29 of the top 63 international drug syndicates, identified as such on the consolidated priority organization target (CPOT) list, were associated with terrorists. The State Department's 2012 Country Reports on Terrorism describes more than 20 FTOs as having financially profited from criminal activity to sustain their terrorist operations (see the Appendix ). Such listed FTOs include Al Shabaab, Army of Islam (AOI), Al Qaeda in the Arabian Peninsula (AQAP), Al Qaeda in Iraq (AQI), Al Qaeda in the Islamic Maghreb (AQIM), Abu Sayyaf Group (ASG), United Self-Defense Forces of Colombia (AUC), Continuity Irish Republican Army (CIRA), Communist Party of the Philippines (CPP), Revolution People's Liberation Party (DHKP/C), National Liberation Army (ELN), Revolutionary Armed Forces of Colombia (FARC), Moroccan Islamic Combatant Group (GICM), Hamas, Hezbollah, Haqqani Network (HQN), Jemaah Ansharut Tauhid (JAT), Jemaah Islamiya (JI), Lashkar I Jhangvi (LJ), Liberation Tigers of Tamil Eelam (LTTE), Kurdistan Workers' Party (PKK), Shining Path (SL), and Tehrik-e Taliban Pakistan (TTP). Such government studies reinforce assessments from the late 1990s that predicted an increase in crime-terrorism interactions. For example, in 1997, a U.S. Department of Defense (DOD) task force study on transnational threats concluded that terrorists groups, religious extremists, anti-government militias, narcotics traffickers, and global criminals were "increasingly linked in new and more cooperative ways." In 2000, a U.S. interagency assessment of international crime threats further highlighted growing crime-terrorism interactions. The assessment identified the end of the Cold War as a major contributor to this development. As certain insurgent and extremist groups were no longer able to rely on Soviet-affiliated state sponsors for aid, some increasingly turned to crime as an alternative source of funds. The assessment also concluded that most crime-terrorism interactions were often fleeting, or based on symbiotic arrangements that were nevertheless strained and marked by suspicion. Some groups, however, viewed criminal activity as not only a lucrative source of funding, but also an effective means to advance their political or ideological objectives. Other groups, meanwhile, underwent transformations in which their primary organization motivations would shift from political to (illicit) profit-driven. U.S. Government Strategies To combat this apparent criminal-terrorist connection, recent Administrations have issued several key strategic documents to guide U.S. government efforts and approach the issue from the perspectives of national security, counterterrorism, anti-crime, and intelligence. The Obama Administration's key strategic documents are described below in chronological order. In August 2009, the Obama Administration issued its National Intelligence Strategy , which included as a primary mission the goal of penetrating and supporting "the disruption of terrorist organizations and the nexus between terrorism and criminal activities." In May 2010, the Obama Administration issued its National Security Strategy , a broad-ranging document that identified key priorities for the United States. One such priority was to combat "transnational criminal threats and threats to governance"—including the "crime-terror nexus." The 2010 National Security Strategy encouraged a "multidimensional strategy" that emphasized citizen security and harm reduction, disruption and dismantling of illicit networks, and bolstering the capacity of foreign governments to enforce the rule of law. In April 2011, the U.S. Department of Defense (DOD) issued a Counternarcotics and Global Threats Strategy . The strategy describes an international security environment characterized by a "confluence of dispersed and decentralized global networks of criminals and terrorists." It further states that such networks are "composed largely of individuals and groups that receive occasional support from corrupt government officials" and "are loosely organized and ever-evolving, pragmatically appearing and disappearing for political-criminal gain." The DOD strategy identifies three strategic goals: to disrupt and disable actors and activities related to trafficking, insurgency, corruption, threat finance, terrorism, drug precursor chemical distribution in Afghanistan and Pakistan; to sharply reduce illicit drug and drug precursor chemical distribution, as well as related transnational organized criminal threats in the Western Hemisphere, particularly Mexico, Central America, Colombia, and Peru; and to mitigate the size, scope, and influence of targeted transnational criminal organizations and trafficking networks such that they pose only limited, isolated threats to U.S. national and international security. In June 2011, the Obama Administration issued its National Strategy for Counterterrorism . Included among its eight "overarching goals" was the goal to "deprive terrorists of their enabling means"—terrorist financing and the facilitation of terrorist travel, materiel smuggling, and communications. The Administration's National Strategy for Counterterrorism sought to achieve this goal by blocking the flow of financial resources to terrorist groups through sanctions, prosecutions, international cooperation, and diplomatic pressure (money laundering and kidnapping for ransom); and working with international partners to identify and prevent terrorist groups from moving its recruits, operatives, and supplies across borders (human and weapons smuggling). In July 2011, the Obama Administration issued its Strategy to Combat Transnational Organized Crime . Among its primary objectives was to "defeat transnational criminal networks that pose the greatest threat to national security by targeting their infrastructures, depriving them of their enabling means, and preventing the criminal facilitation of terrorist activities." Key actions described by the strategy to combat the crime-terrorism nexus included the following: Enhancing intelligence collection on transnational organized crime threats, particularly the potential role of criminal groups in facilitating WMD terrorism. Exposing vulnerabilities in the international financial system that could be exploited by "terrorist and other illicit financial networks" and applying financial tools and sanctions against such networks. Establishing a "whole-of-government plan" to combat kidnapping for ransom as a means to finance terrorists, among other "bad actors." Developing a "comprehensive approach" to dismantling drug trafficking organizations with connections to terrorist groups. Enhancing foreign capabilities through counterterrorism capacity building, foreign law enforcement cooperation, military cooperation, and the strengthening of justice and interior ministries. Patterns in Crime-Terrorism Interaction Limited unclassified anecdotal evidence largely serves as the basis for the current understanding of criminal-terrorist connections. In the absence of comprehensive data, it is difficult to assess whether such anecdotal cases are indicative of a widespread problem, a growing trend, or isolated observation. What is clear from existing literature on the subject, however, is that crime-terrorism interactions can vary significantly and change over time. The following sections summarize several common patterns of crime-terrorism links, with specific examples drawn from a range of court cases, reports, and news articles. Partnership Motivations and Disincentives The underlying rationales for criminal and terrorist group partnerships as well as the conditions that may facilitate the evolution or transformation of a criminal or terrorist group into the other may vary. Collaboration can serve as a force multiplier for both criminal and terrorist groups, bolstering their capabilities, strengthening their infrastructure, and increasing their wealth. On the other hand, partnering could also have the potential of sowing seeds for distrust and competition among illicit actors—vulnerabilities that could be exploited by international security authorities. From the perspective of a terrorist organization, the primary motivation for partnering or adopting criminal tactics would be to sustain and grow the organization for purposes of pursuing or financing its ideological-based activities. Out of this sense of perceived need, the organization may turn to or rely more heavily on partnering with criminal syndicates for continued viability. Common disincentives for partnering would include increased attention from government authorities; fear of compromising internal security; ideological resistance to illicit endeavors; and the availability of sufficient alternative funding sources, such as state sponsors. From the perspective of a criminal syndicate, motivations for cooperating with terrorist organizations would include the near singular purpose of increasing its financial stature. As with terrorist organizations, common disincentives from the perspective of criminal groups may involve increased and unwanted attention from authorities, risk of infiltration, and heightened vulnerability of organization leadership to capture. Criminal groups already in control of lucrative revenue streams may not find the potential for additional business with terrorist groups sufficient to outweigh the costs. Criminal groups may also opt to avoid collaboration with terrorist groups if such interactions would disrupt their relationships with corrupt government officials who are willing to facilitate criminal activities, but not terrorism-related ones. Conditions that may affect the likelihood of confluence include a lack of in-house capabilities and demand for special skills to conduct particular operations. Some groups may be more hesitant to collaborate with outsiders, depending in part on the nature of the operational environment, the presence of competitors, and the opportunity for contact with and the strength of relations between terrorist and criminal elements. Other barriers to cooperation may include cultural, religious, or ideological differences across groups. On the other hand, motivations such as greed or necessity for organizational viability or expansion may induce some groups to welcome or seek out external partners. Individual groups may also transition along an apparent crime-terrorism continuum. Over time, ideologically motivated groups that initially avoid involvement with criminal activities may become increasingly attracted by the lucrative nature of criminal activities. In other instances, criminal groups may become radicalized and apply their criminal expertise to conduct operations that not only result in lucrative illicit profits but also further ideologically oriented goals. In other situations, individuals in a terrorist organization may not follow leadership directives to stay away from individuals in a criminal organization (or vice versa) and may unilaterally develop external relationships. Some analysts suggest that this phenomenon may occur with greater regularity due to the increasingly decentralized nature of terrorist groups and other possible factors. Appropriation of Tactics Criminals and terrorists often share similar tactics to reach their operational goals. These include acts of terrorism and political violence; involvement in criminal activity for profit; money laundering; undetected cross-border movements; illegal weapons acquisition; and government corruption. Changes in the selection of tactics may signify shifts in the strength and capacity of an organization or the ideological desires of the organization's leadership. A criminal group under pressure by authorities or rival criminal groups may react by organizing violent attacks to intimidate the public and deter the government from future pursuit. A terrorist group's loss of state sponsorship may prompt it to find illicit alternatives for funding and operational support. The following sections describe several methods and tactics common to both criminal and terrorist groups, including (1) the use of violence for political effect, (2) crime-for-profit activities, and (3) illicit support activity. Violence for Political Effect Although more commonly associated with terrorist groups, criminal groups have also occasionally used violence as a tactic to change political and public perceptions. Common past examples have included the use of terrorist-style violence, intimidation, and hostage-taking tactics by the Brazilian prison gang and drug trafficking organization (DTO) Primeiro Comando da Capital (PCC) in 2006. In response to counternarcotics pressure in the 1980s and 1990s, the Medellin cartel conducted a wave of violent attacks on Colombian government and civilian targets, including the explosion of a commercial airliner and a truck bomb. The Italian mafia targeted prominent landmarks, politicians, and government officials in response to law enforcement pressure in the 1990s. Drug trafficking-related violence in Mexico, which surged in recent years due to a combination of increased counternarcotics pressure by the government and DTO-on-DTO competition, has at times appeared similar to terrorist-style attacks, with comparable tactics of intimidation. Mexican government officials, for example, have been targeted by traffickers, at times in reprisal for their role in cartel arrests. In May 2008, one of Mexico's highest-ranking law enforcement officials, Edgar Millan Gomez, was assassinated in Mexico City by DTO-affiliated gunmen. In other cases, drug traffickers have deployed small improvised explosive devices (IEDs) against law enforcement officials suspected of working for rival gangs. Observers continue to debate whether the use of political violence as a tactic by Mexican DTOs warrants describing such groups as terrorist organizations. Most observers recognize that few instances of Mexican DTO violence appear to be motivated by ideology or a desire to overthrow the Mexican government. According to the State Department's 2012 Country Reports on Terrorism, there was "no evidence that these criminal organizations had political or ideological motivations, aside from seeking to maintain the impunity with which they conduct their criminal activities." Some have suggested that one of these exceptions may have occurred in September 2008, when a deadly attack on Mexico's Independence Day involving throwing grenades into a crowd of revelers that had gathered for a firework display was suspected to have been organized by drug traffickers. Yet, in this case, some traffickers appeared to distance themselves from the attack, joining in the victims' outcry and refusing to take responsibility for the attack. Other incidents that have raised questions about Mexican drug traffickers' motives and tactics include a casino fire that killed 52 civilians in 2011, and was allegedly instigated by Los Zetas. Crime-for-Profit In addition to organized crime groups, some terrorist organizations may seek funding through criminal activities. Often, the potential profits associated with criminal activity are a motivating factor for both organized crime and terrorist groups. Since the end of the Cold War and corresponding declines in traditional state-sponsored sources of funding, some observers suggest that terrorist groups have become increasingly motivated to generate funds through criminal activity to sustain organizational capabilities. Heightened international counterterrorism measures in the past decade may have further depleted other traditional sources of funds, including private sector donations, which reinforce the desire for terrorist groups to seek alternative funding methods. Criminal activities conducted for profit may range from local crimes of theft, burglary, and extortion to illicit trafficking of high-value commodities on a transnational scale. Terrorist groups may also "tax" other groups or charge a security or protection fee for permitting illicit trafficking activity to take place in a certain region under their control. Although terrorist groups may engage in criminal activity for fundraising, it is not always the case that such groups lose their ideological motivations. As one researcher explains, "[C]riminality does not imply criminalization. It is entirely possible for armed groups to exploit drugs, smuggling, and extortion without becoming motivated by these activities. Resources do not speak for themselves: simply engaging in criminality does not mean that an armed group exists to be criminal." The universe of potential crime-for-profit activities is vast. The following list describes three common transnational manifestations: drug trafficking, cigarette smuggling, and kidnapping-for-ransom. Illicit Support Activity Both criminal and terrorist groups rely on a variety of illicit support activities to further their operations. Although some such activities can be conducted with in-house capabilities and assets, others may require cooperation with external criminal specialists, corrupt "gatekeepers," local and regional "fixers," and "shadow facilitators." The depth and durability of these crime-terrorism relationships for support activities vary. Some terrorist groups view links to outside criminal networks as short-term marriages of convenience, where the actors build ephemeral business ties. These interactions often appear to be distinctly transactional in nature, with one criminal actor or organization providing a specific, tangible service to a terrorist group. In other cases, these relationships will be more synergistic, with terrorist and criminal groups creating enduring coalitions. In such coalition relationships, criminals and terrorists assume complementary but separate roles. Organizational Evolution and Variation Typically, criminal groups are primarily driven by profit motives, whereas terrorist groups are ideologically driven. The motivations that drive terrorist and criminal groups, however, can evolve with time. A purely criminal group may transform to adopt political goals and ideological motivations. Terrorist groups, on the other hand, may shift toward criminality. For some terrorist groups, criminal activity remains secondary to ideological ambitions. For others, profit-making may surpass political aspirations as the dominant operating rationale. The level of involvement and expertise in terrorist or criminal activities may vary, depending on the organization's current leadership, membership composition, geographic distribution of sympathizers and diaspora networks, dependence on state sponsorship, and physical proximity or access to illicit resources. Frequently cited terrorist organizations involved in criminal activity include, among others, ASG, Al Qaeda's affiliates, D-Company, PKK, FARC, Haqqani Network, and Hezbollah. Brief descriptions of these groups' criminal activities are described below. Abu Sayyaf Group (ASG) A Philippines-based terrorist group, ASG appears to have at times prioritized criminal activities over ideological operations. Major shifts toward crime occurred in conjunction with leadership and membership composition changes, which altered the relative importance of ideological zeal and criminal tendencies. During its periods of high criminality, ASG became well known for its success in kidnappings for ransom, maritime piracy, and arms trafficking. Observers suggest that the group's overall drive toward criminal activity has been perpetuated by the group's ability to generate illicit profits, with new recruits tending to be more motivated by ASG's promise of financial wealth rather than ideological convictions. The State Department has listed ASG as an FTO since 1997, and President George W. Bush designated ASG a specially designated global terrorist (SDGT) pursuant to EO 13224 in 2001. Al Qaeda's Affiliates There is no conclusive evidence of senior-level Al Qaeda members directly involved with or motivated by organized crime. Many speculate that this is because of the group's strict ideological beliefs and fear of a loss of credibility if senior leaders were found to be directly involved in such activities. Connections to organized crime activity, however, can be drawn among mid-level and low-level Al Qaeda members and supporters. Moreover, it appears that Al Qaeda's affiliates and franchises do not necessarily share the same aversion to criminal activity. Notable crime-funded Al Qaeda affiliates include AQIM and AQI. Additionally, Al Qaeda's disinclination toward direct involvement in organized crime has not prevented it from cooperating, supporting, and jointly training with other insurgent groups that are more entrenched in trafficking and smuggling activities, including the Haqqani Network and the Taliban. The State Department designated Al Qaeda as an FTO in October 1999, and President George W. Bush designated it as an SDGT pursuant to EO 13224 in 2001. Several of its affiliates have also been designated separately as FTOs, including AQI in December 2004, AQIM in February 2008 (AQIM was also previously designated in March 2002 when it was called the Salafist Group for Call and Combat, GSPC), and AQAP in January 2010. D-Company Dawood Ibrahim, the alleged leader of D-Company, is an INTERPOL fugitive and wanted in connection with the 1993 Mumbai bombing and sanctioned under U.N. Security Council Resolution 1267. Ibrahim was listed in October 2003 by the Treasury Department as a specially designated global terrorist (SDGT), and both Ibrahim and his organization were listed as significant foreign narcotics traffickers (SDNTKs) in May 2008, pursuant to the Foreign Narcotics Kingpin Designation Act. His organization, D-Company, can be characterized as both a transnational criminal syndicate as well as ideologically aligned with terrorist groups operating in South Asia, including Lashkar-e-Taiba (LeT). According to reports, D-Company originated as a smuggling operation in the 1970s. It evolved in the 1990s into an organized crime group not only motivated by profit but also one that engaged in insurgent activity, eventually supporting efforts to smuggle weapons to militant and terrorist groups in the region. By the 1990s, it began to conduct and participate in terrorist attacks, including the March 12, 1993, Bombay bombing. D-Company's criminal activities reportedly span extortion, smuggling, narcotics trafficking, and contract killings. Its apparent willingness to work with and provide logistical, financial, and material support to ideologically motivated violent groups exemplifies the risks associated with converged criminal and terrorists threats. Kurdistan Worker's Party (PKK) Formed in the 1970s and operational since the early 1980s as a Kurdish nationalist group with Marxist-Leninist leanings, the PKK increasingly turned to crime after it lost its state sponsors. By the late 1990s, and particularly after its leader Abdullah Ocalan was captured in 1999, the PKK invested heavily in transnational organized crime activities, such as drug trafficking, arms smuggling, human smuggling, extortion, money laundering, counterfeiting, and illegal cigarettes. By the 1990s, the PKK had formed specialized units to variously carry out militant operations, contraband trafficking, political activities, and information campaigns. As a result, some parts of the PKK appear to behave more like a criminal organization rather than a terrorist or guerrilla organization. According to the U.S. government, many of these criminal activities are centered in Europe, where there is a significant Kurdish diaspora population. The State Department designated the PKK as an FTO in October 1997. The PKK was also designated as an SDGT in 2001. For its alleged involvement in drug trafficking, the President designated the PKK as an SDNTK in May 2008, pursuant to the Foreign Narcotics Kingpin Designation Act. Revolutionary Armed Forces of Colombia (FARC) Operational since the 1960s, the FARC has been described as one of the largest, oldest, most violent, and best-equipped terrorist organization in Latin America. Its longevity is due in part to its involvement in the drug trade. The enormous profit opportunity that drug trafficking has provided to the FARC is widely viewed as the driving factor for its involvement in such criminal activity. According to reports, the FARC first became involved in the drug trade in the 1980s by levying protection fees on coca bush harvesters, buyers of coca paste and cocaine base, and cocaine processing laboratory operators in territory under FARC control. Over time, the FARC took a more direct role in drug production and distribution. By the 2000s, the FARC had reportedly become the world's largest supplier of cocaine. The FARC also reportedly generates revenue from extortion rackets, kidnapping ransoms, and illegal mining. Exploratory peace talks between the Colombian government and the FARC began in August 2012, the outcome of which may have implications for the FARC's future involvement in illicit criminal activities. The State Department designated the FARC as an FTO in October 1997. Haqqani Network The family-run Haqqani Network is commonly described as an insurgent group, in equal measures one of the Taliban's most capable militant factions as well as an enterprising transnational criminal organization. Headquartered in North Waziristan, Pakistan, this insurgent group is suspected of conducting major attacks against allied coalition members of the North Atlantic Treaty Organization (NATO) and U.S. forces in Afghanistan as well as active involvement in a wide range of highly profitable licit and illicit activity. In the 1980s, Jalaluddin Haqqani first gained a reputation as an effective mujahedin commander and U.S. ally against the Soviet Union. He later joined the Taliban regime in the 1990s when in power in Afghanistan. The group continues to maintain relationships not only with Al Qaeda and other militant groups in the region, but also purportedly benefits from a relationship with Pakistan's Inter-Services Intelligence Directorate (ISI)—a relationship strongly decried by America's top ranking military officer in September 2011. As part of a strategy of financial diversification to ensure the organization's resiliency against external pressures, the group also benefits financially from extortion and protection rackets, robbery schemes, kidnapping for ransom, and contraband smuggling (e.g., drugs, precursor chemicals, timber, and chromite). The Haqqanis also reportedly control licit import-export, transportation, real estate, and construction firms through which illicit proceeds can be laundered. Pursuant to the Haqqani Network Terrorist Designation Act of 2012 ( P.L. 112-168 ), the State Department designated the group as an FTO in September 2012. Hezbollah Based in Lebanon, with established cells in Africa, North and South America, Asia, and Europe, Hezbollah is known to have or suspected of having been involved in terrorist attacks against U.S. interests worldwide. Although primarily funded and trained with support from state sponsors, chiefly Iran, Hezbollah also reportedly benefits from a sprawling global commercial network of licit and illicit businesses, largely connected to expatriate Lebanese communities worldwide. Sources of funds include private donors and large-scale investments in legitimate businesses. Criminal indictments and statements by U.S. officials and other experts suggest that Hezbollah has also become well-integrated in the domain of transnational organized crime, deriving profits from a wide range of illicit enterprises, such as drug trafficking, precursor chemical trafficking, counterfeit pharmaceutical trafficking, sales of counterfeit commercial goods and electronics, auto theft and fraudulent re-sale, diamond smuggling, cigarette and baby formula smuggling, credit card fraud, and insurance scams, among potentially many others. Pursuant to EO 12947, Hezbollah was designated in January 1995 as a specially designated terrorist (SDT). The State Department designated Hezbollah as an FTO in 1997. In October 2001, Hezbollah was also designated as an SDGT pursuant to EO 13224. Foreign Policy Responses With recognition that every crime-terrorism partnering circumstance will be different and the tools to identify and address such concerns may change, a wide range of anti-crime and counterterrorism policy options can be considered. The variety of options available, however, also challenges policymakers to consider several key questions in formulating responses. Should a specific agency or an interagency coordinating body be designated as leading U.S. government responses to crime-terrorism threats? Under what circumstances would U.S. responses to crime-terrorism threats be most appropriately led by the intelligence community, military, diplomatic corps, or law enforcement agencies? How can resources and authorities be allocated and managed to avoid excessive duplication while also ensuring effective policy response coverage? The following sections describe selected key foreign policy responses to crime-terrorism nexus threats and related policy considerations for Congress for each response. These may be applied in various combinations or sequences, depending on the specific circumstances. Diplomacy U.S. diplomatic efforts to promote anti-crime and counterterrorism goals occur through bilateral, regional, and multilateral mechanisms. Such efforts are often led by the U.S. Department of State and include initiatives developed by its regional bureaus, the Bureau for International Narcotics and Law Enforcement Affairs (INL), and the Bureau of Counterterrorism (CT). Relevant U.N. treaties to which the United States is party to include the International Convention Against the Taking of Hostages, International Convention for the Suppression of Terrorist Bombings, International Convention for the Suppression of the Financing of Terrorism, U.N. Convention against Transnational Organized Crime, and International Convention for the Suppression of Acts of Nuclear Terrorism. Through the U.N. Security Council, the United States also participates in the Security Council Sanctions Committee. The Sanctions Committee administers and enforces a range of sanctions and targeted measures against Al Qaeda and the Taliban, among others, which include arms embargoes, travel bans, asset freezes, and diplomatic restrictions. Bilaterally, the U.S. government maintains mutual legal assistance treaties (MLATs) and extradition agreements with foreign countries to facilitate transnational investigations and information sharing. Other options available to the State Department include designating entities as FTOs, pursuant to the Immigration and Nationality Act (INA), as amended, and barring known foreign terrorists and transnational organized criminals from entry into the United States and providing grounds to remove and deport such individuals if in the United States, pursuant to several visa ineligibility conditions. (See text box below for more on a recent FTO designation, the Haqqani Network.) Additionally, the U.S. Department of the Treasury's Office of Terrorist Financing and Financial Crimes (TFFC) leads the U.S. delegation in meetings of the Financial Action Task Force (FATF), an international body that develops global regulatory standards for combating money laundering and terrorist financing. Congress has provided direction to relevant federal departments to conduct diplomatic activities to address crime-terrorism issues by enacting legislation that authorizes and appropriates funds to relevant agencies to perform such tasks, as well as by conducting program oversight through hearings and reporting requirements. Given the inherently transnational nature of many current crime-terrorism challenges, diplomacy often plays a central role in responses. The extent to which diplomacy can be effective in combating crime-terrorism threats, however, is limited by delays associated with achieving consensus agreements and potentially long-lasting gaps in foreign political will and capacity. Foreign Assistance Several U.S. departments and agencies administer programs to train foreign law enforcement officials and other security forces; develop legal frameworks in partner nations to criminalize and combat various crime-, drug-, and terrorism-related activities; and support institutional capacity building for foreign internal security and border enforcement entities. U.S. foreign assistance efforts to combat international terrorism or transnational crime can have mutually beneficial implications. In cases of crime-terrorism confluence, some have cautioned that an increasingly blurred line between counterterrorism and anti-crime assistance could reduce foreign aid transparency and raise additional challenges in planning and coordinating projects to avoid redundancy. In some cases, foreign development aid may also risk unintentionally providing illicit groups with an additional source of funding. In regions where known crime-terrorist groups are known to operate, such as Afghanistan, funds intended for development projects have at times benefited illicit groups, who offer development contractors with security and protection services. Most U.S. foreign police assistance is administered through the U.S. Departments of State and Defense, and programs are variously implemented by other U.S. agencies and federal contractors in host nations. In some situations, the U.S. government may be requested to support foreign militaries in their efforts to combat crime-terrorism threats, such as the FARC in Colombia or the Taliban in Afghanistan. In addition to U.S.-funded foreign security forces support efforts, the U.S. Agency for International Development (USAID) is often involved in developing related justice sector and rule of law assistance programs. DOJ maintains in-house expertise through its Office of Overseas Prosecutorial Development Assistance and Training (OPDAT) and International Criminal Investigative Training Assistance Program (ICITAP) to implement capacity building projects that support foreign countries investigate and prosecute cases involving transnational crime and international terrorism. U.S. federal prosecutors may serve as Resident Legal Advisors (RLAs) overseas to support related justice sector training, institution building, and legislative drafting. Congress has played an active role in establishing the scope and amount of U.S. assistance that can be provided for the purposes of counterterrorism and anti-crime. Specific authorities are outlined in the Foreign Assistance Act of 1961, as amended, Title 10 of the U.S. Code, and periodic National Defense Authorization Acts. Additional conditions may also be included in appropriations acts for the various agencies involved in administering foreign assistance for counterterrorism and anti-crime. Financial Actions Several unilateral and multilateral policy mechanisms are available to block transactions and freeze assets of specified terrorist or criminal entities, as well as to strengthen international financial systems through enhanced regulatory requirements. Unilaterally, the Treasury Department's Office of Foreign Assets Control (OFAC) administers and enforces unilateral targeted financial sanctions against a list of foreign entities and individuals (specially designated nationals, or SDNs) that include SDGTs, FTOs, Middle Eastern terrorist organizations found to undermine and threaten Middle East peace process efforts (specially designated terrorists, or SDTs), transnational criminal organizations (TCOs), and specially designated narcotics traffickers and trafficking kingpins (SDNTs and SDNTKs). Authorities for OFAC to designate such entities are derived from executive order and legislative statutes, which include the International Emergency Economic Powers Act (EEPA), the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), and the Foreign Narcotics Kingpin Designation Act. Additionally, Title II of the USA PATRIOT ACT of 2001 ( P.L. 108-56 , as amended) introduced several policy tools that strengthened the existing U.S. framework to combat illicit finance. Among other provisions, this act developed a procedure, popularly known as Section 311, to apply enhanced regulatory requirements, called "special measures," against designated jurisdictions, financial institutions, and international transactions that are found to be involved in criminal or terrorist financing activities. At the multilateral level, the United Nations administers several sanctions programs to freeze funds related to persons involved in acts of terrorism, including individuals and entities associated with Al Qaeda and the Taliban, pursuant to U.N. Security Council Resolution 1373 (2001), U.N. Security Council Resolution 1267 (1999), and U.N. Security Council Resolution 1988 (2011). Many observers have argued that a key tool to combat the confluence of crime and terrorism is to follow their overlapping money trails and apply financial sanctions and heightened regulatory conditions to vulnerable financial sectors. Both types of groups require funds to sustain operations, and such funds often intersect with the formal international banking system. Critics of such tools to counter illicit financial transaction suggest that they are often laborious and time-intensive to implement, and not necessarily effective in dismantling crime or terrorism networks. Policymakers have acknowledged that criminals and terrorists continue to exploit opportunities to move funds and hide their financial tracks in multiple ways: in the formal financial system; through centuries-old techniques such as bulk cash smuggling, trade-based money laundering, and hawala-type informal value transfer systems; and through modern technologies such as pre-paid cards, mobile banking systems, and the Internet. Intelligence Although few details are publicly available about the intelligence community's role in combating crime-terrorism threats, intelligence can play a significant role in developing strategic analyses that prioritize crime-terrorism trends of national security significance, as well as in developing operational and tactical responses to detect, influence, and target specific crime-terrorism networks, nodes, plans, and actors. The 2009 National Intelligence Strategy described the nexus between terrorism and criminal activities as among the intelligence community's priorities. In the past, some have suggested that there appeared to be limited, if any, systematic gathering of intelligence related to the nexus between crime and terrorism and, as a result, an incomplete understanding of the scope and nature of relationships between and convergence among terrorists and criminal actors. The Obama Administration's 2011 Strategy to Combat Transnational Organized Crime acknowledged that "a shift in U.S. intelligence collection priorities" since 9/11 resulted in "significant gaps" related to transnational organized crime. The 2011 Strategy also identified the enhancement of "U.S. intelligence collection, analysis, and counterintelligence" on transnational organized crime as "a necessary first step." Since 9/11, numerous bills have addressed terrorism as well a transnational crime-related issues. Similarly, a number of congressional hearings have focused on issues relating to international terrorism and transnational crime. Some observers suggest that heightened congressional focus on the confluence of crime and terrorism may have an impact on the executive branch's approach to the issue and appreciation for the risks and vulnerabilities associated with crime-terrorism partnering arrangements. Military Actions In some cases, particularly in non-permissive security environments in which traditional law enforcement units may have difficulty operating, the U.S. military has been called upon to contribute to certain joint counternarcotics and counterterrorism or counterinsurgency activities. In 2002, for example, Congress first authorized DOD to support a "unified campaign against narcotics trafficking ... [and] activities by organizations designated as terrorist organizations such as the Revolutionary Armed Forces of Colombia (FARC), the National Liberation Army (ELN), and the United Self-Defense Forces of Colombia (AUC)." Although Congress renewed this authority through FY2012 in the National Defense Authorization Act for Fiscal Year 2012 ( P.L. 112-81 ), it has not been codified and is limited only to activities in Colombia. Military operations in Afghanistan provide another example in which DOD has taken an expanded approach to crime-terrorism nexus issues. In late 2008, DOD amended its rules of engagement in Afghanistan to allow U.S. military commanders to target drug traffickers and others who provide material support to insurgent or terrorist groups such as the Taliban and members of hybrid crime-terrorism groups such as the Haqqani Network. DOD further clarified that the U.S. military may accompany and provide force protection in counternarcotics field operations. In some cases, the U.S. military has chosen to take lethal action to rescue or attempt to rescue hostages in kidnapping for ransom situations. U.S. military involvement in situations where there are overlaps between anti-crime and counterterrorism goals is not necessarily warranted or desired. In some situations, political sensitivities and rules of engagement may prevent or prohibit the U.S. Armed Forces from direct involvement. Some observers caution that militarized counternarcotics or anti-crime policies may risk escalating suppression tactics and contribute to violations of human rights. Investigations Various elements of the U.S. Departments of Justice (DOJ) and the Department of Homeland Security (DHS) are tasked with investigating cases that involve alleged prohibited acts related to international terrorism and transnational crime. These include the U.S. Federal Bureau of Investigation (FBI), the U.S. Drug Enforcement Administration (DEA), the International Organized Crime Intelligence and Operations Center (IOC-2), and Immigration and Customs Enforcement (ICE). The State Department, DOD, and FBI also publicize rewards programs for citizen tips that lead to the apprehension of selected high-profile perpetrators of transnational organized crime, including money launderers, human traffickers, and drug traffickers, as well as terrorists. Some observers see the nexus between crime and terrorism as a potential benefit for detection and law enforcement prosecution that could be further exploited. Even if prosecutors do not have sufficient evidence to convict a suspected terrorist of terrorism-related charges, other criminal charges may be effectively used. Furthermore, some criminal charges, such as violations related to drug trafficking, can lead to jail sentences and penalties similar in magnitude to terrorism ones. It remains unclear, however, how effective such law enforcement and prosecution approaches have been to combat terrorism or how frequently such strategies have been implemented in practice, both in the United States and among partner nations, due to the lack of consistency in tracking cases with crime-terrorism nexus connections. Congress may have an interest in assessing how existing statutes have been used to support investigative and prosecution-related activities in response to entities suspected of engaging in terrorism-crime partnering activities. Assessing investigative, prosecution, and sentencing data collected in the 11 years since the attacks of 9/11 may provide Congress with information regarding statutes that have been effectively used to address crime-terrorism partnering activities and areas where additional legislative assistance might be required. Looking Ahead: Implications for Congress Policy issues related to the interaction of international crime and terrorism are inherently complex. While the U.S. government has maintained substantial long-standing efforts to combat terrorism and transnational crime separately, questions remain about how and whether issues related to the interaction of the two threats are handled most effectively across the multiple U.S. agencies involved. Efforts to combat transnational crime can result in positive and negative outcomes with counterterrorism policies, raising fundamental questions about how to prioritize combating crime or terrorism aspects of a case when both elements are present. Further, questions remain on how links between terrorist-criminal activity and potentially related U.S. polices—including but not limited to WMD proliferation, cyber security, post-conflict reconstruction efforts, and counterinsurgency—are integrated across agencies. Since the September 11 attacks, Congress has enacted several landmark bills that have given the U.S. government greater authority and additional tools to counter the convergence of organized crime and terrorism. Less than six weeks after the attack, Congress enacted the USA PATRIOT Act ( P.L. 107-56 ) to strengthen the U.S. government's ability to detect, report, and prevent terrorist activities, including potential connections between organized crime and terrorism. Additionally, Congress enacted the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ) and the USA PATRIOT Improvement and Reauthorization Act of 2005 ( P.L. 109-177 ), which further enhanced U.S. government efforts to crack down on terrorist financing and money laundering. Based on recent U.S. assessments, transnational crime and international terrorism appear to intersect and overlap in ways that will, at times, affect U.S. national interests. To this end, Congress may choose to continue to evaluate existing approaches and programs to combat the confluence of crime and terrorism through hearings and requesting or legislating reports to be issued by relevant executive branch agencies and inspector general offices. Congress may also choose to modify, adapt, or enhance existing legislative authorities and mandates to target various dimensions of the problem. Such approaches may be region- or group-specific, or global in scope. More broadly, as policymakers consider the crime-terrorism nexus issue and relevant policy responses, key questions for Congress may include the following: What is the scope of the crime-terrorism issue? What types of crimes are involved? Which groups and actors of both kinds pose the greatest threat to U.S. national security? What political, social, economic, geographic, and demographic circumstances facilitate the interaction between transnational crime and international terrorism? Has the United States successfully exploited the partnering arrangements and differences in motivations and capabilities of terrorist groups and criminal organizations? If so, what lessons learned could apply to current and future activities by such actors? What prevents the U.S. government and international community from disrupting and dismantling current crime-terrorism threats? Which federal government entities have the lead roles for addressing various aspects of the crime-terrorism phenomenon? How are government funds being spent to address concerns about crime-terrorism links? Is there a need to expand or adjust existing congressional authorities to combat the combined crime-terrorism threat? Are the available U.S. foreign policy tools sufficient to meet today's crime-terrorism concerns—and are such tools effectively implemented? If not, what can be improved? Appendix. Terrorist Links to Criminal Financing The following table summarizes the State Department's descriptions of how current foreign terrorist organizations (FTOs) raise funds and whether, if at all, an FTO is involved in criminal activities as a source of revenue. Among the 51 FTOs described in the State Department's most recent Country Reports on Terrorism (from May 2013), sources of funding vary. Common sources of funding include, in various combination, state sponsors, private donors, other terrorist groups, legitimate business activity, proceeds of crime. Popular forms criminal financing include extortion, kidnapping for ransom, drug trafficking, robbery, human smuggling, weapons smuggling, other contraband smuggling, money laundering, bank fraud, credit card fraud, cybercrime, immigration fraud, passport falsification, and illegal charcoal production. For 9 of the 51 FTOs, the State Department reports that funding sources and mechanisms are "unknown."

This report provides an overview of transnational security issues related to patterns of interaction among international terrorist and crime groups. In addition, the report discusses the U.S. government's perception of and response to the threat. It concludes with an analysis of foreign policy options. In recent years, the U.S. government has asserted that terrorism, insurgency, and crime interact in varied and significant ways, to the detriment of U.S. national security interests. Although unclassified anecdotal evidence largely serves as the basis for the current understanding of criminal-terrorist connections, observers often focus on several common patterns. Partnership Motivations and Disincentives: Collaboration can serve as a force multiplier for both criminal and terrorist groups, as well as a strategic weakness. Conditions that may affect the likelihood of confluence include demand for special skills unavailable within an organization, greed, opportunity for and proclivity toward joint ventures, and changes in ideological motivations. Appropriation of Tactics: Although ideologies and motivations of an organization may remain consistent, criminals and terrorists have shared similar tactics to reach their separate operational objectives. Such tactics include acts of violence; involvement in criminal activity for profit; money laundering; undetected cross-border movements; illegal weapons acquisition; and exploitation of corrupt government officials. Organizational Evolution and Variation: A criminal group may transform over time to adopt political goals and ideological motivations. Conversely, terrorist groups may shift toward criminality. For some terrorist groups, criminal activity remains secondary to ideological ambitions. For others, profit-making may surpass political aspirations as the dominant operating rationale. Frequently cited terrorist organizations involved in criminal activity include Abu Sayyaf Group (ASG), Al Qaeda's affiliates, D-Company, Kurdistan Worker's Party (PKK), Revolutionary Armed Forces of Colombia (FARC), Haqqani Network, and Hezbollah. To combat these apparent criminal-terrorist connections, Congress has maintained a role in formulating U.S. policy responses. Moreover, recent Administrations have issued several strategic documents to guide U.S. national security, counterterrorism, anti-crime, and intelligence activities. In July 2011, for example, the Obama Administration issued the Strategy to Combat Transnational Organized Crime, which emphasized, among other issues, the confluence of crime and terrorism as a major factor in threatening the U.S. global security interests. While the U.S. government has maintained substantial long-standing efforts to combat terrorism and transnational crime separately, Congress has been challenged to evaluate whether the existing array of authorities, programs, and resources sufficiently responds to the combined crime-terrorism threat. Common foreign policy options have centered on diplomacy, foreign assistance, financial actions, intelligence, military action, and investigations. At issue for Congress is how to conceptualize this complex crime-terrorism phenomenon and oversee the implementation of cross-cutting activities that span geographic regions, functional disciplines, and a multitude of policy tools that are largely dependent on effective interagency coordination and international cooperation.

Introduction Introduced in various incarnations in every congressional session since the 103 rd Congress, the proposed Employment Non-Discrimination Act (ENDA; H.R. 1755 / S. 815 in the 113 th Congress) would prohibit discrimination based on an individual's actual or perceived sexual orientation or gender identity by public and private employers in hiring, discharge, compensation, and other terms and conditions of employment. The stated purpose of the legislation is "to address the history and persistent, widespread pattern of discrimination, including unconstitutional discrimination, on the basis of sexual orientation and gender identity by private sector employers and local, State, and Federal Government employers," as well as to provide effective remedies for such discrimination. Specific exemptions from coverage are included for religious organizations and educational institutions, the armed services, and employers with fewer than 15 employees. Preferential treatment or quotas on the basis of sexual orientation or gender identity and "disparate impact" claims of discrimination would be specifically precluded. Patterned on Title VII of the Civil Rights Act of 1964, the act would be enforced by the Equal Employment Opportunity Commission (EEOC). Although earlier versions of the legislation, dating back to 1975, proposed simply amending the provisions of Title VII to add "sexual orientation" to categories of discrimination already prohibited, more recent versions of ENDA have proposed a stand-alone legislative safeguard against sexual orientation and gender identity discrimination in employment. Because the proposed legislation incorporates by reference many of Title VII's provisions, it is similar in scope to the earlier law. However, because discrimination on the basis of sexual orientation and gender identity was not before Congress when it enacted Title VII, the measures also differ in several significant respects. On November 7, 2013, the Senate passed ENDA. Because several amendments were adopted during the markup process and floor vote, the final version differs in several respects from the House version of the bill. Where relevant, these differences are identified in this report. Coverage Like Title VII, ENDA would prohibit employers, employment agencies, and labor organizations from discriminating on the basis of sexual orientation or gender identity. Both public and private employers would be covered, although private employers who have fewer than 15 employees would be exempt. Like Title VII, ENDA would define "employer" to exclude "bona fide private membership" clubs that qualify for federal tax exemptions. As described in greater detail below, religious organizations and the Armed Forces would also be specifically excluded from coverage under the legislation. Likewise, most public and private employees would be protected by ENDA, including employees covered by the Government Employee Rights Act of 1991 and the Congressional Accountability Act of 1995. Volunteers who receive no compensation, however, would not be covered under the legislation. Prohibited Acts If enacted, ENDA would make it an unlawful employment practice for an employer to discriminate against an individual "because of such individual's actual or perceived sexual orientation or gender identity." The legislation's delineation of prohibited employment practices substantially tracks the catalogue of employer malfeasance condemned by Title VII, which generally makes it unlawful for employers with 15 or more employees, employment agencies, and labor organizations to discriminate against employees or applicants for employment because of race, color, religion, sex, or national origin. Thus, all forms of employment and pre-employment bias would be forbidden, including discrimination in hiring, discharge, promotion, layoff and recall, compensation and fringe benefits, classification, training, apprenticeship, referral, union membership, and other "terms, conditions, or privileges of employment." Likewise, employers would not be allowed to "limit, segregate, or classify" employees in ways that "deprive or tend to deprive" them of job opportunities or "adversely affect" their employment status. A comparable range of employment agency and labor organization practices, again largely borrowed from Title VII, would be prohibited by ENDA, which also would prohibit discrimination in apprenticeship or training programs. In addition, the legislation incorporates Title VII language that would specifically prohibit retaliation against employees who complain of discriminatory conduct. Despite these similarities with respect to prohibited acts, ENDA would differ from Title VII in several significant ways. For example, one provision without direct parallel in Title VII's statutory text would make an employer liable for employment actions that are "based on the sexual orientation or gender identity of a person with whom the individual associates or has associated." Another provision would narrow the evidentiary options available in sexual orientation and gender identity cases by stipulating that employees may bring only disparate treatment claims, meaning that disparate impact claims would be prohibited. Disparate treatment generally occurs when an employer intentionally discriminates against an employee by treating a similarly situated employee differently, while disparate impact occurs when an employer's acts or policies are facially neutral but have an adverse effect on a class of employees and are not otherwise reasonable. Proof of intent to discriminate is required to prove a disparate treatment claim, but is not required to establish a disparate impact claim, which can often be proved through the use of statistics. Because disparate impact claims would not be allowed under ENDA, a plaintiff would have to prove that an employer intended to discriminate, a higher evidentiary threshold. Reinforcing this limitation is another provision that would bar the EEOC from requiring employers to collect or provide statistics on sexual orientation and gender identity. However, nothing in ENDA would prohibit employers from voluntarily submitting such statistics to the EEOC. In addition to these provisions, the ENDA legislation would clarify that preferential treatment or quotas on the basis of sexual orientation or gender identity would not be required. Likewise, employers would not be prohibited from requiring employees to adhere to reasonable dress or grooming standards, as long as the employer permits employees who have undergone gender transition to comply with the same dress or grooming standards for the gender to which the employee has transitioned or is transitioning. Finally, ENDA states that nothing in the act should be construed to require construction of new or additional facilities. In addition, the Senate version of ENDA was amended during markup in the Committee on Health, Education, Labor, and Pensions. The amended bill contains several additional requirements, including a provision that would bar individuals who sue under both ENDA and Title VII from being awarded remedies under both statutes, as well as a section that would authorize mixed-motive claims, which generally involve employment actions that are based on both permissible and impermissible reasons. In addition, the committee-approved version of ENDA would revise the bill's attorney's fees provisions (discussed below) by clarifying that authority to award such fees would be limited "to the same extent as is permitted under Title VII.... " Sexual Orientation As noted above, ENDA would prohibit employment discrimination on the basis of actual or perceived sexual orientation. "Sexual orientation" would be defined to mean "homosexuality, heterosexuality, or bisexuality." In contrast, Title VII's prohibition against discrimination on the basis of sex has consistently been interpreted to exclude discrimination on the basis of sexual orientation. Although some have argued that sex discrimination encompasses sexual orientation discrimination, the courts have generally rejected that theory, reasoning that the prohibition against sex discrimination refers only to the traditional definition of biological sex. Because Title VII does not protect against employment discrimination on the basis of sexual orientation, ENDA would significantly expand the scope of protection under current employment discrimination law. It is important to note, however, that courts have held that the fact that a victim of discrimination is gay or bisexual does not preclude a claim under Title VII. For example, in some cases, courts have allowed Title VII claims to proceed when an individual who is gay can demonstrate that he or she was the victim of unlawful sex discrimination in the form of sexual harassment or gender stereotyping. In the context of sexual harassment, recent court decisions have been guided by the Supreme Court's decision in Oncale v. Sundowner Offshore Services . In that case, a male employee suffered physical abuse of a sexual nature, but his claims of sexual harassment were initially denied because the lower court held that same-sex sexual harassment is not actionable under Title VII. The Supreme Court reversed, holding that, in cases of alleged sexual harassment, the gender of the victim and harasser are not dispositive, but rather the critical question is whether the harassment occurred "because of sex." The Court also recognized that an inference that harassment is "because of sex" is not obvious where the harasser and the victim are of the same sex, but provided three examples of how such an inference could be established: (1) if the harasser sexually desired the victim; (2) if the harasser was hostile to the presence of one sex in the workplace; or (3) if comparative data showed that the harasser targeted only members of one sex. Based upon the Supreme Court's opinion in Price Waterhouse v. Hopkins , individuals who are gay may also prevail under Title VII when an employer discriminates based on the employee's failure to conform to sex stereotypes. In Price Waterhouse , a female employee was denied partnership in an accounting firm, despite the fact that she was regarded as a high performer. Furthermore, partners in the firm had instructed her to act more femininely in order to be considered for a partnership in the future. The Court held that Price Waterhouse was applying standards for partnership in a prohibited sexually disparate manner, in that Title VII did not permit an employer to evaluate female employees based upon their conformity with the employer's stereotypical view of femininity. As a result, harassment of an individual for failure to conform to sex stereotypes could constitute harassment "because of sex," even if the animosity towards nonconformance is caused by a belief that such behavior indicates homosexuality. Based on these decisions, it appears that individuals who are gay may currently be protected under Title VII if they are discriminated against because of sex. However, such individuals would not be protected by current law if they were the victim of discrimination on the basis of sexual orientation, a situation that ENDA appears designed to remedy. It is important to note that ENDA states that the act should not be construed to invalidate or limit rights under any other federal or state law. Therefore, ENDA would not appear to alter the current protections that may be available to individuals who are gay under Title VII or state law. Gender Identity ENDA would also prohibit employment discrimination on the basis of actual or perceived gender identity. "Gender identity" would be defined to mean "the gender-related identity, appearance, or mannerisms or other gender-related characteristics of an individual, with or without regard to the individual's designated sex at birth." Under current law, Title VII does not expressly prohibit gender identity discrimination. Nonetheless, there have been cases interpreting Title VII's prohibition against sex discrimination to cover gender and/or gender identity. Although the majority of federal courts to consider the issue have concluded that discrimination on the basis of gender identity is not sex discrimination, there have been several courts that have reached the opposite conclusion in the years since the Supreme Court's decision in Price Waterhous e . As noted above, the Price Waterhouse decision, in which the Court repeatedly declared that Title VII bars discrimination on the basis of "gender," held that discrimination against a female employee who did not conform to socially constructed gender expectations constituted unlawful gender discrimination in violation of Title VII. Since Price Waterhouse , several courts have openly speculated that the Price Waterhouse decision "seem[s] to indicate that the word 'sex' in Title VII encompasses both gender and sex, and forbids discrimination because of one's failure to act in a way expected of a man or a woman." For example, in Smith v. Salem , a male firefighter who was undergoing gender transition to female argued that he had been suspended because of his feminine appearance. The U.S. Court of Appeals for the Sixth Circuit held that, to the extent that the firefighter asserted that she experienced discriminatory treatment due to the fact that she did not conform to what her employer believed males should look and act like, she had sufficiently plead a prima facie case of sex discrimination. Similarly, in Barnes v. Cincinnati , a male police officer undergoing gender transition to female was denied a promotion because she acted too femininely in her supervisors' opinions. More recently, the EEOC adopted a similar interpretation of Title VII. In Macy v. Holder , a job applicant alleged that she had been hired for a position in the Bureau of Alcohol, Tobacco, Firearms and Explosives but was subsequently denied the job when she informed the agency that she was undergoing a gender transition. The EEOC ruled that intentional discrimination based on gender identity is sex discrimination and therefore permitted the complainant's Title VII claim to proceed. Although this administrative decision is not binding on the federal courts, it could have a significant enforcement effect, given that the EEOC is responsible for handling initial claims processing for employment discrimination complaints. Meanwhile, the U.S. Court of Appeals for the Eleventh Circuit reached a similar conclusion on constitutional grounds in a case involving a Georgia state employee who was fired from her job for being transgender. According to the court, "[w]e conclude that a government agent violates the Equal Protection Clause's prohibition of sex-based discrimination when he or she fires a transgender or transsexual employee because of his or her gender non-conformity." Although some courts have held that Title VII's prohibition against sex discrimination may encompass claims based on gender identity when unlawful gender stereotyping is involved, the courts have not recognized gender identity discrimination on its own to be an unlawful employment practice under Title VII. As a result, ENDA would expand the scope of protection under current employment law by explicitly prohibiting gender identity discrimination. As noted above, ENDA states that the act should not be construed to invalidate or limit rights under any other federal or state law. Therefore, ENDA would not appear to alter the current protections based on gender identity that may be available under Title VII or state law. Exceptions for the Armed Forces and Religious Organizations ENDA contains several exceptions. First, the Armed Forces, which include the Army, Navy, Air Force, Marines, and Coast Guard, would be exempt, and the legislation specifies that current laws regarding veterans' preferences in employment would not be affected. The courts have similarly held that uniformed military personnel are not covered by Title VII, although civilian military employees are protected by Title VII. Notably, certain religious organizations would also be exempt from coverage under ENDA. This exemption is consistent with previous congressional efforts to avoid infringing on a religious organization's exercise of religion with respect to its employment practices, such as the Title VII provision that exempts certain religious organizations from compliance with that statute. In that sense, ENDA would expand the current protection offered to religious organizations relating to discrimination in employment practices. Title VII includes two exceptions that allow certain employers to consider religion in employment decisions. Specifically, the prohibition against religious discrimination does not apply to "a religious corporation, association, educational institution, or society with respect to the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution, or society of its activities." The prohibition also does not apply to religious educational institutions if the institution "is, in whole or in substantial part, owned, supported, controlled, or managed by a particular religion or by a particular [organization], or if the curriculum of the [institution] is directed toward the propagation of a particular religion." These exemptions are sometimes referred to as sections 702(a) and 703(e)(2), respectively. The Title VII exemptions apply with respect to discrimination based on religion only and do not allow qualifying organizations to discriminate on any other basis forbidden by Title VII, such as race, color, national origin, or sex. Like Title VII, ENDA "shall not apply to a corporation, association, educational institution or institution of learning, or society that is exempt from the religious discrimination provisions of title VII of the Civil Rights Act of 1964 pursuant to section 702(a) or 703(e)(2) of such Act." By exempting the organizations covered by the 702(a) and 703(e)(2) exemptions of Title VII, ENDA ensures that such organizations would not be required to hire or retain an individual if the organization had objections to the individual's sexual orientation or gender identity. Notably, the language of Title VII does not appear to require that the organization's religious beliefs oppose certain sexual orientations or gender identifications. In other words, the ENDA exemption does not appear to limit the permissibility of religious organizations' discrimination based on sexual orientation or gender identity to instances in which those factors may conflict with religious beliefs. For example, under the legislation, even religious organizations whose religious teachings do not oppose homosexuality could be permitted to refuse to hire a gay applicant. Thus, the proposed legislation likely would not interfere with religious organizations' employment practices involving considerations of sexual orientation or gender identity of employees and applicants. To the contrary, it may actually broaden these organizations' ability to discriminate in hiring. In this sense, the ENDA exception goes farther than the Title VII exception, which allows religious employers to discriminate on the basis of religion but not on the basis of race, color, national origin, or sex. The question of what organizations would be covered by the ENDA exemption may be resolved by looking at organizations that have sought protection under the relevant Title VII exemptions. Title VII did not define what organizations would qualify for an exemption under the statute, and court decisions have indicated several factors relevant to deciding whether an organization qualifies, including (1) the purpose or mission of the organization; (2) the ownership, affiliation, or source of financial support of the organization; (3) requirements placed upon staff and members of the organization (faculty and students if the organization is a school); and (4) the extent of religious practices in or the religious nature of products and services offered by the organization. No single factor appears to be dispositive and as one federal court has noted, "the decision whether an organization is 'religious' for purposes of the exemption cannot be based on its conformity to some preconceived notion of what a religious organization should do, but must be measured with reference to the particular religion identified by the organization." Organizations may qualify for an exemption if their purpose, character, and operations incorporate elements of their religion. For example, in LeBoon v. Lancaster Jewish Community Center Association , a Jewish community center qualified for an exemption under Title VII when it terminated the employment of a Christian employee. The center's stated mission was to promote Jewish life and values, and three local rabbis were significantly involved in its management. Furthermore, the center conducted a variety of programs observing Jewish religious holidays and traditions. The U.S. Court of Appeals for the Third Circuit noted the organization's primarily religious character, indicated by factors such as the composition of its administrative body and the programs that it offered to the community. Ultimately, the court held that religious organizations may qualify for an exemption despite engaging in secular activities, not adhering to the strictest tenets of the religion, or not hiring only co-religionists. On the other hand, courts have declined to apply the exemption to organizations that cannot demonstrate a connection between religious beliefs and the organization itself. In Equal Employment Opportunity Commission (EEOC) v. Townley Engineering and Manufacturing Company , the owners of a mining equipment manufacturing company claimed an exemption under Title VII after an employee initiated legal proceedings objecting to attending mandatory religious services. The owners claimed that they founded their company under "a covenant with God that their business would be a Christian, faith-operated business" and that they were "unable to separate God from any portion of their daily lives, including their activities at the Townley company." The court reviewed legal precedent and the legislative history of Title VII and held that the central function of the exemption "has been to exempt churches, synagogues, and the like, and organizations closely affiliated with those entities." It noted that Townley was a for-profit company, producing a secular product, with no affiliation with or support from a church. Further, it had no religious purpose. Although the court recognized that the owners did include religious characteristics in their operation of their company, the court held that "the beliefs of the owners and operators of a corporation are not simply enough in themselves to make the corporation 'religious'" under the Title VII exemption. In Pime v. Loyola University of Chicago , a former Jesuit university sought to retain its religious identity even after it had evolved into a secular institution. It claimed an exemption under Title VII as a university supported, controlled, or managed in whole or in part by a religious society because it reserved three tenured positions for Jesuits and several university administrators (including the president, one-third of the trustees, and other officers) were also Jesuits. However, the Society of Jesus did not instruct the president or trustees with regard to university matters and did not control the decisions of other Jesuits who served in official positions at the university. As a result, the U.S. Court of Appeals for the Seventh Circuit held that, despite a "Jesuit presence" on campus, the university did not qualify for an exemption from Title VII. In a similar case, EEOC v. Kamehameha Schools /Bishop Estate , the U.S. Court of Appeals for the Ninth Circuit likewise held that a school that hired Protestant teachers to provide a secular education to students did not qualify for an exemption under Title VII. The Kamehameha Schools were created by the will of a member of the Hawaiian royal family, which provided that teachers be members of the Protestant faith and claimed an exemption as a religious educational institution based on this provision. However, the court held that the schools' purpose and character were primarily secular and not religious, noting that the religious characteristics the schools had (i.e., comparative religious studies, scheduled prayers and services, Bible quotations in a school publication, and employment of nominally Protestant teachers) were common to private schools. The court also noted that the schools had embraced a broad mandate to help native Hawaiians "participate in contemporary society for a rewarding and productive life" through a solid secular education. As a result, the court held that the teachers' religious affiliation was an insufficient basis to qualify for an exemption as a religious institution. The result in Kamehameha Schools was influenced to some degree by the absence of church ownership or control. Indeed, the court of appeals observed that it had found "no case holding the Title VII exemption to be applicable where the institution was not wholly or partially owned by a church." Subsequently, in Killinger v. Samford University , the U.S. Court of Appeals for the Eleventh Circuit held that a Baptist college was an exempt religious institution which could require professors to subscribe to the school's religious doctrine. The court noted that a Baptist convention comprised the largest single source of revenue for the college and that the school's charter listed as its chief purpose the "promotion of Christian Religion." Thus, under Title VII precedent, independent Christian and other religious schools not owned, financed, or controlled by church bodies may find it difficult to qualify for the "religious organization" exemption in ENDA. Of course, as stand-alone legislation, it is possible that courts would find that the policy concerns underlying ENDA are sufficiently different from Title VII to warrant a less restrictive reading of the former. Absent clarification in ENDA itself, or its legislative history, any resolution of the issue would have to await further judicial elaboration. Meanwhile, during the recent floor vote on ENDA, the Senate adopted an amendment that would clarify the exemption for religious organizations. Under the amendment, federal agencies or state or local agencies that receive federal funding would be prohibited from withholding benefits or barring program participation for religious employers who are exempt from ENDA. Enforcement and Remedies Enforcement procedures under ENDA would parallel the enforcement provisions of Title VII. Thus, the Department of Justice (DOJ) would enforce ENDA against state and local governments, and administrative enforcement with respect to private employment would be delegated to the EEOC, which would have the same authority to receive and investigate complaints, to negotiate voluntary settlements, and to seek judicial remedies as it currently exercises under Title VII. Similarly, in devising remedies for sexual orientation or gender identity discrimination under the legislation, a federal court would have the same jurisdiction and powers as the court has to enforce Title VII. In general, federal courts possess broad remedial discretion under Title VII, including the ability to enjoin the unlawful employment practice and to "order such affirmative action as may be appropriate, which may include, but is not limited to, reinstatement or hiring of employees, with or without back pay ... or any other relief as the court deems appropriate." Although the Supreme Court early on adopted a "make-whole" theory of Title VII relief, including use of affirmative action remedies, minority preferences and the like, where necessary to redress discrimination of a particularly "egregious" or "longstanding" nature, ENDA would specifically forbid employers from using quotas or preferential treatment. Likewise, the remedies under ENDA would be patterned on Title VII's remedial provisions. Under Title VII, victims of discrimination may seek equitable relief, including limited back pay awards for wage, salary, and fringe benefits lost as the result of discrimination. Private employers who intentionally discriminate in violation of the statute may be liable for compensatory and punitive damages, while plaintiffs may seek awards of compensatory, but not punitive, damages against federal, state, and local governmental agencies. The following ceilings or "caps" are established by law for compensatory and punitive damages combined: (1) $50,000 for defendants who have 15 to 100 employees; (2) $100,000 for employers with 101 to 200 employees; (3) $200,000 for employers with 201 to 500 employees; and (4) $300,000 for employers with more than 500 employees. The Supreme Court has also excluded from the statutory limits on damages so-called "front pay," awarded to redress discrimination victims for continuing injury in promotion or discharge cases where reinstatement is not a feasible remedy. These Title VII remedies appear to be applicable to claims that would be filed under ENDA. Meanwhile, ENDA would waive the states' Eleventh Amendment immunity from suit for sexual orientation discrimination or gender identity against employees or applicants within any state "program or activity" that receives federal financial assistance. The Eleventh Amendment provides states with immunity from claims brought under federal law in both federal and state courts. Although Congress may waive the states' sovereign immunity by "appropriate" legislation enacted pursuant to Section 5 of the Fourteenth Amendment, the scope of congressional power to create a private right of action against the states for monetary damages has been substantially narrowed by a series of Supreme Court decisions. The era of a reinvigorated Eleventh Amendment immunity can be traced to Seminole Tribe v. Florida , which invalidated a portion of the Indian Gaming Regulatory Act authorizing tribal suits against the states. Neither the Commerce Clause nor Section 5 proved to be an effective vehicle to override state sovereign immunity. Three years later, in Alden v. Maine the Supreme Court ruled that the states could not be sued, even in their own courts, for violation of the Fair Labor Standards Act. City of Boerne v. Flores announced the Court's new framework for determining the validity of congressional action under Section 5. In holding unconstitutional the Religious Freedom Restoration Act, Justice Kennedy wrote that Congress's Section 5 power was remedial only; it was not a basis for legislation defining the substantive content of the equal protection guarantee. Moreover, the remedy had to be "congruent and proportional" to the scope and frequency of any violations identified by Congress. These constitutional limitations were subsequently applied by the Court to hold the states immune from private lawsuits under the Age Discrimination in Employment Act, the Violence Against Women Act, and the Americans with Disabilities Act. Taken together, these decisions restrict the ability of private individuals to take the states to court for federal civil rights violations. They may not, however, apply to states' voluntary acceptance of federal benefits that are expressly conditioned on waiver of Eleventh Amendment immunity. "Congress may, in the exercise of its spending power, condition its grant of funds to the States upon their taking certain actions that Congress could not require them to take, and that acceptance of the funds entails an agreement to the actions." Thus, when a statute enacted under the Spending Clause conditions grants to the states upon an unambiguous waiver of Eleventh Amendment immunity, as ENDA proposes, "the condition is constitutionally permissible as long as it rests on the state's voluntary and knowing acceptance of it." Finally, the attorney's fees provision in ENDA differs somewhat from the attorney's fees provision in Title VII. Under Title VII, a court is generally authorized to award "reasonable" attorney's fees (including expert fees) to a "prevailing" plaintiff, unless special circumstances make such an award unjust. Complainants may be considered "prevailing parties" if "they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit." Although either a plaintiff or a defendant may be the prevailing party, fee awards to defendant employers are not the general rule, given the public interest in having Title VII plaintiffs act as "private attorneys general" and the likelihood that defendant employers would have less need of financial assistance. In addition, in cases involving federal employment, both the EEOC and federal agencies are authorized to award reasonable attorney's fees or costs. The EEOC, however, does not appear to have such authority with respect to private sector employment discrimination claims. Under ENDA, courts would have the same authority to award attorney's fees to prevailing parties as they do under Title VII. ENDA would similarly authorize the EEOC to award such fees, but, unlike Title VII, ENDA would appear to allow the EEOC to make such awards in cases involving both federal and private employment discrimination claims.

Introduced in various incarnations in every congressional session since the 103rd Congress, the proposed Employment Non-Discrimination Act (ENDA; H.R. 1755/S. 815 in the 113th Congress) would prohibit discrimination based on an individual's actual or perceived sexual orientation or gender identity by public and private employers in hiring, discharge, compensation, and other terms and conditions of employment. The stated purpose of the legislation is "to address the history and persistent, widespread pattern of discrimination, including unconstitutional discrimination, on the basis of sexual orientation and gender identity by private sector employers and local, State, and Federal Government employers," as well as to provide effective remedies for such discrimination. Patterned on Title VII of the Civil Rights Act of 1964, the act would be enforced by the Equal Employment Opportunity Commission (EEOC).

Introduction Congress has considered, at various points in time, numerous pieces of legislation that relate to genetic and genomic technology and testing. These include bills addressing genetic discrimination in health insurance and employment; precision and personalized medicine; the patenting of genetic material; the privacy of health information, including genetic information; and the oversight of clinical laboratory tests (in vitro diagnostics), including genetic tests. The focus on these issues signals the importance of public policy issues surrounding the clinical and public health implications of new genetic technology. As genetic technologies proliferate and are increasingly used to guide clinical treatment, these public policy issues are likely to continue to garner attention. Understanding the basic scientific concepts underlying genetics and genetic testing may help facilitate the development of more effective public policy in this area. Considering that virtually all disease has a genetic component, the potential public health impact of genetic disease may be significant. Over time, as translational obstacles are addressed, the value of and role for genetic testing in clinical medicine may increase. As the role of genetics in clinical medicine and public health continues to be better understood, the importance of public policy issues raised by genetic technologies is likely to grow. Limited knowledge of both the appropriate role for genetic information in the clinical management of patients, and the genetic and environmental factors underlying disease, may create a challenging climate for public policymaking. As genetic research continues to advance rapidly, more genetic tests will be developed that provide information with unclear or debated clinical implications as a result of genetic technology outpacing the development of evidence for its application. This situation may create public policy challenges, for example, in terms of decisions about the coverage of genetic testing services and the regulation of such tests. Policymakers may need to balance concerns about privacy and the potential use and misuse of genetic information with the potential of genetics and genetic technology to improve care delivery, for example by personalizing medical care and treatment of disease. In addition, policymakers face decisions about the balance of federal oversight and regulation of genetic tests, patients' safety, and innovation in this area. Finally, the need for and degree of federal support for research to develop a comprehensive evidence base to facilitate the integration of genetic testing into clinical practice (for example, to improve health care outcomes or to support coverage decisions by health insurers) may be debated. Background Virtually all disease has a genetic component. The term "genetic disease" has traditionally been used to refer to rare monogenic (caused by a single gene) inherited disease, for example, cystic fibrosis. However, research now shows that many common complex human diseases—including common chronic conditions such as cancer, heart disease, and diabetes—are influenced by several genetic and environmental factors. For this reason, they could all be said to be "genetic diseases." For more information about fundamental concepts in genetics—including genes, chromosomes, phenotype, and genotype—see the Appendix . The genetic make-up of an individual's disease—as well as an individual patient's genetic make-up—will help guide clinical decision making. Experts note that "(w)e have recently entered a transition period in which specific genetic knowledge is becoming critical to the delivery of effective health care for everyone." This sentiment is shared, despite the fact that the translation to practice has perhaps been slower than anticipated. This is due, in part, to the frequent lack of a comprehensive evidence base to inform clinical validity and utility determinations for many genomic technologies. Researchers have identified a translational gap between genetic discoveries and application in clinical and public health practice and note that "the pace of implementation of genome-based applications in health care and population health has been slow." The information provided by the Human Genome Project is helping scientists and clinicians to identify common genetic variation that contributes to disease, primarily through genome-wide association studies (GWAS). In addition, efforts are underway to close the translational gap, specifically the 2009 establishment of the National Institutes of Health (NIH)-Centers for Disease Control and Prevention (CDC) collaborative Genomic Applications in Practice and Prevention Network (GAPPNet). Still, evidence is oftentimes lacking, making the assessment of the clinical value of genetic tests challenging. Experts note that the moderate effect of many common genetic variations, uncovered by GWAS, has helped to highlight the multifactorial nature of complex disease, and that research efforts will be required to detect "missing" genetic influences. GWAS efforts have identified 1,100 well-validated genetic risk factors for common disease; however, the potential for many of these factors to serve as drug targets is unknown. Research conducted using large population databases that collect health, genetic, and environmental information about entire populations will likely provide more information about the genetic and environmental underpinnings of common disease. Many countries have established such databases, including Iceland, the United Kingdom, and Estonia. No similar effort has yet been undertaken in the United States. However, researchers hope to combine genetic, environmental, clinical, behavioral, and other data to facilitate precision medicine. Precision medicine is the idea of providing health care to individuals based on specific patient and disease characteristics, and is a priority in the President's FY2016 budget. The President's budget request proposes the development of a national research cohort, composed of 1 million or more volunteers, whose health, genetic, environmental, and other data would be collected and used in research studies to identify novel therapeutics and prevention strategies. In many cases, the results of genetic testing may be used to guide clinical management of patients, and a particularly prominent role is anticipated in the realm of preventive medicine. For example, more frequent screening may be recommended for individuals at increased risk of certain diseases by virtue of their genetic make-up, such as colorectal and breast cancer. In some cases, preventive surgery may even be indicated. Decisions about courses of treatment and dosing may also be guided by genetic testing, as might reproductive decisions (both clinical and personal). However, many diseases with an identified molecular cause do not have any treatment available; specifically, therapies exist only for approximately 200 of the more than 4,000 conditions with a known molecular cause. In these cases, the benefits of genetic testing lie largely in the information testing provides an individual about his or her risk of future disease or current disease status. The value of genetic information in these cases is personal to individuals, who may choose to utilize this information to help guide medical and other life decisions for themselves and their families. The information can affect decisions about reproduction; the types or amount of health, life, or disability insurance to purchase; or career and education choices. Policy Issues and Genetic Testing Defining "Genetic Test" Currently, there is no single definition for "genetic test," and the scientific community has not reached a consensus about the best definition. However, one way that a genetic test may be defined scientifically is as follows: [A]n analysis performed on human DNA, RNA, genes, and/or chromosomes to detect heritable or acquired genotypes, mutations, phenotypes, or karyotypes that cause or are likely to cause a specific disease or condition. A genetic test also is the analysis of human proteins and certain metabolites, which are predominantly used to detect heritable or acquired genotypes, mutations, or phenotypes. Once the sequence of a gene is known, looking for specific changes is relatively straightforward using modern techniques of molecular biology. Using microarray technology, hundreds or thousands of genetic variations can be detected simultaneously. In addition, new advances in sequencing technology, termed next generation sequencing, have allowed for the rapid sequencing of large portions of DNA, including whole genomes or subsets of genes of interest. Policy Issues The way genetic test is defined can be important to the development of genetics-related public policy. For example, the above scientific definition is broad, including both predictive and diagnostic tests and analyses on a broad range of material (nucleic acid, protein, and metabolites), but this may not be the best way to achieve certain policy goals. It may sometimes be desirable to limit the definition only to predictive, and not diagnostic, genetic testing because predictive tests may raise public policy concerns that diagnostic tests do not (see " What Type of Information Can Genetic Tests Provide? "). On the other hand, policymakers wishing to avoid raising potentially controversial issues associated with predictive genetic testing may instead choose a definition limited to diagnostic testing. In still other cases, it may be desirable to limit the definition to only analysis of specific material, such as DNA, RNA, and chromosomes, but not metabolites or proteins, for example, to help avoid capturing certain types of tests, such as some newborn screening tests, in the scope of a proposed law. Policies extending protection against discrimination—for example, the Genetic Information Nondiscrimination Act (GINA, P.L. 110-233 )—may aim to be broader (e.g., including predictive tests, not limiting the definition to tests analyzing only certain materials). On the other hand, policies addressing the stringency of oversight of clinical laboratory or in vitro diagnostic tests, of which genetic tests are a subset, may aim to be more limited (e.g., only those tests that are considered to be higher risk). In certain cases, the lack of an accepted definition for "genetic test" may affect policymaking. For example, in discussions about whether to add a genetic testing specialty under the Clinical Laboratory Improvement Amendments of 1988 (CLIA, P.L. 100-578 ), the law regulating clinical laboratories, it was decided not to do so, partially based on the fact that there is "no widely accepted definition of a 'genetic test.'" What Type of Information Can Genetic Tests Provide? Most clinical genetic tests are for rare disorders, but increasingly, tests are becoming available to determine susceptibility to common, complex diseases and to predict response to medication. With respect to health-related tests (i.e., excluding tests used for paternity, forensic purposes, such as "DNA fingerprinting," or for ancestry), there are two general types of genetic testing: (1) diagnostic and (2) predictive. Diagnostic genetic tests can be utilized to identify the presence or absence of a disease. Predictive genetic tests can be used to predict if an individual will definitely get a disease in the future or to predict the risk of an individual getting a disease in the future (predispositional). For example, testing for mutations in the BRCA1 and/or BRCA2 genes provides probabilistic information about how likely an individual is to develop breast or ovarian cancer in his or her lifetime (predispositional). The genetic test for Huntington's Disease provides genetic information that is predictive in that it allows a physician to predict with certainty whether an individual will develop the disease, but does not allow the physician to determine when the onset of symptoms will actually occur. In both of these examples, the individual does not have the clinical disease at the time of genetic testing, as they would with diagnostic genetic testing. Within this broader framework of diagnostic and predictive genetic tests, several distinct types of genetic testing can be considered, including (1) reproductive genetic testing, (2) newborn screening, and (3) pharmacogenomic testing. Reproductive genetic testing can identify carriers of genetic disorders, establish prenatal diagnoses or prognoses, or identify genetic variation in embryos before they are used in in vitro fertilization (preimplantation genetic diagnosis). Reproductive genetic testing, such as prenatal testing, may be either diagnostic or predictive in nature. Newborn screening is a type of testing that helps to identify newborns with certain metabolic or inherited conditions. Some, but not all, newborn screening tests are genetic tests. Newborn screening tests identify children who might have a disorder and who require confirmatory diagnostic testing, and conditions tested for are selected based on availability of a treatment, among other things. Many states have chosen to add certain genetic tests to their newborn screening panels (for example, all states now include a test for Sickle Cell Disease as well as for Cystic Fibrosis). Pharmacogenomic testing is testing used to help determine the best course of treatment for an individual patient based either on the patient's own genotype or on the genetic characteristics of his specific disease or condition. It may be used before administration of a medication to determine potential effectiveness, dosing levels, or potential adverse interactions or events, or it may be used after administration and manifestation of a clinical event, for use in determining the basis of the specific event or outcome in the particular patient. This type of testing is considered to be a key component of personalized, or precision, medicine. Policy Issues The type of information generated by a genetic test—whether predictive or diagnostic—is relevant to certain policy issues. Specifically, it bears on coverage decisions by health insurers, and it was an important consideration in the development of GINA. Coverage of Genetic Tests. Decisions about health insurance coverage and reimbursement for genetic tests that provide predictive information—especially if there is no treatment available—are oftentimes more complex than decisions about coverage of diagnostic genetic tests. A private health insurer may determine that paying for a test that predicts the onset of a disease with no treatment is not cost-effective. Even more complicated are cases where the test only shows an increased probability of getting a disease. Genetic Discrimination. Considerations relating to genetic discrimination may be different with predictive testing than they are with diagnostic testing. Title I of GINA addressed potential discriminatory action based on predictive testing and the possibility of something happening in the future in the context of health insurance. This is due to the fact that, with predictive genetic testing, the health outcome at issue may never manifest, or if it is certain to, may not manifest for decades into the future. For this reason, policymakers believed that action taken by health insurers based on such information was unfair to the individual. To limit this protection to predictive test information, the definition of "genetic test" in Title I of GINA specifically excluded tests that are "an analysis of proteins or metabolites that [are] directly related to a manifested disease, disorder, or pathological condition that could reasonably be detected by a health care professional with appropriate training and expertise in the field of medicine involved." An individual's concern about the privacy of her genetic information may be heightened if the information is predictive as opposed to diagnostic. For example, an individual who tests positive for being at increased risk of developing breast cancer in the future might believe unfavorable insurance or employment decisions based on this information in the present (when she does not have breast cancer) would be more unfair than a decision based on manifested disease. In this case, this individual may have increased concern with keeping this information private from health insurers or employers, even in the context of GINA's nondiscrimination protections. Specifically, research has demonstrated that this concern persists, despite the passage of GINA. A 2008 survey on personalized medicine found that few consumers are readily willing to share the results of genetic tests with current employers (2%), health insurers (3%), or a prospective employer (1%). This finding is supported by another survey conducted by Cogent Research at almost the same time (late May to early June of 2008). This survey found that compared with attitudes in 2006, Americans are less interested in sharing the results of their genetic tests with their health insurer (decrease of 3%), the lab that conducted the genetic test (decrease of 9%), and even with their doctor (decrease of 9%). Cogent carried out a survey again in 2010, and found that Americans are increasingly concerned about access to their genetic information; specifically, the 2010 Cogent survey found that 71% of Americans are concerned about storage of and access to their information, with the same percentage concerned specifically about access by health insurers. In some cases, people feel differently about genetic information than they do about other medical information (a position termed genetic exceptionalism). This viewpoint may be based on actual differences between genetic testing and other medical testing, for example, that genetic tests can reveal predictive and probabilistic information. It also may be based on a personal belief that genetic information is inherently different than other medical information. For example, genetic information about an individual may reveal things about family members, and therefore decisions by an individual to share her own genetic information can potentially also affect her family. Congress passed GINA, partially as a result of these considerations, and many states, beginning in the early 1990s, enacted laws addressing genetic discrimination in health insurance, employment, and life insurance. Since GINA was enacted, the genetics community and others have considered and weighed possible expansions to the law. These potential changes have included extending the law to additional types of insurance (e.g., life insurance, disability insurance) or to additional health systems (e.g., Indian Health Service [IHS] or the Military Health Service [MHS]). Congress has not taken up any of these proposed modifications to the law. Evaluating Genetic Tests Genetic tests function in two environments: the laboratory and the clinic. Genetic tests are evaluated based primarily on three characteristics: analytical validity, clinical validity, and clinical utility. These characteristics evaluate the performance of a genetic test from the viewpoint of both the laboratory and the clinical perspectives. Analytical validity evaluates the test's ability to do what it is intended to do; clinical validity evaluates the test result's link to a relevant clinical outcome; and clinical utility evaluates the test result's link to effective clinical treatment and management options. Analytical Validity. Analytical validity is defined as the ability of a test to detect or measure the analyte it is intended to detect or measure. This characteristic is critical for all clinical laboratory testing, not only genetic testing, as it provides information about the ability of the test to perform reliably at its most basic level. This characteristic is relevant to how well a test performs in a laboratory. Clinical Validity. The clinical validity of a genetic test is its ability to accurately diagnose or predict the risk of a particular clinical outcome. A genetic test's clinical validity relies on an established connection between the DNA variant being tested for and a specific health outcome. Clinical validity is a measure of how well a test performs in a clinical rather than laboratory setting. Many measures are used to assess clinical validity, but the two of key importance are clinical sensitivity and positive predictive value. Genetic tests can be either diagnostic or predictive and, therefore, the measures used to assess the clinical validity of a genetic test must take this into consideration. For the purposes of a genetic test, positive predictive value can be defined as the probability that a person with a positive test result (i.e., the DNA variant tested for is present) either has or will develop the disease the test is designed to detect. Positive predictive value is the test measure most commonly used by physicians to gauge the usefulness of a test to clinical management of patients. Determining the positive predictive value of a predictive genetic test may be difficult because there are many different DNA variants and environmental modifiers that may affect the development of a disease. In other words, a DNA variant may have a known association with a specific health outcome, but it may not always be causal. Clinical sensitivity may be defined as the probability that people who have, or will develop a disease, are detected by the test. Clinical Utility. Clinical utility takes into account the impact and usefulness of the test results to the individual and family and primarily considers the implications that the test results have for health outcomes (for example, is treatment or preventive care available for the disease). It also includes the utility of the test more broadly for society, and can encompass considerations of the psychological, social, and economic consequences of testing. Policy Issues These three above-mentioned characteristics of genetic tests—analytical validity, clinical validity, and clinical utility—have ties to public policy issues. Specifically, these characteristics are relevant to (1) the federal regulation of genetic tests, and (2) coverage decisions by payers. Oversight of Genetic Tests. Genetic tests are regulated by the Food and Drug Administration (FDA) and the Centers for Medicare & Medicaid Services (CMS), through the Clinical Laboratory Improvement Amendments (CLIA). FDA regulates genetic tests that are manufactured by industry and sold for clinical diagnostic use. These test kits usually come prepackaged with all of the reagents and instructions that a laboratory needs to perform the test and are considered to be products by the FDA. FDA requires manufacturers of the kits to ensure that the test detects what the manufacturer says it will, in the intended patient population. With respect to the characteristics of a genetic test, this process requires manufacturers to prove that their test is clinically valid. Depending on the perceived risk associated with the intended use promoted by the manufacturer, the manufacturer must determine that the genetic test is safe and effective, or that it is substantially equivalent to something that is already on the market that has the same intended use. Most genetic tests, however, are performed not with test kits, but rather as laboratory testing services (referred to as either laboratory-developed or "homebrew" tests), meaning that clinical laboratories themselves perform the test in-house and make most or all of the reagents used in the tests. Laboratory-developed tests (LDTs) are not currently regulated by the FDA in the way that test kits are and, therefore, the clinical validity of the majority of genetic tests is not regulated. The FDA does currently regulate certain components used in LDTs, known as Analyte Specific Reagents (ASRs), but only if the ASR is commercially available. If the ASR is made in-house by a laboratory performing the LDT, the test is not regulated at all by the FDA. This type of test is sometimes referred to informally as a "homebrew-homebrew" test. Any clinical laboratory test that is performed for health-related reasons on a human specimen with results returned to the patient must be performed in a CLIA-certified laboratory. CLIA is primarily administered by CMS in conjunction with the Centers for Disease Control and Prevention (CDC) and the FDA. FDA determines the category of complexity of the test so the laboratories know which requirements of CLIA they must follow. As previously noted, CLIA regulates the analytical validity of a clinical laboratory test only. It generally establishes requirements for laboratory processes, such as personnel training and quality control or quality assurance programs. CLIA requires laboratories to prove that their tests work properly, to maintain the appropriate documentation, and to show that tests are interpreted by laboratory professionals with the appropriate training. Supporters of the CLIA regulatory process argue that regulation of the testing process gives laboratories optimal flexibility to modify tests as new information becomes available. Critics argue that CLIA does not go far enough to assure the accuracy of genetic tests since it only addresses analytical validity and not clinical validity. Although the analytical validity of genetic tests is regulated by CMS through CLIA ( P.L. 100-578 ), as noted, the majority of genetic tests are not regulated based on (in any part) an assessment of their clinical validity. Given that the majority of genetic tests are LDTs, advocates for increased regulation of genetic tests have expressed concern that the majority of genetic tests are not assured to be clinically valid and that, therefore, the results of the tests could be either misleading or not useful to the individual. This has also raised concerns about direct-to-consumer marketing of genetic tests—as most of these tests are also LDTs and not test kits—where the connection between a DNA variant and a clinical outcome (clinical validity) has not been clearly established. Because clinical validity is not part of the regulatory regime for LDTs currently, tests with unproven clinical validity are allowed to be marketed to consumers. Marketing of such tests to consumers directly may mislead consumers into believing that the advice given them based on the results of such tests could improve their health status or outcomes when in fact there is no scientific basis—or inadequate evidence—underlying such an assertion. This issue was the subject of a July 2006 hearing by the Senate Special Committee on Aging, as well as two reports by the U.S. Government Accountability Office (GAO), in 2006 and 2010. Coverage of Genetic Tests. While insurers generally require that, where applicable, a test be approved by the Food and Drug Administration, they also want evidence that it is "medically necessary"; that is, evidence demonstrating that a test will affect a patient's health outcome in a positive way. This requirement of evidence of improved health outcomes underscores the importance of patient participation in long-term research in genetic medicine. Particularly for genetic tests, data on health outcomes may take a long time to collect. Although payers are beginning to cover companion diagnostics and other genetic tests, they may require stringent evidence of improved health outcomes. Clinical utility and clinical validity both figure prominently into coverage decisions by payers, by both private health insurers and public programs, and in particular, "clinical utility data are necessary for reimbursement decisions." There are many genomics-based tests where the evidence of clinical utility is limited, and therefore, "[a] critical challenge to genomic medicine is how we bridge the evidence gap necessary to pave the way for coverage and reimbursement of genetic tests." While a lack of such data can hinder or complicate coverage and reimbursement decisions, potentially leaving patients without coverage for these tests, the lack of data also may leave payers unable to comprehensively evaluate the effectiveness of a test. Payers, both private and public, have implemented approaches to covering genomic technologies concomitant with the collection of clinical utility data. For example, United HealthCare covers the OncotypeDX test for breast cancer for patients meeting specific criteria, and requires data collection on the subsequent course of clinical treatment. In this way, the payer covers the test as the relevant clinical utility data are being collected. In addition, CMS issued a national coverage determination (NCD) for Pharmacogenomic Testing for Warfarin Response; this allows for Coverage with Evidence Development (CED) for pharmacogenomic testing with the use of warfarin. In this way, CMS will cover testing for specified Medicare beneficiaries and in so doing will generate data on the clinical utility of the test. Coverage of genetic tests and services—that are preventive clinical services—may be negatively affected by a lack of high-quality evidence to support their clinical utility. The Patient Protection and Affordable Care Act of 2010 (ACA, P.L. 111-148 ) in some cases requires and in some allows private health insurers, Medicare, and Medicaid to cover clinical preventive services (as specified in the law) and outlines cost-sharing requirements in some cases for these services. However, the ACA provisions in some cases tie coverage of clinical preventive services to determinations by the U.S. Preventive Services Task Force (USPSTF, located in the Agency for Healthcare Research and Quality [AHRQ]), and these determinations are based on the quality of the evidence available to support a given clinical preventive service. The Genetic Test Result Genetic tests can provide information about both inherited genetic variations, that is, the individual's genes that were inherited from their mother and father, as well as about acquired genetic variations, such as those that cause some tumors. Acquired variations are not inherited, but rather are acquired in DNA due to replication errors or exposure to mutagenic chemicals and radiation (e.g., UV rays). In contrast to most other medical tests, genetic tests can be performed on material from a body, and may continue to provide information after the individual has died, as a result of the stability of the DNA molecule. DNA-based testing of inherited genetic variations differs from other medical testing in several ways. These test results can have exceptionally long-range predictive powers over the lifespan of an individual; can predict disease or increased risk for disease in the absence of clinical signs or symptoms; can reveal the sharing of genetic variants within families at precise and calculable rates; and, at least theoretically, have the potential to generate a unique identifier profile for individuals. Genetic changes to inherited genes can be acquired throughout a person's life (acquired genetic variation). Tests that are performed for acquired genetic variations that occur with a disease have implications only for individuals with the disease, and not the genetic constitution of a family member. Tests for acquired genetic variations are also usually diagnostic rather than predictive, since these tests are generally performed after the presentation of symptoms. Pharmacogenomic testing may be used to determine both acquired genetic variations in disease tissue (i.e., acquired variations in a tumor) or may be used to determine inherited variations in an individual's drug metabolizing enzymes. For example, with respect to determining acquired genetic variations in disease tissue, a tumor may have acquired genetic variations that render the tumor susceptible or resistant to chemotherapy. A companion diagnostic (CoDx) test—a type of pharmacogenomic test—is a test that can be used to determine and guide the appropriate use of companion pharmaceuticals. Companion diagnostics may be co-developed with respective drugs (in a process utilizing FDA review for both the test and the drug) or they may be developed in-house by laboratories as LDTs. With respect to inherited genetic variation in drug metabolizing enzymes, a pharmacogenomic test may determine that an individual, for example, is a slow metabolizer of a certain type of drug (e.g., statins) and this information can be used to guide both drug choice and dosing. Policy Issues Personalized medicine—increasingly referred to as precision medicine—is health care based on individualized diagnosis and treatment for each patient determined by information specific to the individual or his disease, including information at the genomic level. Advocates maintain that pharmacogenomic testing and companion diagnostics are important because they are a key component in the success of precision medicine; "[g]enome-based, targeted therapeutics and codeveloped CoDx tests are the foundation of personalized medicine and have potential for contributing to high-value health care." This is due to the fact that "[c]ompanion diagnostic tests define the subset of patients who are most likely to benefit from a therapy or who should not receive the therapy because of ineffectiveness or predicted adverse effects." Policy issues that will be important to precision medicine include coverage of genetic tests, and specifically companion diagnostics, and privacy concerns with respect to large-scale research efforts to uncover relationships between genetics, environment, behavior, and clinical factors in disease. Coverage of Genetic Tests. Health insurers are playing an increasingly large role in determining the availability of genetic tests by deciding which tests they will pay for as part of their covered benefit packages; however, there is some uncertainty as to how health insurers will assess and choose to cover genetic tests as they become available. Decisions by insurers to cover new genetic tests have a significant impact on the utilization of such tests and their eventual integration into the health care system, and specifically, the success of personalized medicine will be determined at least partially by coverage decisions. Medicare coverage determinations are often closely monitored by private health insurance plans, and many private plans will follow Medicare's decisions. Therefore, a decision by CMS to cover a new test through a favorable NCD will often result in more rapid diffusion and adoption of a test in the health care system. Many aspects of genetic tests, including their clinical validity and utility, may complicate the coverage decision-making process for insurers. Test manufacturers' decisions to develop a given test are affected, among other things, by both the likelihood of gaining favorable coverage decisions and by the likelihood of gaining reimbursement that accurately reflects the costs of developing and carrying out the test. One issue with respect to gaining favorable coverage decisions has been the length of time required to do so. Manufacturers have stated that they will often focus their efforts on gaining FDA approval, without realizing that upon receiving such approval, Medicare coverage of the test is not automatic. Medicare NCDs have traditionally been done serially with FDA pre-market review. To attempt to address this issue, FDA and CMS began a parallel review process whereby FDA approval is underway at the same time as is the CMS coverage determination. This pilot program, initiated in 2011 for a period of two years, was recently extended until 2015. Genetic Research and Privacy . To facilitate the translation of precision medicine into health care, the President's FY2016 budget request proposes the development of a national research cohort, composed of 1 million or more volunteers, whose health, genetic, environmental, and other data would be collected and used in research studies to identify novel therapeutics and prevention strategies. Privacy concerns with respect to participation in such a cohort may be affected by the relatively recent demonstration that research subjects can be re-identified using de-identified sequence data in conjunction with other publicly available data sources. Re-identification of research subjects in this manner could provide access to information about genetic test results, gene expression data, and phenotypic information (see the Appendix for a discussion of genotype and phenotype). Given this ability to re-identify research subjects, Congress might consider reevaluating and possibly modifying relevant current law, including GINA, the Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule, or the Freedom of Information Act (FOIA). Appendix. Fundamental Concepts in Genetics The following section explains some key concepts in genetics that are essential for understanding genetic testing and issues associated with testing that are of interest to Congress. Cells Contain Chromosomes Humans have 23 pairs of chromosomes in the nucleus of most cells in their bodies. These include 22 pairs of autosomal chromosomes (numbered 1 through 22) and one pair of sex chromosomes (X and Y). One copy of each autosomal chromosome is inherited from the mother and from the father, and each parent contributes one sex chromosome. Many syndromes involving abnormal human development result from abnormal numbers of chromosomes (such as Down Syndrome). Other diseases, such as leukemia, can be caused by breaks in or rearrangements of chromosome pieces. Chromosomes Contain DNA Chromosomes are composed of deoxyribonucleic acid (DNA) and protein. DNA is composed of complex chemical substances called bases. Strands made up of combinations of the four bases—-adenine (A), guanine (G), cytosine (C) and thymine (T)—twist together to form a double helix (like a spiral staircase). Chromosomes contain almost 3 billion base pairs of DNA that code for about 20,000-25,000 genes (this is a current estimate, although it may change and has changed several times since the publication of the human genome sequence). DNA Codes for Protein Proteins are fundamental components of all living cells. They include enzymes, structural elements, and hormones. Each protein is made up of a specific sequence of amino acids. This sequence of amino acids is determined by the specific order of bases in a section of DNA. A gene is the section of DNA that contains the sequence which corresponds to a specific protein. Changes to the DNA sequence, called mutations, can change the amino acid sequence. Thus, variations in DNA sequence can manifest as variations in the protein, which may affect the function of the protein. This may result in, or contribute to, the development of a genetic disease. Genotype Influences Phenotype Though most of the genome is similar between individuals, there can be significant variation in physical appearance or function between individuals. In other words, although individuals share most of the genetic material other individuals have, there are significant differences in physical appearance (height, weight, eye color, etc.). Humans inherit one copy (or allele) of most genes from each parent. The specific alleles that are present on a chromosome pair constitute a person's genotype. The actual observable, or measurable, physical trait is known as the phenotype. For example, having two brown-eye color alleles would be an example of a genotype and having brown eyes would be the phenotype. Many complex factors affect how a genotype (DNA) translates to a phenotype (observable trait) in ways that are not yet clear for many traits or conditions. Study of a person's genotype may determine if a person has a mutation associated with a disease, but only observation of the phenotype can determine if that person actually has physical characteristics or symptoms of the disease. Generally, the risk of developing a disease caused by a single mutation can be more easily predicted than the risk of developing a complex disease caused by multiple mutations in multiple genes and environmental factors. Complex diseases, such as heart disease, cancer, immune disorders, or mental illness, for example, have both inherited and environmental components that are difficult to separate. Thus, it can be difficult to determine whether an individual will develop symptoms, how severe the symptoms may be, or when they may appear. Glossary Allele: An allele is one of two or more versions of a gene. An individual inherits two alleles for each gene, one from each parent. Amino acid: Amino acids are a set of 20 different molecules used to build proteins. Autosomal chromosome: An autosome is any of the numbered chromosomes, as opposed to the sex chromosomes. DNA: DNA is the chemical name for the molecule that carries genetic instructions in all living things. The DNA molecule consists of two strands that wind around one another to form a shape known as a double helix. Genotype: A genotype is an individual's collection of genes. The term also can refer to the two alleles inherited for a particular gene. Karyotype: A karyotype is an individual's collection of chromosomes. Metabolite: A product of metabolism. Phenotype: A phenotype is an individual's observable traits, such as height, eye color, and blood type. The genetic contribution to the phenotype is called the genotype. RNA: Ribonucleic acid (RNA) is a molecule similar to DNA. Unlike DNA, RNA is single-stranded.

Congress has considered, at various points in time, numerous pieces of legislation that relate to genetic and genomic technology and testing. These include bills addressing genetic discrimination in health insurance and employment; precision medicine; the patenting of genetic material; and the oversight of clinical laboratory tests (in vitro diagnostics), including genetic tests. The focus on these issues signals the growing importance of public policy issues surrounding the clinical and public health implications of new genetic technology. As genetic technologies proliferate and are increasingly used to guide clinical treatment, these public policy issues are likely to continue to garner attention. Understanding the basic scientific concepts underlying genetics and genetic testing may help facilitate the development of more effective public policy in this area. Humans have 23 pairs of chromosomes in the nucleus of most cells in their bodies. Chromosomes are composed of deoxyribonucleic acid (DNA) and protein. DNA is composed of complex chemical substances called bases. Proteins are fundamental components of all living cells, and include enzymes, structural elements, and hormones. A gene is the section of DNA that contains the sequence which corresponds to a specific protein. Though most of the genome is similar between individuals, there can be significant variation in physical appearance or function between individuals due to variations in DNA sequence that may manifest as changes in the protein, which affect the protein's function. Many complex factors affect how a genotype (DNA) translates to a phenotype (observable trait) in ways that are not yet clear for many traits or conditions. Most diseases have a genetic component. Some diseases, such as Huntington's Disease, are caused by a specific gene. Other diseases, such as heart disease and cancer, are caused by a complex combination of genetic and environmental factors. For this reason, the public health burden of genetic disease, as well as its clinical significance, may be large. Experts note that society has recently entered a transition period in which specific genetic knowledge is becoming more integral to the delivery of effective health care. Therefore, the value of and role for genetic testing in clinical medicine is likely to increase in the future. Policymakers may need to balance concerns about the potential use and misuse of genetic information with the potential of genetics and genetic technology to improve care delivery, for example by personalizing medical care and treatment of disease. In addition, policymakers face decisions about the balance of federal oversight and regulation of genetic tests, patients' safety, and innovation in this area. Finally, the need for and degree of federal support for research to develop a comprehensive evidence base to facilitate the integration of genetic testing into clinical practice (for example, to support coverage decisions by health insurers) may be debated.

Introduction Income in retirement comes from several sources. Most workers participate in the Social Security system, which pays retirement income as early as 62 years old. Retirement income security can also be provided by non-government sources, such as employer-sponsored pensions and participant-initiated retirement accounts. About half of the U.S. workforce participates in one or both of two kinds of employer-sponsored pensions. The two kinds of employer-sponsored pensions are defined benefit (DB) and defined contribution (DC) pensions. DB pensions provide retirees with monthly benefits in which the amount is calculated using a formula based on the number of years of employment and final salary. DC pensions, of which the 401(k) plan is the most common, provide participants individual accounts in which contributions from individual employees—and often their employers—are placed in tax-advantaged accounts that accrue investment returns. The accumulated contributions and investment earnings are then used for participants' retirement income. Although employers choose whether to offer DC plans, individual employees decide the contribution amounts (subject to an annual limit) and investment allocations of the contributions. Over the past 30 years, fewer employers have been providing DB plans and instead have offered DC plans. One consequence of this shift is that workers have had increasing responsibility for their retirement income security. Individual Retirement Accounts (IRAs) can play an important role by providing workers with tax-advantaged savings accounts in which to accumulate retirement savings. Although enrollment in a DC or DB plan is contingent on employer sponsorship of such a plan, most individuals (or married couples) who have taxable compensation can establish and contribute to an IRA. Similar to 401(k) plans, IRAs are tax-advantaged accounts in which contributions and investment earnings accumulate, which are then used for retirement income. Depending on the type of IRA, contributions may be made on a pre- or post-tax basis and investment earnings are either tax-deferred or tax-free. This report provides an overview and a brief legislative history of IRAs, examines the tax-deductible contributions to traditional IRAs in 2007, analyzes the characteristics of households that have IRAs, and compares IRA owners who have pension coverage at work with those who do not have pension coverage. The report concludes with a discussion of some of the policy proposals that some suggest might increase IRA ownership rates among American households. Traditional IRAs, Roth IRAs, and Rollover IRAs The two types of IRAs available to households in which either the head of the household or the spouse receives income from wages are traditional IRAs and Roth IRAs. Traditional and Roth IRAs differ in their eligibility requirements and the tax treatment of contributions and withdrawals. Individuals can also rollover lump-sum retirement assets from an employer-sponsored pension or an IRA into a rollover IRA. Rollover IRAs may be either traditional IRAs, in which investment earnings continue to accumulate tax-deferred, or Roth IRAs, in which investment earnings continue to accumulate tax-free. Traditional IRAs Individuals with taxable compensation who are under the age of 70½ can contribute to traditional IRAs. Traditional IRAs have at least two tax advantages over accounts that do not receive tax advantages: (1) the tax-deductibility of contributions allows individuals to have larger yearly contributions than otherwise would be the case; and (2) the earnings grow tax-deferred. In 2011, individuals may annually contribute the lesser of $5,000 or their taxable compensation to an IRA. Individuals aged 50 or older may make an additional $1,000 annual contribution. Contributions to traditional IRAs are tax-deductible (up to the maximum contribution) for individuals who (1) are not covered by an employer-sponsored pension plan or (2) are covered by an employer-sponsored pension plan but have income under statutory limits. In 2011, the phase out of the deduction begins at an Adjusted Gross Income (AGI) of $56,000 for single filers with pension coverage; at an AGI of $90,000 for married filers in which the head of the household has pension coverage; and at an AGI of $169,000 for married filers in which the head of the household does not have pension coverage but in which the spouse is covered by a pension plan. No deduction is allowed for AGI of $66,000 or more for single filers with pension coverage; $110,000 or more for married filers in which the head of the household has pension coverage; or $179,000 or more for married filers in which the head of the household does not have pension coverage but in which the spouse is covered by a pension plan. Withdrawals from traditional IRAs, except for that part of a withdrawal that represents after-tax contributions, must be included in account holders' taxable income. Congressional intent was that IRAs were to provide financial security in retirement and not be used for either pre-retirement expenses or as tax-free asset transfers to heirs. Most withdrawals from traditional IRAs before the account holder reaches the age of 59½ are subject to an additional 10% penalty tax, unless the reason for the withdrawal meets one of the exceptions found in 26 U.S.C. § 72(t). In addition, account holders older than the age of 70½ must receive Required Minimum Distributions (RMDs). RMDs are withdrawals of a specified percentage of the IRA balances each year. Roth IRAs Roth IRAs were authorized by the Taxpayer Relief Act of 1997 ( P.L. 105-34 ). The key differences between traditional and Roth IRAs are that (1) contributions to Roth IRAs are not tax-deductible (thus the contributions are after-tax dollars) and (2) qualified distributions are not included in taxable income. The annual contribution limit to Roth IRAs is the lesser of $5,000 or the individual's taxable compensation. Individuals aged 50 or older may make an additional $1,000 annual contribution. Contributions to Roth IRAs are permitted only by individuals with incomes under prescribed statutory limits, currently at $120,000 for single filers and $177,000 for joint filers. Because qualified distributions are tax-free, Roth IRAs have no RMD requirement. Rollover IRAs Rollovers are transfers of assets from one retirement plan to another retirement plan, often upon separation from an employer. Generally, individuals may rollover account balances from employer-sponsored pension plans into traditional or Roth IRAs upon separation from employment. Individuals may also rollover traditional IRA account balances to Roth IRAs. Rollovers not completed within 60 days are considered taxable distributions. Rollovers are considered neither distributions nor contributions. The amount of the rollover is not included in taxable income, is not subject to the contribution limits, nor subject to rules that govern early distributions. Rollovers can come from traditional IRAs or from employers' pension plans. Prior to 2010, rollovers into Roth IRAs were limited to individuals with incomes under specified limits ; these income limits were eliminated beginning in 2010. Legislative History of IRAs IRAs were first authorized in 1974 by the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ) to encourage workers who did not have a pension plan at work to save for retirement. Prior to ERISA, Congress allowed self-employed individuals and their employees to make tax-deductible contributions to Keogh accounts for the purpose of providing for income in retirement. Some Keogh plan features, such as imposing penalties for withdrawing funds before the account owner reached the age of 59½ or for failing to take required withdrawals after the age of 70½, were incorporated into the design of IRAs. Table 1 lists the major IRA legislation since 1974 that has affected eligibility for and contributions to IRAs. From 1974 to 1981, only individuals who were not covered by an employer-sponsored pension plan could establish and contribute to IRAs. From 1982 to 1986, all workers regardless of pension coverage could make tax-deductible IRA contributions (up to the annual limit). Because of the revenue loss to the U.S. Treasury, the Tax Reform Act of 1986 ( P.L. 99-514 ) limited the tax deduction on IRA contributions to non-covered workers and to covered workers with incomes under $25,000. Since 1986, workers without pension coverage and workers with pension coverage and who have incomes under prescribed limits can make tax-deductible IRA contributions (up to the annual limit) while covered workers who have incomes greater than the prescribed limits may make non-deductible contributions. Annual Contribution Limits The annual contribution limit was set at $1,500 in 1974 and was increased to $2,000 in 1982. The limit was increased to $3,000 in 2002, $4,000 in 2005, and has been annually inflation-adjusted for increases in the Consumer Price Index (CPI) since 2008. The contribution limit for 2011 is $5,000. Beginning in 2002, individuals aged 50 and older could make an additional annual $500 "catch up" contribution to their IRAs. This was increased to $1,000 beginning in 2006. From 1982 to 1996, a non-working spouse could annually contribute $250 to an IRA. Since 1997, the contribution limit for non-working spouses has been equal to the contribution limit for working spouses. Tax-Deduction for Traditional IRA Contributions From 1974 to 1981, workers covered by a pension plan at work were prohibited from making IRA contributions. From 1982 to 1986, workers covered by an employer-sponsored pension plan could make tax-deductible contributions up to the annual limit of $2,000 to an IRA. Since 1987, workers covered by a pension plan may deduct 100% of their IRA contribution only if their incomes are under statutory limits. The percentage of the contribution that may be deducted is gradually reduced from 100% to 0% for incomes that are $10,000 or $20,000 (depending on filing status) greater than the statutory limits. No deduction is available for taxpayers with income greater than the upper limit of the phase-out range. Since 1998, workers with taxable income under statutory limits could make contributions to Roth IRAs. The maximum contribution to a Roth IRA is phased out for persons with income greater than limits specified in statute. Tax-deductible IRA Contributions from 1974 to 2007 Less than 3% of taxpayers made tax-deductible IRA contributions in 2007. As a percentage of all tax returns filed, fewer tax returns had IRA deductions in 2006 and 2007 than in any year since 1977. Figure 1 through Figure 4 show historical tax-deductible IRA contributions. Figure 1 shows the inflation-adjusted yearly amount of tax-deductible contributions to traditional IRAs from 1974 to 2007. Figure 2 shows the inflation-adjusted average tax-deductible contribution. Figure 3 and Figure 4 show the number and percentage of taxpayers who made tax-deductible IRA contributions from 1974 to 2007. The total amount of IRA contributions was nearly twice as much in 1981 compared with 1975, although the average amount was more than 30% lower. The large increase in 1982 both in the number and percentage of returns reporting IRA contributions and the average amount of IRA contributions is a result of the Economic Recovery Tax Act of 1981 ( P.L. 97-34 ), which extended eligibility for IRAs to workers with employer-sponsored pensions. The Tax Reform Act of 1986 ( P.L. 99-514 ) that limited the eligibility for tax-deductible contributions beginning in 1987 sharply curtailed both the number of returns reporting IRA contributions and the average IRA contribution. This suggests that tax-deductible IRA contributions were largely made by workers with higher incomes and pension coverage. The data suggest that since the mid-1990s some taxpayers have responded to changes in the contribution limit. The total and average value of IRA contributions generally declined from 1990 to 2001. Total tax-deductible IRA contributions were 46% lower in 2001 compared with 1990 and the average contribution was 16% lower. From 1987 to 2001, neither the income limit for eligibility for tax-deductible contributions nor the contribution limit was increased, although in real (inflation-adjusted) terms these limits were more than 25% lower in 2001 than in 1987. The 5.5% increase in average IRA contributions from 1996 to 1997 may be due to an increase in the contribution limit for non-working spouses from $250 to $2,000. The increases in the contribution limit from $2,000 to $3,000 in 2002 and from $3,000 to $4,000 in 2005 were accompanied by increases in the average contribution. Interestingly, there was not a corresponding rise in the number of returns reporting an IRA contribution nor a rise in the percentage of returns reporting a contribution. This suggests that the response to these changes was among taxpayers who were already contributing near the contribution limit and increased the amount of their contributions. This is consistent with research that has shown that many individuals who make IRA contributions contribute close to the statutory limit. The introduction of Roth IRAs beginning in 1998 appears to have had no effect on the total amount of the contributions to traditional IRAs nor on the average traditional IRA tax-deductible contribution. Continuing the trend that began in 1990, both total and average IRA contributions were lower from 1998 to 2001, the first four years of the existence of Roth IRAs. While it is possible that the decline in traditional IRA contributions over this period is as a result of taxpayers making Roth IRA contributions instead, a more likely explanation is that decline in traditional IRA contributions is a result of the decreased real value of the IRA contribution limit. Roth IRA contributions were likely not a result of individuals shifting their contributions from traditional IRAs to Roth IRAs. Figure 4 shows that the percentage of taxpayers who make IRA contributions was highest in 1985 at 15.9%; declined sharply after 1986 as a result of the limitations on tax-deductible contributions by workers covered by a pension plan; and gradually declined from 1989 (4.7%) to 2007 (2.3%). Since 1999, less than 3% of tax returns each year reported tax-deductible contributions to traditional IRAs. Contributions to Traditional IRAs in 2007 Although less than 3% of taxpayers made a tax-deductible contribution in 2007, the average contribution was $3,902, which suggests that many households made close to the maximum allowable contribution. Contributions to traditional IRAs were disproportionately made by households with higher incomes. Table 2 indicates that although households with Adjusted Gross Incomes of less than $50,000 in 2007 filed 65.6% of all federal income tax returns, these households accounted for 41.1% of households claiming deductions for IRA contributions and 32.0% of the total dollar amount of tax-deductible IRA contributions. Higher-income households have an incentive to make tax-deductible IRA contributions as they are in higher tax brackets and receive a greater benefit for each tax-deductible dollar contributed to a traditional IRA. Both the percentage of households that made tax-deductible IRA contributions and the average IRA contribution amount increased with household income. Of the 93.8 million tax returns with incomes below $50,000, approximately 1.4 million (1.4%) claimed the IRA deduction whereas of the 29.7 million tax returns with incomes above $75,000, 1.2 million (4.1%) claimed the deduction. The average IRA contribution among taxpayers with incomes above $100,000 was $5,440, which was more than twice the average IRA contribution among households with incomes below $25,000. IRA Ownership and Account Balances in 2007 The Survey of Consumer Finances (SCF) indicates that 28.2 million (32.7%) working households owned an IRA in 2007. Among working households that had IRAs, 77.0% had a single IRA and 23.0% had more than one IRA. Table 3 indicates that more working households had traditional IRAs in 2007 (15.9 million) than had Roth IRAs (10.2 million) or Rollover IRAs (9.4 million). Roth IRAs have been popular. Although Roth IRAs were authorized in 1997—23 years after traditional IRAs— Table 3 shows that there were two-thirds as many Roth IRAs as traditional IRAs in 2007. Because Roth IRAs have not had as long to accrue contributions and investment earnings, the median Roth IRA account balance was $10,000, which was 63% lower than the median account balance of traditional IRAs ($27,000). In 2007, IRA assets totaled $3.0 trillion. A plurality of IRA assets were held in Rollover IRAs. Rollover IRAs held $1.4 trillion in assets in 2007, which was 46.3% of all IRA assets; traditional IRAs held $1.3 trillion in assets in 2007, which was 43.7% of all IRA assets; and Roth IRAs held $306 billion in assets in 2007, which was 10.1% of all IRA assets. The median rollover IRA account balance was nearly twice as large as the median traditional IRA account balance and more than five times as large as the median Roth IRA account balance. This is likely because traditional and Roth IRAs consist mostly of yearly contributions whereas Rollover IRAs consist of large sums transferred from other retirement accounts, like 401(k) plans. Most households that had traditional IRAs did not make taxable contributions to their IRAs in 2007. Although 15.9 million households had a traditional IRA in 2007, only 3.3 million tax returns reported tax-deductible contributions to traditional IRAs. IRAs and Pension Coverage Although IRAs were authorized to encourage workers without pension coverage to save for retirement, IRA ownership is greater among households with pensions than among households without pensions. Table 4 indicates that 38.7% of households with pension coverage had IRAs in 2007, compared with 25.3% of households without pension coverage. With regard to current policy, the data highlight that many individuals have not responded to the tax incentives designed to encourage IRA ownership among households without pension coverage. IRA Ownership and Firm Size As Table 5 shows, pension coverage increased with firm size in 2007. Among households with pension coverage, IRA ownership rates were highest in workplaces that had fewer than 20 employees. Small professional offices (e.g., medical practices and law firms) are more likely to offer pension plans than non-professional small businesses. These professionals (with high incomes and education levels) are also more likely to have IRAs. Among households without pension coverage (except for households that work in firms with 100—499 employees), about one-quarter own an IRA. IRA Ownership and Industry of Workers Table 6 shows that in 2007 pension plan coverage was highest among workers in the public sector and manufacturing industries and was lowest among workers in agriculture, mining, or construction industries. Among households without pension coverage, rates of IRA ownership varied considerably by industry. Households with workers in agriculture, mining, and construction industries had low rates of IRA ownership (11.3%) whereas about one-third (33.6%) of households with workers who worked in financial services had IRAs. The low IRA ownership rates among households without pension coverage and who worked in agriculture, mining, or construction may reflect the transient nature of these occupations, high-employee turnover, or lower education levels. The higher rates of IRA ownership for financial services workers may be a result of greater education level or that these workers are likely to be more knowledgeable about the benefits of IRAs than workers in other industry groups. This suggests a potentially important role for financial literacy efforts. Increasing workers' knowledge of financial matters and helping workers improve financial decision-making skills may increase IRA ownership. IRA Ownership, Pension Coverage, and Household Financial Characteristics Table 7 shows financial characteristics (median dollar amounts) for households with and without IRAs and with and without pension coverage. Households that had both pension coverage and IRAs were the wealthiest group in the measures of median retirement assets, total assets, and net worth. This group also had higher median debt than the other groups. Households with IRAs (whether or not they had pensions) were wealthier than those without IRAs. For example, among households with pension coverage, those with IRAs had median net worth that was four times larger than households without IRAs ($411,000 versus $100,150). The gap was even larger among households without pension coverage, as those with IRAs had median net worth that was more than 16 times the net worth of households without IRAs ($339,540 versus $20,560). Demographic Characteristics and IRA Ownership Table 8 provides a demographic breakdown of IRA owners, grouped by their pension coverage. In nearly every category, IRA ownership was higher among households with pension coverage. The exceptions were among households with incomes between $50,000 and $75,000; households with incomes greater than $100,000; and households in which the head of the household is aged 70 or older. Income IRA ownership increased with income for both households with and without pension coverage although households with pension coverage did not have higher IRA ownership rates in all income groups. Within income groups, there is not a clear pattern of IRA ownership between households with and without pension coverage. Households without pension coverage had higher IRA ownership rates than households with pension coverage in two income groups: households with incomes from $50,000 to $75,000 and households with incomes greater than $100,000. At least two factors might explain the higher IRA ownership rate for households with incomes greater than $100,000 and without pension coverage: (1) the positive correlation between IRA ownership and income and (2) all of these households were eligible for a tax deduction for their contributions because they did not have pension coverage and were likely in the highest income tax brackets, which means they received larger per-dollar tax benefits for each dollar of IRA contribution compared to lower income households. Age The 2007 Survey of Consumer Finances data show that for both households with and without pension coverage IRA ownership increased with age until age 70. Households in which the head was aged 70 or older had lower rates of IRA ownership than those aged 60 to 69. The difference between rates of IRA ownership decreased as the age of the head of the household increased. Among households in which the head was under the age of 30, the rate of IRA ownership was 10.8 percentage points lower for households without pension coverage (22.5% compared with 10.7%). By comparison, among households in which the head was aged 60 to 69, the rate of IRA ownership was 1.9 percentage points lower for households without pensions (50.0% compared with 48.1%). Education IRA ownership rates were lower among households in which the head of the household did not have a college degree. The difference was particularly large among households without pensions: the rate of IRA ownership for households without pension coverage and in which the head had some college education was less than half the IRA ownership rate for households without pension coverage but in which the head had a college degree (23.8% versus 47.9%). This may indicate a willingness to trade current income for larger future income, as college students generally forgo at least some current income while anticipating higher income in the future. Contributing to an IRA is a similar decision, as IRA owners forgo current income in exchange for larger income in retirement. Race and Ethnicity The IRA ownership rate was 32.4% among households without pension coverage in which the head of the household was white, 7.3% among households that did not have pension coverage and in which the head was African-American, and 6.1% among households that did not have pension coverage and in which the head was Hispanic. Some of these groups may be particularly economically vulnerable, as they likely have few assets and may need to rely on Social Security for most of their retirement income. The IRA ownership rate was 37.4% among households that did not have pension coverage and in which the head was Asian, Pacific-Islander, American Indian, or another race. Homeownership IRA ownership rates were higher among homeowners than non-homeowners. Low IRA ownership rates among non-homeowners (17.9% for non-homeowners with pensions and 10.6% for non-homeowners without pensions) may reflect several factors. Homeownership rates increase as household income and age increase. In addition, homeownership may be a proxy for long-term planning or higher levels of financial literacy, both of which are associated with higher IRA ownership rates. Marital Status Married households had higher IRA ownership rates than single households, although the difference was not as pronounced among households without pension coverage. Among households without pension coverage, 26.9% of married households had IRAs in 2007, while 23.5% of single male households had IRAs and 22.5% of single female households had IRAs. It is interesting to note that IRA ownership rates were only one percentage point higher among single male households compared with single female households. Saver Characteristics and IRA Ownership Individuals vary in their preferences for saving. Some individuals may be quite willing to give up current consumption in order to receive higher consumption in the future. Other individuals may be less willing to make this trade-off. Individuals who have a high preference for saving may be more likely to own IRAs. Table 9 presents IRA ownership rates in combination with factors that indicate attitudes toward saving. The Survey of Consumer Finances asks respondents a number of questions to elicit their attitudes toward saving. The answers might provide insight into saving propensities, which might be an important factor in determining which households own IRAs. Three questions in the survey related to saver type: (1) the household's most important reason for saving, (2) the most important time period in planning the family's spending and saving, and (3) the amount of shopping around to find the best terms when making saving and investment decisions. Among both households with and without pension coverage, households that have higher propensities to save have higher IRA ownership rates. Among households without pension coverage, IRA ownership rates increase substantially as households increase their savings horizon from less than one year to a savings horizon of two to 10 years (from 12.3% to 31.0%), and as households increase the amount of shopping the household engages in when making saving decisions from little shopping to a moderate amount of shopping (from 18.0% to 28.5%). This suggests that efforts to increase financial literacy among less financially literate households may lead to higher IRA ownership rates. Policy Options Analysis of the data presented in this report suggests that pension plan coverage is an important factor for determining whether a household owns an IRA. IRA ownership is not as widespread among households without pension coverage, yet these are the households that IRAs are targeted to help. In fact, IRA ownership rates are more than 50% higher among households with pension coverage compared with households without any pension coverage. Households with neither IRAs nor pensions are about 34% of all working households and disproportionately represent economically vulnerable populations, such as lower-income, less-educated, and minority households. Some policymakers have expressed concern that many workers have inadequate savings for retirement. Half of the working households with neither pension coverage nor IRAs have net worth less than $20,560. In some cases, these workers may have less wealth than they anticipated to enjoy retirement. Some of these households may have to rely on public assistance to meet their basic needs. To formulate more effective retirement savings policies, policymakers need to be aware of how IRA ownership is affected by factors such as pension coverage, education, income, and behavior (e.g., saver characteristics). An issue for policymakers is how to encourage workers to better prepare for retirement, particularly when they may have other, more immediate financial concerns. Retirement security is often thought of as a three-legged stool: Social Security, private savings, and employer-provided pensions. Although participation in Social Security is mandatory for most workers, the other legs have traditionally been voluntary, though encouraged through tax incentives. For example, employer contributions to pension plans are a tax-deductible expense; participants' contributions to defined contribution plans are not included in current taxable income; contributions to traditional IRAs may be tax-deductible; and qualified distributions from Roth IRAs are not taxed. Current tax incentives, however, may not be effective for some target populations. Several policy proposals have been suggested to help workers better prepare for retirement. Changing the Retirement Savings Contributions Credit The Retirement Savings Contributions Credit (the Saver's Credit) is an additional incentive to encourage lower-income households to save for retirement. This non-refundable tax credit of up to $1,000 was authorized by the Economic Growth and Tax Relief Reconciliation Act of 2001 ( P.L. 107-16 ) for eligible individuals who contribute to an IRA or an employer-sponsored retirement plan. The credit is available to single filers with incomes in 2011 up to $28,250 and married filers with incomes in 2011 up to $56,500. IRS data indicates that 5.9 million households received the Saver's Credit in 2007 and that the average amount of the credit received was $167. Table 10 indicates that the credit may not be widely used: 5.9% of households with Adjusted Gross Incomes under $50,000 claimed the Saver's Credit in 2007. Several factors may limit the effectiveness of the Saver's Credit: (1) it is non-refundable, so households with little or no tax liability receive little or no benefit; (2) it is not available to individuals who file their taxes using form 1040EZ; and (3) the credit may be used by individuals who would have made retirement plan contributions in the absence of the credit. Thus, not all retirement plan contributions tied to the credit are "new" contributions. Adopting Automatic IRAs Because current tax and other incentives have not substantially increased voluntary participation in the retirement savings system, some policymakers believe that IRA ownership rates could be raised through increased access to retirement accounts. One of the challenges is determining how to comprehensively provide retirement accounts to workers who do not have employer-sponsored pension plans. The success of automatic enrollment in 401(k) plans has prompted calls for an automatic enrollment program for IRAs. The Automatic IRA (Auto IRA) is a proposal for increasing workers' access to retirement accounts. Under such proposals, employers above a certain size that have been in business a certain number of years and that do not offer a pension plan would be required to establish IRAs for their employees. The employer would direct a specified percentage of each employee's pay into the IRA. Eligible employees would automatically be enrolled by their employers in the Auto IRA program, but could opt-out of participation or change the amount of their contribution. Employers could, but would not be required to, match their employees' contributions. Although approximately 39.1 million households work for employers that do not offer pension plans (about 50% of U.S. working households), not all of these households would be covered by Auto IRAs. Some households might work for employers that are small enough to be exempt from offering Auto IRAs or some households might not meet job tenure requirements. An Auto IRA program for most workers without pension coverage could be costly to implement and administer, as millions of individual accounts would likely need to be processed. One goal of Auto IRA proponents is to minimize employers' administrative burdens and fiduciary obligations. For example, there may be questions about which default investments are appropriate for workers that do not make active participation decisions. In addition, Auto IRAs would provide IRAs to some workers who already have traditional or Roth IRAs. Among households that do not have an employer-sponsored pension plan, and therefore would be potentially eligible for the Auto IRA, 25.3% already own IRAs. While individuals could opt out of the Auto IRA, the possibility exists that some individuals may inadvertently exceed the yearly IRA contribution limit. The tax penalty is 6% of amount of the excess contribution. The Treasury Inspector General for Tax Administration noted that noncompliance with IRA contribution limits is an area of concern and that the IRS has inadequate procedures to ensure compliance. It is estimated that 146,976 taxpayers exceeded the contribution limit in 2007. Improving Financial Literacy Efforts to improve financial literacy may increase IRA contributions and ownership rates by increasing knowledge of the benefits of IRAs, the Saver's Credit, and the option to have federal income tax refunds deposited directly to IRAs. Many government agencies, non-profit groups, and for-profit companies have ongoing campaigns aimed at improving financial literacy (for example, increasing awareness of credit card fees). In particular, some of these efforts focus on the importance of saving for retirement. Increasing Fee Transparency Small differences in the amount of fees that financial institutions charge for managing IRAs can yield large differences in the account balances at retirement. Some policymakers have expressed concern regarding the fees that financial institutions charge 401(k) plan participants. Legislation has been introduced that would increase 401(k) plan sponsors' and participants' awareness of the fees that they pay. However, legislation to increase fee transparency for IRA owners has not been introduced. The Department of Labor recently issued an interim final rule that would require greater transparency of fees paid in 401(k) plans. The final rule specifically excludes IRAs, noting that IRA owners are solely responsible for managing their accounts and that IRA fee disclosure requirements could be quite costly. One difference between IRAs and 401(k) plans is that IRA owners have complete control over the choice of the financial institution and investments. However, individuals may find the decisions associated with opening and maintaining IRAs complicated and perhaps overwhelming. This suggests that opportunities may exist for financial institutions to charge higher fees than necessary. A direct comparison of IRA and 401(k) fees is not possible because of the different structures of the plans. IRAs are likely administratively costly, as each separate account requires separate record keeping, whereas 401(k) plan administrators can take advantage of economies of scale.

Preparing for financial security in retirement continues to be a concern of working Americans and policymakers. Although most Americans participate in the Social Security system, Social Security is likely to be only a part of income in retirement. A recent Gallup poll indicated that while 34% of working Americans expect Social Security to be a major source of retirement income, 45% of those polled expect private retirement savings accounts to be a major source of retirement income. Since the 1920s, Congress has provided tax incentives to employers to sponsor pension plans for their workers. Recognizing that workers for companies that did not offer pension plans did not benefit from the incentives, in 1974, Congress permitted workers without pension plans to establish Individual Retirement Accounts (IRAs). IRAs are tax-advantaged savings accounts to encourage workers to save for retirement. Since 1974, eligibility for IRAs and the tax treatment of contributions to IRAs have changed. Currently, workers without pensions and workers with pensions whose income is under certain limits may make tax-deductible contributions to IRAs. Other workers may make non-deductible contributions. Since 1998, some workers have been able to make non-deductible contributions to Roth IRAs. Lump-sums from employer-sponsored pensions may be rolled-over into either traditional or Roth IRAs. Most of the funds in IRAs consist of rollover balances rather than the accumulation of contributions and investment earnings. IRAs may be falling short of their goal of encouraging workers to save for retirement. While about one-half of working Americans participate in employer-sponsored pensions, only about one-third of working households in the United States owned an IRA in 2007. Although IRAs were originally intended for workers in employment without pension plans, IRA ownership rates are higher among households in which the head or spouse participates in a pension plan at work. Among households with pension coverage, 38.7% had an IRA in 2007. Among households without pension coverage, 25.5% had an IRA in 2007. Analysis of the 2007 Survey of Consumer Finances from the Federal Reserve indicates that households that own IRAs tend to be older, wealthier, more educated, and have higher propensities to save than households that do not own IRAs. Although one-third of working households owned an IRA in 2007, relatively few households made a tax-deductible IRA contribution in 2007. Statistics of Income data from the Internal Revenue Service indicate that 2.3% of tax returns reported a tax-deductible IRA contribution in 2007. The percentage of taxpayers reporting tax-deductible IRA contributions was lower in 2007 than in any year since 1978. Both the percentage of taxpayers reporting tax-deductible IRA contributions in 2007 and the average amount of that contribution increased as taxpayers' reported income increased. Although IRA ownership rates are lower among households without pension coverage, IRA ownership patterns are similar among households with and without pension coverage. For example, IRA ownership increases as households' income increases and IRA ownership rates are higher among households that own their homes compared with households than do not own their homes. Some policy proposals that supporters argue will increase IRA ownership rates and account balances include making the Retirement Savings Contributions Credit a refundable tax credit, adopting Automatic IRA proposals, increasing household financial literacy, and making the fees that financial institutions charge IRA owners more transparent.

Background Since the mid-1950s, Congress has added numerous provisions to the Public Health Service Act (PHSA) that authorize education and training programs for various health, medical, and nursing professionals. The programs, consolidated in Title VII and Title VIII of the PHSA, provide grants, scholarships, and loans to individuals and institutions in order to increase the supply of professionals in health care, medicine, and nursing. Title VII programs support individuals who study to become primary care physicians, dentists, public health, and allied health professionals. Also, institutions that train these individuals are eligible for grants to support the development of education and training opportunities through endeavors such as multidisciplinary collaborative efforts and community partnerships. Title VIII programs support individuals in the study of nursing and enhance the ability of institutions to sustain nursing workforce programs. Major health reform legislation enacted in 2010 includes amendments to Title VII and Title VIII that add, delete or modify program authorities. The Health Resources and Services Administration (HRSA) in the Department of Health and Human Services (HHS) administers Title VII and Title VIII programs. Discretionary funding for these programs is provided in the annual appropriations act for the Departments of Labor, HHS, and Education (Labor-HHS-ED). The FY2010 enacted appropriations for Title VII and Title VIII programs are $254.1 million and $243.9 million, respectively, for a total of $498.0 million. In addition, a portion of the supplemental funds provided through the American Recovery and Reinvestment Act of 2009 (ARRA) is available for FY2010. Major provisions enacted in the Patient Protection and Affordable Care Act (PPACA) amended Title VII and Title VIII of the PHSA to revise existing authorities or create new ones. Implementation of the discretionary programs authorized in PPACA will depend on future appropriations actions. After reviewing the status of authorizations for Title VII and Title VIII programs, this report summarizes the appropriations history for the period from FY2001 through FY2010, together with the FY2011 President's budget request. Table 1 provides an appropriations history for Title VII; Table 2 , an appropriations history for Title VIII; and Table 3 , a consolidation of program totals for Title VII and Title VIII. Appendix A provides details about plans within HRSA to distribute ARRA funds in FY2009 and FY2010 for Title VII and Title VIII programs. Appendix B summarizes the sections of PPACA that amend various sections in Title VII and Title VIII of the PHSA. Authorizations Before PPACA was enacted in March 2010, statutory authorities for Title VII and Title VIII programs had been amended numerous times since their initial passage. For Title VII, the Health Education Partnerships Act of 1998 ( P.L. 105-392 ) had been the most recent reauthorizing legislation, authorizing appropriations for many programs through FY2002. The same law also extended appropriations authority for most Title VIII programs through FY2002. Subsequently, authorizations for some, but not all, Title VIII programs had been extended through FY2007 in the Nurse Reinvestment Act of 2002 ( P.L. 107-205 ). In the 111 th Congress, multiple provisions of PPACA added, eliminated, or revised program authorities in each of Title VII and Title VIII, including new or extended authorization of appropriations for selected programs (see Appendix B ). Appropriations Activity in the 111th Congress On February 1, 2010, President Barack Obama presented the FY2011 budget, requesting a total of $503.9 million for Title VII and Title VIII programs. The amount is an increase of $5.9 million (1.2%) above the $498.0 million enacted in the FY2010 appropriations for these programs. The FY2010 enacted appropriations for Title VII and Title VIII programs are $254.1 million and $243.9 million, respectively. PPACA provided no supplemental FY2010 appropriations for Title VII and Title VIII programs. For FY2009, Congress appropriated funds for Title VII and Title VIII programs in two separate enactments. Regular appropriations of $392.7 million were provided in the FY2009 Omnibus Appropriations Act. A supplemental appropriation of $200 million for health, medical, and nursing workforce programs was added by ARRA. Of that $200 million, the Secretary has allocated $148.5 million to Title VII and Title VIII programs, and $50 million for equipment to enhance the training of health professionals. Unlike regular appropriations, most ARRA funds are available for obligation over two fiscal years, through September 30, 2010. As shown in Appendix A , HRSA obligated about one-third ($68.2 million) of the $200 million in FY2009, leaving about two-thirds ($131.8 million) for obligation in FY2010. Title VII, Health Professions Education Appropriations President Obama's FY2011 budget request would provide a total of $260.0 million for Title VII programs, representing an increase of $5.9 million (2.3%) above the FY2010 appropriation of $254.1 million. All currently funded programs would receive level funding, except for the Workforce Information and Analysis program, which would be increased from $2.8 million to $8.8 million. Table 1 presents Title VII appropriations for health and medical professions training programs for the period from FY2001 through FY2010, together with President Obama's FY2011 budget request. During the period from FY2001 through FY2010, total annual appropriations for Title VII programs fluctuated significantly, from a high of $308.4 million in FY2003 to a low of $145.1 million in FY2006. Throughout much of this period, the George W. Bush Administration sought to eliminate funds for most Title VII programs, but Congress generally restored funding. Funding for several progams was eliminated starting in FY2006, including Health Education and Training Centers, Workforce Information and Analysis, and Health Administration Traineeships and Special Projects. However, Workforce Information and Analysis received renewed funding in FY2010. Title VIII, Nursing Workforce Development Appropriations President Obama's FY2011 budget request would provide $243.9 million for Title VIII programs, which is equal to the FY2010 enacted appropriation. The request would maintain current levels of funding for each of six authorized programs. Table 2 presents Title VIII appropriations for nursing programs from FY2001 through FY2010, together with President Obama's FY2011 budget request. During the period from FY2001 through FY2009, appropriations for Title VIII programs increased by 104%, from $83.8 million to $171.0 million. In the FY2010 appropriation, Congress boosted Title VIII funding by an additional 43% over the FY2009 regular appropriation. The Public Service Announcements program (PHSA Sections 851 and 852) is the only program authorized in P.L. 107-205 that has received no funding. Combined Appropriations, Allocation of Stimulus Funds, and Health Care Reform Legislation Table 3 compiles total appropriations for Title VII and Title VIII programs for FY2001 through FY2010, and shows President Obama's FY2011 budget request. Appendix A details HRSA's planned obligations of $200 million in ARRA funding over FY2009 and FY2010. Appendix B summarizes the sections of the health care reform legislation that added, deleted or modified selected authorities in Title VII and Title VIII. Appendix A. Allocation of Stimulus Funds Appropriated for HRSA Health Professions Programs in the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) Appendix B. Sections of Patient Protection and Affordable Care Act (PPACA) that Amend Authorities in Title VII and Title VIII of the Public Health Service Act (PHSA)

The Public Health Service Act (PHSA) establishes authority for the Secretary of Health and Human Services (HHS) to develop and implement workforce programs authorized in Title VII (health and medicine) and Title VIII (nursing). These programs, administered by the Health Resources and Services Administration (HRSA), provide grants, scholarships, and loans to support institutions and individuals in developing and sustaining the health workforce. Before passage of health care reform legislation in March 2010, appropriations authority for all Title VII and Title VIII programs had expired. Congress had nonetheless continued to appropriate funds for the programs. During the period from FY2001 through FY2010, total annual appropriations for Title VII programs fluctuated from a high of $308.4 million in FY2003 to a low of $145.1 million in FY2006. For Title VIII programs, during the period from FY2001 through FY2009, the annual appropriation increased from $83.8 million to $171.0 million. In the FY2010 appropriation, Congress boosted Title VIII funding by an additional 43% over the previous year. For FY2009, Congress appropriated funds for Title VII and Title VIII programs through two separate enactments. The Omnibus Appropriations Act, 2009 (P.L. 111-8) provided $392.7 million in regular appropriations. The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) added a supplemental appropriation of $200 million to be obligated over two years. Of this total, $148.5 million has been applied to Title VII and Title VIII programs; remaining funds are expected to be obligated for related activities (see Appendix A). For FY2010, Congress appropriated $498.0 million for Title VII and Title VIII programs, an increase of 26.8% over the regular FY2009 appropriations. President Barack Obama's FY2011 budget contains a request of $503.9 million for Title VII and Title VIII programs, a 1.2% increase above the regular FY2010 appropriations. The FY2011 request would provide level funding for almost all Title VII and Title VIII programs. This report provides a history of appropriations for programs in Title VII and Title VIII of the PHSA. It includes a summary of new authorizations for these two titles, as enacted in major health reform legislation, the Patient Protection and Affordable Care Act, P.L. 111-148 (see Appendix B).

Introduction Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. This integration is reflected in several international conventions including the 1972 United Nations Conference on the Human Environment (the Stockholm Convention), the 1992 United Nations Conference on Environment and Development (the Rio Convention), the 1992 United Nations Framework Convention on Climate Change (UNFCCC), and the 2002 World Summit on Sustainable Development (the Johannesburg Summit), among others. Donor countries, including the United States, that provide financial assistance to lower-income countries to aid in their economic development, have increasingly targeted projects that address the full range of economic growth indicators. These indicators include financial viability, social inclusivity, and environmental sustainability at both the local and the global level. The World Bank Group (WBG), as the world's largest multilateral lending institution for development assistance, sits at the nexus of these efforts. As an international organization, the WBG is generally exempt from U.S. law. However, the United States—through its role as a financial contributor to the WBG and as a member on the various WBG governing boards—has influence on WBG policy. This influence manifests itself through voting power on the Board, general advocacy, reporting requirements, and financial leverage. Through these efforts, various U.S. Administrations have focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. Similarly, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—has significant input on these issues. Congressional debate over the WBG's environmental practices is long-running. As early as 1983, a campaign to call attention to environmental problems caused by WBG projects was undertaken by several U.S. environmental groups, including the Sierra Club, Environmental Defense Fund, National Wildlife Federation, Natural Resources Defense Council, and others. The U.S. Congress subsequently held hearings on the issues documented by these groups, and began a process that saw annual investigations by a wide range of committees, including those on banking, foreign affairs and foreign relations, appropriations, environment, and others. Witnesses included environmental groups from the United States and affected countries and the U.S. officials charged with directing U.S. participation in the WBG institutions. When asked by Congress to look into the problems identified by environmental groups, U.S. Treasury officials also became concerned about possible negative environmental impacts of WBG projects—a subject that had received little or no official attention at that time. Beginning in the mid-1980s and continuing to the present, Congress has passed a succession of laws that aim to influence environmental practices at the WBG. Legislative guidance to help direct the U.S. officials in encouraging and promoting sustainability goals at WBG institutions has been included in many authorizing legislations and annual foreign operations appropriations bills. The primary legislative vehicle for U.S. interaction with the WBG has been the International Financial Institutions Act of 1977, as amended ( P.L. 95-118 ), as well as various annual appropriations acts, provisions of which are found in the U.S. Code, Title 22, Chapter 7. The U.S. Code has several sections related to energy and environmental issues at the WBG, including guidance for the sustainable use of natural resources and the protection of the environment, public health, and the status of indigenous peoples in developing countries; requirements for environmental impact assessments and the identification of proposals likely to have adverse impacts; mandates for the creation of information exchange systems among countries and civil society organizations related to the environment; promotions for loans supporting environmentally beneficial policies, projects, and project components; and directives to adopt and implement greenhouse gas accounting in analyzing the benefits and costs of individual projects and ensure the expansion of activities supporting climate change mitigation. Through the years, the WBG has incorporated guidance provided by the U.S. Congress via the U.S. Executive Directors in various lending reforms and operational policies. In 2009, U.S. environmental guidance—as well as other internal and external pressures—led to the WBG reporting its intentions to revise its decade-old strategy for energy and infrastructure lending. After releasing an Energy Strategy Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), dated March 16, 2011, was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. This report summarizes the provisions of the proposed Energy Sector Strategy of the World Bank Group. It situates the strategy within current WBG lending practices and in response to various stakeholder critiques. A final section outlines issues for Congress. Energy Sector Lending at the World Bank The core mission of the World Bank Group, as stated in its literature and outreach, is poverty alleviation and environmentally sustainable development. Research shows an estimated 1.4 billion people worldwide (i.e., 20% of the world population) are without access to electricity or modern energy resources, and many more face recurrent supply disruptions. Demand for primary energy is estimated to increase by 80% in lower-income countries by 2035, and achieving universal access to electricity is estimated to require an additional annual average investment of $36 billion. Also, approximately 3 billion people continue to rely on traditional solid fuels for heating and cooking, with estimates that nearly 2 million die annually, and many more fall ill, from indoor air pollution caused by this practice. Further, it is speculated that lower-income countries may bear up to 80% of the cost of future damages caused by global climate change. Research suggests that energy-saving policies and low-emission technologies could be ways for meeting future energy needs in a globally sustainable manner as well as for mitigating local environmental problems associated with energy production and use. The WBG claims that achieving these goals could contribute significantly to eradicating poverty and hunger, supporting primary education, promoting gender equity, combating disease, and ensuring environmental stability, as well as increasing entrepreneurial business activities and economic development in lower-income countries. But World Bank environmental strategies are not without their critics. Throughout the years, many of the WBG's lending practices have supported projects with potentially negative environmental implications. Road construction, large dams, fossil-fuel power generation, mining and extractive industries, and agricultural and forestry projects sponsored by WBG lending have been criticized by many who believe they are not only environmentally destructive, but are often harmful to large segments of the population in the societies they are intended to help (e.g., farm fertility may be harmed by unsustainable agriculture practices, soil may be contaminated by adjacent energy or mining industries, fisheries may be affected by pollution from excess fertilizer use or industrial runoff). Current Practices World Bank Group lending for energy infrastructure projects totaled $13 billion in 2010. Projects included investment in upstream exploration, new and retrofitted facilities for power generation, transmission and distribution systems, demand side management and energy efficiency programs, and policy and technical advice. Energy lending currently accounts for 17% of the WBG's investment portfolio (see Figure 1 ), and has grown steadily over the past decade (e.g., energy sector lending averaged approximately $2.4 billion annually from 2000-2004, and accounted for roughly 4%-6% of the WBG's investment portfolio during those years). In 2003, at the request of the Board of Executive Directors, WBG management established an Infrastructure Action Plan to revitalize the WBG's engagement with the energy sector. Further, in response to the global financial and economic crisis, the WBG launched the Infrastructure Recovery and Assets Platform in April 2009 (to support counter-cyclical spending on infrastructure) and the Infrastructure Crisis Facility in December 2009 (to ensure the availability of long-term debt to support private infrastructure projects affected by capital shortages). Due in part to these initiatives, total commitments in the sector have grown significantly. Figure 2 presents recent lending figures by energy sector. See also Appendix B for numerical data related to lending by sector, by financing institution, and by geographic region. The WBG reported that 2010 marked an all-time record in renewable energy and energy efficiency financing, as well as a new record in low carbon financing. Figures for new investment showed a 62% increase in low carbon commitments to $5.5 billion compared to 2009, and low carbon energy financing accounted for 42% of all 2010 commitments. Additionally, 30 out of 34 country assistance and partnership strategies prepared in 2010 addressed climate change and sustainable development. However, critics noted that the WBG's "low carbon financing" category funded fossil fuel projects that supported increased use of "cleaner" fuels to displace more carbon intensive ones. Similarly, focusing solely on the categories for "renewable energy" and "energy efficiency," rather than the broader category for "low carbon," showed a decrease in these sectors' shares of total energy investment, from 39% in 2009 to 26% in 2010. Likewise, while renewable energy and energy efficiency financing established all-time highs in 2010, at $1.6 billion and $1.8 billion respectively, so did new fossil fuel thermal power generation, up to $4.3 billion, a fourfold increase over 2009. The WBG promoted additional initiatives during 2010 as having supported increased energy access and environmentally sustainable development. These included (1) the World Bank Carbon Finance Unit, which backed 250 projects through the purchase of carbon credits representing a monitored 141 million tons of greenhouse gas emissions; (2) the Climate Investment Funds, a trust-funded global partnership hosted by the World Bank, which assisted countries' transitions toward low carbon and climate-resilient development; (3) the World Bank Forest Carbon Partnership Facility, which mobilized $165 million for capacity building and performance-based payments to pilot projects in forest and land management; (4) the Global Facility for Disaster Risk Reduction and Recovery, another trust-funded global partnership hosted by the World Bank, which promoted the integration of climate risk management into the WBG's development efforts; and (5) the Global Environment Facility, another trust-funded global partnership hosted in part by the World Bank since 1991, which assisted countries with environmental projects related to six areas: biodiversity, climate change, international waters, the ozone layer, land degradation, and persistent organic pollutants. Critiques Developing Countries Many lower-income countries continue to view the WBG primarily as a financial institution to assist in poverty alleviation and economic development, not as an organization to address environmental issues. They may be interested in low-cost, high-growth energy and infrastructure technologies that can rapidly and reliably deliver benefits to their target populations over short time periods. For this reason, they may be concerned that an emphasis on renewable energy, such as solar power, wind, and biofuels, may not sufficiently meet the growing demand for electricity in an affordable and reliable manner. They may view renewable alternatives with skepticism—especially if they are not widely used in industrialized economies—and they may likely prefer more traditional fossil fuel-based options, even if the consequences on long-term sustainability are more damaging. Additionally, they may see efforts by industrialized countries to require measurement, reporting, and verification of greenhouse gas emissions and other environmental pollutants as an unnecessary burden on short-term project development, economic growth, and national sovereignty. Developed Countries There are some segments in higher-income countries that support the economic growth arguments of developing countries, and see little need for investment in low-carbon or renewable energy technologies. Further, some observers are opposed to the practice of foreign aid in general. They argue that grant and loan-based financial assistance is a detriment to economic growth in developing countries because it removes incentives, institutes dependency, and fuels corruption. Other segments, including recent U.S. Administrations, have generally supported the environmental efforts of the WBG and have followed its progress on such initiatives as (1) the updating and consolidating of its environmental and social safeguard policies into an integrated environmental and social policy framework, (2) the updating of its energy sector strategy, and (3) the development of the "World Bank Framework and IFC Strategy for Engagement in the Palm Oil Sector," which would guide future engagement in the sector following the September 2009 moratorium on new investments. The United States is also seeking to strengthen the IFC's environmental and social performance standards as well as its Policy and Performance Standards on Environmental and Social Sustainability and its Access to Information Policy. The United States continues to work with the World Bank to ensure that its lending practices reinforce efforts to promote lower carbon development pathways, and has recently provided a policy document which suggests baseline requirements for fossil-fuel projects, Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) The greatest concern of developed countries often tends to be the dislocation between the WBG's stated policies and its subsequent actions—a dislocation often characterized as a split between its visionary or aspirational flagship studies for external audiences and its internally operational practices. In this regard, some countries suggest that any practical guidance for the WBG's engagement in the energy and environment sector should be grounded in regional and country programs, as well as in its Strategic Framework for Development and Climate Change. Environmental Groups Many environmental observers claim that the history of the WBG's energy and infrastructure lending wholly undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. Environmental groups often highlight the inconsistencies between the WBG's rhetoric on climate change and sustainable development and its operational policies and practices. They emphasize that while the WBG may have increased financing for renewable energy and energy efficiency in recent years, its fossil fuel lending still accounts for a large portion of its portfolio (see Appendix B for a comparison of energy sector investments). They argue that the controversy is compounded by the WBG's inability to reach a consensus on the definition of "clean energy technology," retaining provisions for natural gas and ultra-supercritical coal-fired power generation in its sustainability strategies. Further, some environmental groups contend that the WBG misrepresents its practices when reporting information on energy access, environmentally sustainable development, and clean energy projects. They claim that WBG investment is more heavily weighted in favor of fossil fuels than officially reported because the institutions do not provide accurate accounting for fossil fuel development in such lending categories as "transmission and distribution" and "policy and technical assistance." Likewise, critics claim that the WBG fails to account for fossil fuel investments that are taking place through financial intermediaries (i.e., arrangements for loans or equity financing to a foreign entity such as a local commercial bank, private equity fund, or special government managed fund). Critics suggest that financial intermediary arrangements may represent a substantial portion of WBG funding. For example, the Bank Information Center reports that financial intermediary funding comprises over 40% of investments by the International Finance Corporation, the WBG's private sector lending arm. Finally, critics argue that the WBG misrepresents its lending for energy efficiency and renewable energy technologies, contending that the greater part of these programs are financed through specific donor funds, such as the Global Environment Facility and the Climate Investment Funds, that are not structurally a part of the WBG. Many observers agree that continued investment by the WBG in fossil fuel energy and infrastructure may have several unintended effects, including (1) counteracting any gains made with the WBG'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 WBG's professional and technical staff away from a concentration on energy efficiency and renewable energy activities to remain involved with fossil fuel generation. The World Bank Group's "Energy Sector Strategy" Timeline for the Strategy The core mission of the World Bank Group is poverty alleviation and environmentally sustainable development, as introduced through the Millennium Development Goals. As a reflection of this mission statement, the WBG has sought to devise a strategy for financing energy and infrastructure projects that could best address these two concerns. Over the past few years, through research and analysis both internal and external, the WBG has surmised that a departure from existing energy policy and lending approaches would be required in order to (1) provide adequate, equitable, and reliable energy for future economic development and poverty reduction; (2) extend energy access and support household energy programs; (3) ensure the long-term environmental sustainability of the energy sector; and (4) address global climate change. For these purposes, the WBG set forth to prepare an updated energy sector strategy, as the existing framework—provided in a 1999 document, Fuel for Thought (FFT), and an informal 2001 paper entitled The World Bank Group's Energy Program: Poverty Alleviation, Sustainability, and Selectivity— dated back over a decade. An Energy Strategy Approach Paper was released in the fall of 2009. The WBG held a series of meetings, videoconferences, and other events during a consultations phase from January 2010 to July 2010 in which a reported 2,100 participants from government, civil society, the private sector, and academia were surveyed through 50 face-to-face meetings and 170 written submissions. The revised strategy, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Board Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Executive Board for a vote. Prior WBG statements had mentioned a proposed second consultation phase between the presentation to CODE and delivery to the Executive Board. The ESS, however, stalled during debate in CODE. According to the WBG's website, as of April 11, 2011, "The World Bank Group's Board Committee on Development Effectiveness is now reviewing a draft energy sector strategy for the organization. The strategy document will be posted on the website when this review is completed." Posting of the draft strategy is still pending. Some WBG observers have reported that the ESS is to be modified as necessary to reach consensus in CODE, with little or no external consultation, before an informal Board date in July or later. Media reports indicate that the interruption was caused by a stalemate in CODE over provisions in the ESS for coal-fired power generation (i.e., the ESS no longer supports new coal-fired power generation in middle-income countries). Sources report that China and some other countries claimed that the ESS's coal provisions were "discriminatory." With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. Provisions in the Strategy The WBG states that the ESS is a 10-year strategy document. Provisions are to cover lending and investment activities in all five WBG sub-institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). The ESS, however, would not cover activities at the regional development banks (i.e., Inter-American Development Bank, African Development Bank, Asian Development Bank, and European Bank for Reconstruction and Development), the International Monetary Fund, or other independent, international financial institutions. The March 16 draft text of the ESS contains the following provisions, among others: Focusing on Alternatives to Coal-Fired Power Generation. The ESS aims to focus on ways to help countries identify alternatives to coal. The strategy calls for eliminating loans for all new coal-based power generation projects (i.e., "greenfield" projects) in middle-income countries (i.e., IBRD and Blend countries). (See Appendix A for WBG "IBRD," "Blend," and "IDA" country classifications; the distinction reflects the level of income and the credit-worthiness of a country). The strategy supports consideration for new coal-based power generation projects in IDA countries under strict compliance with WBG guidelines. The strategy also maintains financing to increase the efficiency of existing coal plants (i.e., "brownfield" projects), to be undertaken only after considering the impact of greenhouse gas emissions over the lifetime of the power plant. Further, the strategy approves natural gas projects that can demonstrate a lower emissions potential compared to available alternatives and that can serve as a base-load complement to intermittent renewable energy generation. Developing Large-Scale Hydropower Where Appropriate. The ESS allows consideration of large-scale hydropower projects in developing countries that conform to environmentally and socially sustainable criteria. The WBG describes its support for hydropower as a means to provide low-emissions electricity, expand markets, facilitate interconnected power systems, and tap the potentially large and cost-efficient resources available to lower-income countries, particularly in Sub-Saharan Africa and South Asia. Establishing Greenhouse Gas Emissions Analysis Programs. The ESS proposes to begin a greenhouse gas emissions analysis program for all new power generation projects starting in 2012 and for all other energy investment projects once methodologies have been developed. The WBG describes its support for greenhouse gas monitoring as a means to address global climate change, generate and transfer knowledge, identify opportunities for energy diversification, and help access low carbon financing. Increasing Lending for Clean Energy Projects. The ESS aims to substantially and steadily increase lending for clean energy projects, raising its share of investment in projects classified as "energy efficiency," "renewable energy," "energy policy," and "electricity transmission and distribution" from an average of 67% in 2008-2010 to over 75% by 2015. Currently the number of governments that have set policy targets or introduced incentives for renewable energy has doubled since 2005 and now exceeds 100; half of these are in lower-income countries. The WBG describes its support for a shift toward low carbon energy technologies as a means to address sustainable development and global climate change. Prioritizing Energy Efficiency Initiatives. The ESS aims to assist countries in designing incentives and removing technical and non-technical barriers to increase energy efficiency in all economic sectors. Estimates show that considerable scope exists for energy efficiency improvements in all countries, with the International Energy Association supporting scenarios wherein efficiency improvements could provide 67% of energy-related greenhouse gas reductions in 2020, and 47% in 2035. The WBG describes its support for improving energy efficiency as a means to address global climate change, lower energy demand, enhance reliability, potentially make energy more affordable to the poor, and reduce the vulnerability of the energy sector to external shocks and supply constraints. Expanding Access to Modern Energy Services. The ESS aims to provide reliable access to modern energy services at the lowest price financially viable and sustainable for energy suppliers. Current WBG projects in the energy sector between 2012 and 2015 are targeted to extend access to 25 million to 30 million people. The ESS proposes to extend additional access to 65 million to 80 million people through commitments made between 2012 and 2020, including construction of 8-12 gigawatts of additional generation capacity in Sub-Saharan Africa. The WBG describes its support for expanding access as a means to provide basic services, enhanced opportunities for education and health care, and greater entrepreneurial opportunities for developing economies. Improving Household Fuel and Distributed Energy Programs. The ESS aims to expand programs in household energy to increase the quality of energy services and decrease the impacts of energy poverty. The ESS proposes to promote initiatives such as solar-based energy services, high-performance cook-stoves, sustainable production of biomass-based energy, and other distributed energy supply options. The WBG describes its support for improving household fuel sources as a means to free families and communities from the debilitating health burdens exacted by indoor air pollution and to alleviate the impacts of energy poverty on women, children, and socioeconomic groups that may pay higher costs (in terms of time, labor, and finances) for these services. Encouraging Local Community Engagement and Empowerment. The ESS aims to harness the benefits of local community participation in terms of improving design, mobilizing contributions, and increasing local ownership and operational sustainability. Gender equity is also promoted. Promoting Innovative Policy. High and volatile fuel prices, energy shortages, and a continuing inability to finance essential energy infrastructure continue to affect development finance in lower-income countries. The ESS aims to promote innovative policy tools, transparent market designs, new financial models and instruments (including carbon markets), strengthened governance across energy supply chains, and private sector participation to address investment barriers. Reactions to the Strategy While the World Bank Group may function independently as a lending institution and technical consultant, its funding remains tied to the financial contributions of donor country governments. This fact necessarily puts a limit on the WBG's resources. Due to these limitations, questions regarding the ways and means of financial disbursements become substance for debate among the lending institutions, contributing governments, recipient countries, and civil society stakeholders (e.g., questions include the following: How best to use scarce resources? Which countries and which projects receive funding? Why?). Policies such as the ESS position the WBG between outspoken environmental groups that advocate for substantial reform, higher-income countries like the United States that support raising the bar for environmental and social safeguards, and lower-income countries that insist on having the ability to address poverty alleviation and economic development as they see fit. Some of the critiques by various stakeholders regarding the WBG's energy lending practices in general and the ESS in particular are as follows: Developing Countries The media report that reactions by lower- and middle-income countries to the March 16 draft of the WBG ESS centered primarily around the language on coal. Sources report that China and some other countries claimed the ESS's coal provisions were "discriminatory." In a recent interview with Environment & Energy Publishing, Rogério Studart, the World Bank Executive Director for Brazil, is reported as stating that the agency's plan to prevent middle-income countries from accessing loans for new coal plants, while still allowing them for the poorest countries, is "a dangerous precedent." He claims that banning coal would only hurt the poorest countries that currently cannot afford cleaner or renewable alternatives. He argues that "some countries cannot provide energy access, particularly in Africa, without coal, and the Bank knows that." Some countries also raised concerns over the WBG's reliance on markets and the private sector as the principal means of developmental assistance delivery, and said the WBG should do more to promote technology transfer for renewable energy and energy efficiency. Developed Countries Most of the provisions outlined in the March 16 draft of the WBG ESS are consistent with policy guidance that has been provided by higher-income, donor country governments. With respect to the United States government, the IDA-only criteria for new coal-fired power generation, and the provisions for more efficient brownfield coal retrofits, are consistent with the December 2009 U.S. Treasury Guidance to Multilateral Development Banks for Engaging with Developing Countries on Coal-fired Power Generation . (See Appendix C for provisions in the U.S. guidance.) Further, the greenhouse gas accounting is consistent with legislative mandates given in the Supplemental Appropriations Act of 2009 ( P.L. 111-32 ). Language on increased energy access and promotion of renewable energy alternatives is also consistent with many previously legislated mandates. The United States has commonly supported large-scale hydropower projects if they are accompanied by substantial upstream and downstream environmental and social accounting. Environmental Groups Media and nongovernmental organizations report that reactions to the March 16 draft of the WBG ESS by environmental groups has been generally positive. The coal provisions are seen as a victory by many (although some have advocated for eliminating coal investments entirely). Other groups have stated they remain concerned about possible loopholes in the strategy. These include (1) a failure to define "brownfield," leaving open the possibility for wider coal lending; (2) a push to fund "emerging technologies," causing concern over whether that definition would allow the WBG to loan money for carbon capture and storage development (an implicit support for coal); and (3) continued emphasis on hydropower, prompting concerns over the environmental and social impacts of more large dams. Continued stakeholder engagement is also desired by the environmental community. Issues for Congress The proposed Energy Sector Strategy before the World Bank Group Committee on Development Effectiveness and the Board of Executive Directors is a potential vehicle for the U.S. Congress and the U.S. Administration to address concerns regarding energy and infrastructure lending in lower-income countries and its effect on poverty alleviation and environmentally sustainable development. Whether the provisions in the March 16 draft of the ESS are retained in the final version depends upon negotiations currently taking place in CODE and in the subsequent vote by the Board of Executive Directors. WBG debate on the ESS also coincides with several other institutional initiatives, including (1) the drafting of a coordinated set of environmental and social safeguards, (2) the introduction of a new results-based lending platform, and (3) the request for increases in its capital base to fund the continued expansion of its development lending programs. The final version of the ESS may influence negotiations on any of these initiatives, and vice versa. Further, authorizations and appropriations for U.S. participation in the capital increases at the WBG are currently included in the U.S. Administration's FY2012 budget request. Levels of U.S. funding for the capital increase may likewise influence negotiations on these initiatives. The United States carries one—albeit a significant—voice and vote in the policies of the WBG. The U.S. Congress retains the role of deciding the overall terms of U.S. involvement in the WBG by setting the level of U.S. contributions and by influencing how the United States votes on policies and projects. The House Committee on Financial Services (Subcommittee on International Monetary Policy and Trade) and the Senate Committee on Foreign Relations (Subcommittee on International Development and Foreign Assistance, Economic Affairs, and International Environmental Protection) are responsible for managing WBG authorization legislation. The U.S. House and Senate Committees on Appropriations (Subcommittees on State, Foreign Operations, and Related Programs) manage the relevant appropriations legislation. Congress can enact legislative mandates that oversee and regulate U.S. participation in the WBG. These mandates fall into one of four main categories. First, legislative mandates direct how the U.S. representatives at the WBG can vote on various policies and projects. Second, legislative mandates direct the U.S. representatives at the WBG to advocate for specific policies. Third, Congress may require the Secretary of the Treasury to submit reports on WBG activities. Fourth, Congress may attempt to influence policies at the WBG through the "power of the purse," that is, by withholding funding from the WBG or attaching stipulations on the WBG's use of funds. Appendix A. World Bank Group Classifications WBG institutions base their lending on levels of economic development. Appendix B. World Bank Group Energy Portfolio, FY2003-FY2010 Appendix C. U.S. Department of the Treasury Guidance to the Multilateral Development Banks on Coal In December 2009, the U.S. Treasury Department transmitted to the senior management of the multilateral development banks (MDBs) guidance for engaging with developing countries on coal-fired power generation. The guidance is intended to be adapted by individual MDBs and incorporated into their respective operational policies, country and sector strategies, and other procedures that are related to the public or private project cycle for coal-powered generation operations. It covers a range of issues including alternatives analysis, power sector policy reform, and capacity building. It is intended to supplement rather than supersede other MDB operational policies (e.g., environmental impact assessment, other environmental and social safeguards, procurement) and to be used to help determine U.S. interactions with the MDBs as they update relevant sector strategies and operational policies. Provisions in the guidance include the following, among others: having the MDBs incorporate procedures to ensure full consideration of no or low carbon options before appraising a proposed new or retrofit coal-fired power generation project; identifying "no or low carbon options" as including (1) more carbon efficient fossil fuel generation, (2) renewable resources, (3) supply side efficiency improvements in other plants, and (4) demand side management; supporting the use of best internationally available technology for reducing GHG emissions if proceeding with appraisal of a new or retrofit coal generation project; for projects in IBRD and Blend countries, incorporating offsetting actions (i.e., a package of significant and measurable actions elsewhere in the power sector that, in the aggregate, are intended to reduce emissions by an amount equivalent to the emissions to be added by the proposed project); and, for projects in IDA-only countries, proceeding with appraisal of a coal project that does not meet the above best available technology criteria, if the project (1) addresses critical national energy security needs, (2) responds to national short-term emergencies, or (3) overcomes binding constraints on national economic development when no viable alternatives exist.

One in five people worldwide lack access to electricity. This is among the many challenges that financial institutions face when providing assistance to lower-income countries in order to promote economic and social development. Access to modern energy sources has the potential to substantially increase worldwide economic growth, creating markets in the developing world for products from the developed world, and vice versa. Filling this need may also result in environmental problems that could threaten development, including an increase in pollution that damages fisheries, reduces farm fertility, poses health risks, and contributes to climate change. In response to these risks, the World Bank Group (WBG) has reported its intentions to revise its strategy for energy and infrastructure lending to better address energy poverty alleviation and environmentally sustainable development. After releasing an Approach Paper in October 2009, and consulting with government and civil society stakeholders from January 2010 to July 2010, a strategy document, Energizing Sustainable Development: Energy Sector Strategy of the World Bank Group (ESS), was presented to the WBG Committee on Development Effectiveness (CODE) on April 11, 2011, for consent and subsequent delivery to the WBG Board of Executive Directors for a vote during the summer of 2011. The ESS, however, stalled during debate in CODE. With the appointment of Jim Yong Kim as the 12th President of the World Bank Group on July 1, 2012, the ESS process was discontinued. Efforts to revise energy and infrastructure lending have since been incorporated into the broader initiatives of the new administration. The impetus for the World Bank Group's revision of its energy strategy rests on many factors. Over the past several decades, sustainable energy and environmental issues have gained an increasing level of attention in international humanitarian and development assistance, as countries have tried to integrate poverty reduction and economic growth initiatives with a shared concern for the global environment. Further, lack of access to modern energy resources, recurrent supply disruptions, and increased exposure to the risks of global climate change have hindered social and economic development in many lower-income countries. The ESS comprises an initiative to support energy poverty alleviation and environmentally sustainable development with provisions that include deemphasizing coal-fired power generation, developing large-scale hydropower where appropriate, establishing greenhouse gas emissions programs, increasing lending for clean energy projects, promoting energy efficiency initiatives, expanding access to modern energy services, improving household fuel and distributed energy programs, encouraging local community engagement and empowerment, and supporting innovative energy policy. While some observers of the WBG have applauded provisions in the revised strategy, many claim that the history of the WBG's energy and infrastructure lending undermines its credibility as an institution committed to combating the impacts of environmental degradation and climate change. The United States—through its role as financial contributor to the WBG and as member on the WBG governing boards—has influence on WBG policy. This influence manifests itself through Board votes, general advocacy, reporting requirements, and financial leverage. While the U.S. Administration oversees the day-to-day participation in WBG operations, the U.S. Congress—through its role in WBG appointments, appropriations, and legislative guidance—retains significant input. U.S. guidance to the WBG has focused on the institution's lending practices as a means to induce greater environmental sustainability in multilateral development assistance. The ESS thus becomes another potential vehicle for the U.S. Congress and the U.S. Administration to further address concerns regarding energy and infrastructure lending in lower-income countries.

Introduction Concerns about hate crimes have become increasingly prominent among policymakers at all levels of government in recent years. A hate crime is defined as "[a] criminal offense against a person or property motivated in whole or in part by the offender's bias against a race, religion, disability, ethnic/national origin, or sexual orientation." Congress has recognized the special concerns and effects of hate crimes by enacting several laws such as the Civil Rights Act of 1968, the Hate Crimes Statistics Act of 1990, and the Hate Crimes Sentencing Enhancement Act of 1994. Current federal law permits prosecution of hate crimes committed on the basis of a person's race, color, religion, or national origin when engaging in a federally protected activity. On October 28, 2009, the President signed the Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act into law. The law expands the scope of hate crime victims to include gender, sexual orientation, gender identity and disability. In addition, the law broadens the circumstances under which the federal government would assert jurisdiction to prosecute such crimes. In light of the United States Supreme Court decision in United States v. Morrison , there are questions as to what underlying authority Congress may utilize to expand the scope of hate crimes to cover violence based on gender, sexual orientation, gender-identity and/or disability. The commerce clause, section 5 of the 14 th Amendment, and section 2 of the 13 th and 15 th Amendments are the grants of power most often mentioned when discussing Congress's authority to proscribe hate crimes and to enact other forms of civil rights legislation. Commerce Clause Article I, Section 8, Clause 4 of the United States Constitution authorizes Congress to "regulate Commerce with foreign Nations, and among the several States." There are three categories of activities subject to congressional regulation under the commerce clause. Congress may regulate the use of the channels of interstate commerce, or persons or things in interstate commerce, although the threat may come only from intrastate activities. Finally, Congress may regulate those activities having a substantial relation to interstate commerce (i.e., those activities that substantially affect interstate commerce). The Court narrowed the "affects interstate commerce" category with its decision in Morrison by rejecting the argument that Congress may regulate "non-economic, violent criminal conduct based solely on that conduct's aggregate effect on interstate commerce." In this case, the Court considered a suit brought by a former student of The Virginia Polytechnic Institute who alleged that two university football players raped her. The defendants and the university argued that the Violence Against Women Act, which allowed victims of gender-motivated violence to bring federal civil suits for damages, exceeded Congress's authority under the commerce clause. The Court agreed with the defendants despite the congressional findings that gender-motivated violence deterred interstate travel, diminished national productivity, and increased medical costs. The Court concluded that upholding the Violence Against Women Act would open the door to federalization of virtually all serious crime as well as family law and other areas of traditional state regulation. The Court said that Congress must distinguish between "what is truly national and what is truly local," and that its power under the commerce clause reaches only the former. As such, it would appear that any attempts to broaden the scope of hate crime legislation tied to findings and the general nature and consequences of hate crimes under the commerce clause are constitutionally suspect. However, it would appear that hate crimes that involve interstate travel continue to be within the commerce clause's reach. Reconstruction Amendments16 While the expansion of hate crime legislation may be suspect under the commerce clause, it may be within the scope of other legislative powers such as the legislative clauses of the 13 th , 14 th , and 15 th Amendments. The legislative clauses of the aforementioned amendments give Congress the power to enforce the Amendments by appropriate legislation. Morrison addresses the breadth of Congress's legislative power under section 5 of the 14 th Amendment. Under section 5 the Congress is vested with "power to enforce, by appropriate legislation, the [Amendment's] provisions." However, in Morrison, the Court pointed out that state action, not private, is covered. As such, Section 5 does not authorize legislation "directed exclusively against the action of private persons, without reference to the laws of the state, or their administration by her officers." Therefore, hate-driven denials by state officers or those acting under the color of law of equal protection or due process, or the right to vote fall within the scope of the legislative sections of the 14 th and 15 th Amendments. Conversely, it would appear that hate crimes committed by private individuals not acting under the color of law are beyond the scope of amendments. However, Section 2 of the 13 th Amendment may be a more viable option of broadening hate crime legislation. Unlike the 14 th Amendment, the 13 th Amendment proscribes slavery and involuntary servitude without reference to federal, state or private action. The Court has observed that "the varieties of private conduct that" Congress "may make criminally punishable ... extend far beyond the actual imposition of slavery or involuntary servitude ... Congress has the power under the 13 th Amendment rationally to determine what are the badges and incidents of slavery, and the authority to translate that determination into effective legislation." Section 2 of the 13 th Amendment envisions legislation for the benefit of those who bore the burdens of slavery and their descendants (race and/or color). But, it is unclear as to whether it is an appropriate authority for Congress to expand the range of victims of hate crimes (e.g., religion, national origin, etc.). Two questions come to mind: First, does violence based on bigotry constitute a "badge and/or incident of slavery?" Second, if so, must the remedial legislation be limited to the descendants of those for whose principal benefit the amendments were adopted? In a series of cases, the Court has observed that section 2 "clothes Congress with power to pass all laws necessary and proper for abolishing all badges and incidents of slavery in the United States." One could argue that due to the Court's decision in Morrison demonstrating a reluctance to expand Congress's use of the commerce clause to address gender-motivated violence, it is unclear as to whether the Court would consider the same violence as a "badge or incident of slavery" under the 13 th Amendment. However, the Court has not yet addressed the issue of how broad this congressional authority is. In construing the civil rights statutes enacted contemporaneously with the 13 th , 14 th , and 15 th Amendments, the Court held that Arabs and Jews would have been considered distinct "races" at the time the statutes were passed and the Amendments, drafted, debated and ratified. As this case addressed the issue of race, the question of whether religion can be used as a race indicator remains unanswered. In other words, would a Roman-Catholic, Methodist, or Episcopalian be considered a distinct "race" in the 19 th century? As such, it is unclear as to whether this would be considered sufficient to embrace all religious discrimination. Other Constitutional Limitations There are other constitutional limits upon the manner in which Congress and/or states may enact hate crime legislation. The Court has considered constitutional challenges regarding state hate crime statutes under both the 1 st and 6 th Amendments. The 1 st Amendment declares that "Congress shall make no law ... abridging the freedom of speech." The 14 th Amendment's due process clause imposes the same restriction upon the states, many of whose constitutions have a comparable limitation on state legislative action. Under the 1 st Amendment, the Court has decided several cases which provide the framework in which states must act to protect the constitutionality of hate crime legislation. Generally, the constitutional distinction boils down to the difference between conduct and speech. If the statute's aim is to punish conduct, then it will generally be upheld; however, if the intent behind the statute is to punish speech, thought, or expression, then courts are more apt to strike down the statute. For example in R.A.V. v. City of St. Paul , the Court struck down a local ordinance as being overbroad and because the regulation was "content-based," proscribing only activities which conveyed messages concerning particular topics. However, in Wisconsin v. Mitchell , the Court found that a Wisconsin statute providing sentence enhancement for bias-motivated crimes did not violate a defendant's 1 st Amendment right as the statute was directed towards the defendant's conduct and not expression. Most recently, in Virginia v. Black , the Court found that the 1 st Amendment permits a state to outlaw cross burnings done with the intent to intimidate because "burning a cross is a particularly virulent form of intimidation." However, in a separate ruling, the Court found that the Virginia statute banning all cross burnings is facially invalid as it impermissibly shifts the burden of proof to the defendant to demonstrate that he or she did not intend the cross burning as intimidation. The 6 th Amendment also provides constitutional limits on hate crime statutes. The 6 th Amendment provides defendants a right to a jury trial. In Apprendi v. New Jersey , the Court struck down New Jersey's hate crime law, which allowed a judge to increase a sentence to double the statutory maximum if he or she found, by a preponderance of the evidence, that the defendant acted with a purpose to intimidate an individual or group of individuals because of race. In reversing the lower court's decision, the Court declared that the jury trial and notification clauses of the 6 th Amendment and the due process clauses of the 5 th and 14 th Amendments embody a principle that insists that, except in the case of recidivists, a judge could not on his own findings sentence a criminal defendant to a term of imprisonment greater than the statutory maximum assigned for which he had been convicted by the jury. In other words, "other than the fact of a prior conviction, any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt."

Federal and state legislators recognize the special concerns and effects of hate crimes. Although there is some federal legislation in place, many states have enacted some form of ethnic intimidation law or bias-motivated sentence-enhancement factors in attempts to curtail hate crimes. Several United States Supreme Court cases provide the framework in which states must legislate to ensure the constitutionality of hate crime legislation. After these landmark cases, the real questions for states involve identifying permissible ways to curtail hate crimes without infringing on any constitutionally protected rights. On the federal level, in light of U.S. Supreme Court cases, the question remains as to what extent Congress can broaden the classes of individuals subject to hate crime legislation. This report discusses constitutional considerations facing both individual states and Congress in enacting hate crime legislation. It will be updated as events warrant.

Introduction The 107 th Congress considered and approved reauthorization legislation to amend and extend through FY2007 the Elementary and Secondary Education Act (ESEA) and the Safe and Drug-Free Schools and Communities Act (SDFSCA). The ESEA (and, therefore, the SDFSCA) is likely to be considered for reauthorization in the 110 th Congress. Most Recent Developments For FY2008, the President requested $324.2 million for the program—$100 million for state grants, and $224.2 million for national programs (see " Possible Reauthorization Issues ," below, for the Administration's reauthorization proposals). For FY2007, the President requested $216.0 million for the program that would fund the national programs component only. The President did not request funding for the state grant component (see the discussion below). The House Appropriations Committee, however, recommended $526.0 million, including $310 million for state grants ( H.R. 5647 ), and the Senate Appropriations Committee recommended $492.5 million, which also includes $310 million for the state grant program ( S. 3708 ). For FY2006, Congress appropriated $568.8 million for the SDFSC program. This figure includes $346.5 million for state grants and $222.3 million for national programs. The program continues to operate at FY2006 levels under a continuing resolution through February 15, 2007. This report discusses the 107 th Congress SDFSCA reauthorization and appropriations to fund the SDFSC program. For background information about the program, see CRS Report RL30482, The Safe and Drug-Free Schools and Communities Program: Background and Context . The Safe and Drug-Free Schools and Communities Program: Authorizations The No Child Left Behind Act (NCLBA, P.L. 107-110 ) amended and reauthorized SDFSCA as Part A of Title IV—21 st Century Schools. It authorizes funds for the SDFSC program, which is the federal government's major initiative to prevent drug abuse and violence in and around schools. It awards state grants by formula to outlying areas, state educational agencies (SEAs), and local educational agencies (LEAs) in all 50 states, the District of Columbia (DC) and the Commonwealth of Puerto Rico. Also, funds go to a state's Chief Executive Officer (Governor) for creating programs to deter youth from using drugs and committing violent acts in schools. National programs are supported through discretionary funds for a variety of national leadership projects designed to prevent drug abuse and violence among all educational levels, from preschool through the postsecondary level. State Grants For FY2002, $650 million was authorized for state grants and such sums as necessary for each succeeding fiscal year through FY2007. Of the funds authorized, 1% or $4.75 million (whichever is greater) is reserved for Guam, American Samoa, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands; 1% or $4.75 million (whichever is greater) is reserved for the Secretary of the Interior to administer programs for Indian youth; and 0.2% is reserved to provide programs for native Hawaiians. The remaining funds are distributed to the states, DC, and Puerto Rico, by a formula of 50% based on school-aged population and 50% based on ESEA Title I, Part A concentration grants for the preceding fiscal year. No state receives less than the greater of one-half of 1% (0.5%) of the total allotted to all of the states or the amount the state received for FY2001, under prior law. If total appropriations for state grants are less than the FY2001 level ($428.6 million), as has been the case in recent years, each state receives an equal proportional share of its FY2006 grant. State grant funds in any amount may be redistributed to other states if the Secretary determines that a state will not be able to use the funds within two years of the initial award. Also, a limitation is included stipulating that funds appropriated for national programs may not be increased unless state grant funding is at least 10% more than the previous fiscal year's appropriation. Language in the FY2005 Consolidated Appropriations Act negated the "limitation" provision for FY2006. Since the FY2006 national programs appropriation was less than its FY2005 appropriation, however, the limitation did not appear to apply. For FY2007, the Administration did not suggest funding for state grants, so the limitation provision would not need to be considered. Of the total state allotment, 20% goes to the Governor to award competitive grants and contracts to LEAs, community-based groups, other public entities, private groups and associations. The Governor may use not more than 3% of the funds for administrative costs. An SEA must distribute at least 93% of its allotment to LEAs for drug and violence prevention and education programs and activities. Of those funds, 60% are allocated based on the relative amount LEAs received under ESEA Title I, Part A for the previous fiscal year, and 40% are based on public and private school enrollments. Also, of the amount received from the state, LEAs may use not more than 2% for administrative costs. SEAs may use up to 3% of their allotments for administering the program. In FY2002, they also could have used (in addition to the 3% for administrative costs), 1% of their allotment (minus funds reserved for the Governor) to implement a uniform management information and reporting system (UMIRS). Funds could have been used directly or through grants and contracts to create the UMIRS, which was designed to collect information on truancy rates; the incidence, seriousness, and frequency of violence and drug-related crimes that resulted in suspending and expelling students in elementary and secondary schools in a state; the kinds of curricula, programs, and services provided by the Governor, SEAs, LEAs, and other fund recipients; and the incidence and prevalence of drug use and violence among minors, age of onset of such behavior, and the perception of health risk and social disapproval for such behavior. SEAs may use not more than 5% of allotted funds for state activities for: planning, developing, and implementing capacity building; providing technical assistance and training, evaluation, and program improvement services; and for coordinating activities for LEAs, community-based groups, and other public and private entities. Program Assessment Rating Tool (PART) PART is an instrument that was developed by the Administration to examine the performance of certain programs across federal agencies. In 2002 and in 2006, the state grants component of the SDFSC program was rated by the instrument. The state grants component was found to be "ineffective" because ED was unable to demonstrate that those programs worked and because state grant funds were judged to be distributed too thinly to support quality interventions. The Administration determined that the program provided approximately 64% of LEAs with funding that was less than $10,000 per year, which it concluded was typically too small to conduct general and effective drug prevention and school safety programs. Also, it was decided that the state grants program did not have a track record producing measurable or positive outcomes. Because of the PART assessment and fiscal constraints affecting the FY2007 budget, the Administration proposed to terminate the state grants program in order to fund what it considered to be higher-priority programs, including several SDFSC national programs. PART determined that the national program component of SDFSC held more promise in achieving important results and in helping to enlarge the nation's knowledge base on effective methods and actions related to drug and violence prevention. The Administration believed that national programs provided direct support to select LEAs in sufficient funding amounts potentially to be able to make a difference in such programs and would allow grantees and independent evaluators to assess progress, hold projects accountable, and measure the effectiveness of such interventions. The Department of Education explained that the department's strategy to determine whether positive outcomes were occurring as a result of the state grants program was to use national survey data from the Centers for Disease Control and Prevention's Youth Risk Behavior Surveillance System. It will use these data along with data that reveal the extent SDFSC state grant recipients implement research-based programs, to determine how widespread teen drug use and violence are in the nation. Also, ED is conducting an evaluation "using rigorous methodology for measuring the impact of promising interventions, and supporting grants and technical assistance to help States improve the collection, analysis, and use of data to improve the quality, and report the outcomes, of their SDFSC programs." National Programs The authorization for national programs is such sums as necessary for FY2002 through FY2007. Funds available under national programs allow the ED Secretary to consult with the Department of Health and Human Services Secretary, the Director of the Office of National Drug Control Policy (ONDCP), and the Attorney General to administer programs aimed at preventing violence and illegal drug use among students and promoting their safety and discipline. Also, from national program funds, up to $2 million may be reserved for evaluating the national impact of the SDFSC program, and an amount necessary is reserved to continue the Safe Schools/Healthy Students (SS/HS) initiative. In FY1999, the National Coordinator Initiative was created under national programs allowing LEAs to recruit, hire, and train persons to serve as SDFSC program coordinators in middle schools. ED officials believed that middle school students were at the age where they were most likely to begin experimenting with drugs and becoming more involved in violence and crime. NCLBA expanded the coverage of this permissive activity for national coordinators to serve as drug prevention and school safety program coordinators in all schools with notable drug and safety problems. Funding for this initiative, however, was terminated in FY2004. National program funds may be made available as formula grants to states with 50% of allotted funds based on school-aged population and 50% based on ESEA Title I, Part A concentration grants for the preceding fiscal year. No state would receive less than one-half of 1% (0.5%) of the total allotted to all of the states. Competitive grants may be awarded, in consultation with the Administrator of the Substance Abuse and Mental Health Services Administration (SAMSHA, within HHS), to LEAs allowing school districts to develop and implement programs to reduce alcohol abuse in secondary schools. In addition, grants may be awarded to LEAs, non-profit community-based groups, or to a partnership between an LEA and such an organization for assistance in creating and supporting mentoring programs and activities for children with greatest need in middle schools to assist them in successfully making the transition to secondary school. Other permissive initiatives authorized under national programs include: allowing the ED Secretary to make grants to LEAs and community-based groups to assist localities most directly affected by hate crimes; creating a School Security Technology and Resource Center at the Sandia National Laboratories in partnership with the National Law Enforcement and Corrections Technology Center—Southeast and the National Center for Rural Law Enforcement in Little Rock, Arkansas, to be administered by the Attorney General as a resource for LEAs to assess school security, develop security technology, evaluate and implement such security, and to provide technical assistance for improving school security; and establishing a National Center for School and Youth Safety to be jointly created by the ED Secretary and the Attorney General to provide emergency assistance to local communities in response to school safety crises, to establish an anonymous student hotline so students can report possible violent behavior, to provide consultation to the public regarding school safety, to compile information about best practices related to school violence prevention, and to provide outreach to rural and impoverished communities. Appropriations and Funding History For FY2008, the President requested $324.2 million for the SDFSC program—$100 million for state grants and $224.2 million for national programs. For FY2007, the President requested $216.0 million for the SDFSC program. As in his FY2006 request, the President did not request funding for state grant programs, but only for the national program component. The House Appropriations Committee, however, recommended a total of $526.0 million, including $310 million for state grants and $216.0 million for the national programs ( H.R. 5647 ). The Senate Appropriations Committee ( S. 3708 ) recommended $492.5 million for the SDFSC program ($276.5 million more than requested, but $76.3 million less than the FY2006 appropriation). The Senate Committee's recommendation also includes $310 million for the state grant program, but $182.5 million for the national programs ($39.9 million less than the FY2006 appropriation). For FY2006, the President requested $317.3 million for the SDFS program (also only for national programs). Congress, however, appropriated $568.8 million, which included $346.5 million for state grants and $222.3 million for national programs. The Administration noted that the reason it did not request state grant funding was because of fiscal constraints affecting the FY2007 budget, and because a PART review (discussed above) found that the SDFSC state grants component was "ineffective." Also, for FY2007, the President requested $216.0 million for national programs, which is $6.3 million less than the FY2006 appropriation. For FY2008, the President did not request funding for the mentoring program. For FY2007, the President requested $19 million for the mentoring program (within the national programs' total) because FY2007 was the final year of a two-year phase-out of the mentoring program, which the Administration believed would have met its objectives. To support the FY2007 final year for the program, the House and Senate Appropriations Committees both recommended $19 million as requested. For FY2006, Congress appropriated the exact amount the President requested ($49.3 million) for mentoring. A required 1% across-the-board discretionary FY2006 budget reduction, however, slightly lowered mentoring funding to $48.8 million. Under national programs, the Administration did not request funding for the Alcohol Abuse Reduction (AAR) program from FY2005 through FY2008, because it was believed to be duplicative of other SDFSC-funded activities. Congress, however, appropriated $32.7 million for AAR for each of FY2005 and FY2006. With the FY2006 required 1% across-the-board rescission, funding was slightly reduced for the program, to $32.4 million. For FY2007, the House Appropriations Committee did not recommend funding for AAR. The Senate Appropriations Committee, however, recommended $32.4 million for AAR, the same as the FY2006 appropriation. The SDFSC program continues to operate at FY2006 levels under a continuing resolution through February 15, 2007. Table 1 presents an appropriation funding history for the program. The Gun-Free Schools Act The Gun-Free Schools Act (GFSA), which was Title XIV, Part F of the ESEA, was incorporated as part of SDFSCA because of its close relationship with the SDFSC program. This provision calls for each state receiving funds under the No Child Left Behind Act to have a law that requires LEAs to expel for one year any student bringing a weapon to school. The chief administering officer of a LEA, however, can modify the expulsion requirement on a case-by-case basis. GFSA does not prevent a state from allowing a LEA to provide educational services to an expelled student in an alternative setting. Each LEA requesting SEA assistance through GFSA funds must assure the state that the LEA is complying with requirements concerning the expulsion of students mentioned above, and must describe the circumstances that led to the expulsions, including the school's name, the number of students expelled, and the type of firearms involved. Each SEA must report the information received from the LEA annually to the ED Secretary. LEAs can not receive GFSA funds unless they have a policy requiring that any student who brings a firearm or weapon to school is reported to the criminal justice or juvenile delinquency system. GFSA requirements do not apply to a firearm that is lawfully stored inside a locked vehicle on school property, or if the firearm will be used for LEA approved or authorized activities, and the LEA adopts appropriate safeguards to guarantee student safety. Legislation in the 109th Congress During the 109 th Congress, several bills were introduced related to school safety and violence prevention. All of the bills were referred to the appropriate Committee, but died at the end of the 109 th Congress, except one ( H.R. 3010 ). H.R. 3010 , the Department of Labor, Health and Human Services, and Education and Related Agencies Appropriations Act of 2006 ( P.L. 109-149 ) was amended by the Senate to require the ED Secretary to conduct a study evaluating the effectiveness of violence prevention programs that receive funding under SDFSCA. This amendment, however, was not included in the conference agreement and did not become law. Furthermore, there was no similar provision included by the House. Another amendment to H.R. 3010 was introduced on the Senate floor to increase funding for the SDFSC program, but was ruled out of order by the chairman. The other measures introduced were H.R. 283 , the Bullying and Gang Prevention for School Safety and Crime Reduction Act of 2005; H.R. 284 , which would have amended SDFSCA to include bullying and harassment prevention programs; H.R. 3655 , the School Violence Prevention Act of 2005; H.R. 5295 , the Student and Teacher Safety Act of 2006; S. 1974 , the Drug Free Varsity Sports Act of 2005; and S. 4028 , Fighting Gangs and Empowering Youth Act of 2006. The Bullying and Gang Prevention for School Safety and Crime Reduction Act of 2005 ( H.R. 283 ) was introduced by Representative Sanchez on January 6, 2005. Referred to the House Education and the Workforce Committee and the House Judiciary Committee, the bill would have amended SDFSCA specifically to cover bullying and gang prevention as well as drug and violence prevention. Also, the Omnibus Crime Control and Safe Streets Act of 1968 would have been amended (Sec. 1801 relating to Juvenile Accountability Block Grants) to create and maintain accountability-based programs designed to enhance school safety that could include research-based bullying and gang prevention programs. H.R. 284 was introduced on January 6, 2005, by Representative Shimkus (with 46 cosponsors) to amend SDFSCA to include bullying and harassment prevention programs. It was also referred to the House Education and the Workforce Committee. The legislation would have included the terms bullying and harassment under the definition of violence, and provided for bullying and harassment prevention programs. The School Violence Prevention Act of 2005 ( H.R. 3655 ) was introduced by Representative Baca on September 6, 2005, and referred to the House Education and the Workforce Committee. The bill directed the ED Secretary to review and revise the SDFSCA Principles of Effectiveness guidelines to improve state and local prevention programs, and to ensure that the guidelines met the findings of a 2002 study prepared for ED. H.R. 5295 , the Student and Teacher Safety Act of 2006, was introduced on May 4, 2006, by Representative Geoff Davis, and referred to the House Education and the Workforce Committee. The House passed the measure by voice vote on September 19, 2006. On September 20, it was received in the Senate and referred to the Health, Education, Labor, and Pensions (HELP) Committee. The act would have required LEAs to have policies in effect that would allow full time teachers or officials to search students on school property who were under reasonable suspicion (based on professional opinion and judgment) to ensure that the school and students would remain free from the threat of weapons, illegal drugs, or dangerous materials. Furthermore, the bill stated that any LEA that did not comply with those requirements would have been denied SDFSCA funds after FY2008. The Drug Free Varsity Sports Act of 2005 ( S. 1974 ) was introduced by Senator Bill Nelson on November 8, 2005 and referred to the Senate HELP Committee. The legislation directed the ED Secretary (acting through the Office of SDFS) to award competitive grants to SEAs to conduct statewide pilot programs to test high school students for performance-enhancing drug use. The Fighting Gangs and Empowering Youth Act of 2006 ( S. 4028 ) was introduced by Senator Menendez on September 29, 2006 and referred to the Senate Judiciary Committee. The bill would have reauthorized SDFSCA and increased the state grants authorization level from $650 million to $700 million for FY2007, and would have authorized $400 million for national programs for FY2007. The bill would have authorized not less than $40 million for the National Coordinator Initiative for each fiscal year stipulated, and would have required LEAs to hire individuals who were gang prevention coordinators as well as drug prevention and safety program coordinators. Furthermore, for mentoring program grants, the bill would have required the ED Secretary to reserve not less than $50 million to award such grants. It would have stipulated that when awarding competitive grants for mentoring programs, the ED Secretary would give priority to each eligible entity that served elementary and middle school children with greatest need who lived in rural and high crime areas, and lived in troubled homes, or attended schools with violence problems. The measure also would have added an Anti-Gang Discretionary Grant, stipulating that the ED Secretary reserve not less than $50 million to award competitive grants to nonprofit groups so they could create programs to assist public elementary and secondary schools in providing an innovative way to combat gang activity in the school and surrounding community. Priority would have been given to applicants describing programs targeting teens living in a community with a crime rate above the average crime level of the state in which the community was located. Legislation in the 110th Congress One bill has been introduced thus far in the 110 th Congress related to SDFSCA. H.R. 354 , the Safe Schools Against Violence in Education Act (SAVE Act), introduced by Representative McCarthy on January 9, 2007, would amend the ESEA requiring states to allow a student attending a public elementary or secondary school "that does not have a safe climate for academic achievement," or who becomes a violent crime victim on school property, while riding a school bus, or attending a school function, to transfer to a safe public school within the same school district, including a private charter school. Furthermore, the bill would provide the option of counseling or removal of the offender, where appropriate. The current ESEA provision (Title IX, Part E, Subpart 2, Sec. 9532, Unsafe School Choice Option) stipulates that a student who attends a persistently dangerous public elementary or secondary school, or who becomes a violent crime victim while in or on the grounds of a public school he or she attends, must be allowed to attend a safe public school within the same school district, including a public charter school. H.R. 354 differs from current law by not using the term "persistently dangerous," stipulating that a student be allowed to attend a safe school who becomes a victim not only in or on school grounds, but also while riding a school bus, or attending a school function, and providing the option of counseling or removal of the offender. H.R. 354 was referred to the House Education and Labor Committee (formerly the House Education and the Workforce Committee). To date, no further action has occurred. Possible Reauthorization Issues In the 110 th Congress, SDFSCA is likely to be considered for reauthorization. In anticipation of those activities, the Administration has recommended significantly restructuring the SDFSC program requiring SEAs to support LEAs in implementing effective program models for creating safe, drug-free, healthy, and secure school environments. Also, the Administration proposes consolidating the SDFSC national programs into one flexible discretionary grant program that would focus on four areas of priority—planning for and managing emergencies; violence and drug-use prevention, including student drug testing; school culture and climate, including character education; and other related emerging needs for improving the learning environment to help students reach high academic standards. In addition to those reauthorization proposals, Congress might opt to consider the following SDFSCA-related issues: Reporting Up-to-Date School Crime Data Policy makers might consider requiring K-12 schools to obtain and report up-to-date school crime data to law enforcement agencies. To date, there is no federal mandate that requires tracking and reporting actual school crime and violence incidents to law enforcement agencies. ED data on school crime and violence are based upon limited self-reported surveys and academic research studies, not actual crimes reported to law enforcement. Given DOJ's expertise in public safety, security, emergency preparedness training, crime, and crime data collection and analysis, there might be consideration of giving that agency responsibility for school safety and school crime data collection, instead of ED taking the lead in such efforts. DOJ maintains the Uniform Crime Reporting System and has expertise in collecting and analyzing crime beyond the expertise and scope of ED. Restructuring Responsibility for Assessing the SDFSCA State Grant Program The PART assessment found state grant programs to be ineffective because ED was unable to show that those programs worked. One response that might be considered is restructuring the responsibility for the state grant program. For example, the responsibility for illicit drugs and alcohol prevention curriculum and programs, suicide prevention and related education and curriculum-based programs could remain at ED in collaboration with public health experts at HHS. On the other hand, school safety, security and emergency preparedness programs and funding might be placed under the direction of DOJ because of its public safety expertise, as previously mentioned. Department of Homeland Security Funding for K-12 Schools Another potential option might be legislation that would allow K-12 schools to apply for Department of Homeland Security (DHS) funding for increased security and emergency preparedness to protect against possible terrorist attacks upon schools and school buses. In particular, it might be considered whether K-12 schools should be eligible for national Critical Infrastructure programs. Underreporting School Crime The Unsafe School Choice provision of the ESEA, as amended by the No Child Left Behind Act, may have unintended consequences. By allowing students who attend persistently dangerous schools (based on definitions by each individual state) or have been victims of crime to transfer to a safer school, state education officials might feel pressure to create definitions for persistently dangerous schools in such a way that local schools would never meet that definition. Furthermore, eventually, legal concerns might arise since what is defined as "persistently dangerous" in one state, might not be considered as such in another state. Also, some school officials may underreport school crime and violence because of potentially serious political and administrative implications if their school is labeled as persistently dangerous. By keeping their school crime data down to avoid being labeled as a persistently dangerous school, such officials might reduce their opportunities to obtain funding for school violence prevention grants, since the lack of corroborating data would prohibit them from qualifying to receive such grants. Furthermore, it has been observed that "The 'persistently dangerous' component of NCLB has no funding to help schools identified as such to improve their school safety programs, while federal and state budgets continue to cut school safety funds that could be used to help prevent schools from becoming 'persistently dangerous' in the first place."

The No Child Left Behind Act (P.L. 107-110) amended and reauthorized through FY2007 the Safe and Drug-Free Schools and Communities Act (SDFSCA) within the Elementary and Secondary Education Act (ESEA) as Part A of Title IV, 21st Century Schools. The act is likely to be considered for reauthorization by the 110th Congress. Funds are authorized for the SDFSC program, which is the federal government's primary initiative to prevent drug abuse and violence in and around schools. Through the program, state educational agencies, local educational agencies, and outlying areas are awarded grants by formula to create programs deterring drug abuse and violence among elementary and secondary students. Discretionary funds support national programs for various national leadership projects to prevent drug abuse and violence among students from preschool through postsecondary educational levels. For FY2006, Congress appropriated $568.8 million for the program. For FY2007, the President requested $216.0 million for national programs only, and proposed no funding for state grant programs. The House Appropriations Committee, however, recommended $526.0 million for the SDFSC program, and the Senate Appropriations Committee recommended $492.5 million (both including $310 million for state grants). For FY2008, the President has requested $323.2 million for the program, which includes $100 million for state grants and $224.2 million for national programs. The SDFSC program continues to operate at FY2006 levels under a continuing resolution through February 15, 2007. In the 109th Congress, several bills were introduced related to school safety and violence prevention. All of the bills were referred to the appropriate committee, but died at the end of the 109th Congress, except one (H.R. 3010). H.R. 3010, the Department of Labor, Health and Human Services, and Education and Related Agencies Appropriations Act of 2006 (P.L. 109-149), was amended by the Senate to require the Secretary of Education to conduct a study evaluating the effectiveness of violence prevention programs that receive funding under SDFSCA. This amendment, however, was not included in the conference agreement and did not become law. Another amendment to H.R. 3010 was introduced on the Senate floor to increase funding for the SDFSC program, but was ruled out of order by the chairman. One bill has been introduced thus far in the 110th Congress related to SDFSCA. H.R. 354, the Safe Schools Against Violence in Education Act (SAVE Act), would amend the ESEA by requiring states to allow a student attending a persistently dangerous public school, who has been a violent-crime victim on school property, while riding a school bus, or attending a school function, to transfer to a safe public school within the school district. The bill was referred to the House Education and Labor Committee, but no further action has occurred. This report discusses the 107th Congress SDFSCA reauthorization and appropriations to fund the SDFSC program, and possible 110th Congress reauthorization issues.

Introduction Since the beginning of the 112 th Congress, convened in January 2011, the House and Senate have observed a ban on earmarks, formally known as congressionally directed spending. The ban has led to changes in the way transportation funding decisions are made. This report explains what earmarks are and discusses their use in surface transportation finance. It then discusses how federal transportation funding is distributed with a ban in place and how Members of Congress might influence the distribution. Earmarks and the Structure of Federal Transportation Funding The structure of federal transportation funding is largely determined in periodic transportation authorization legislation, which typically continues some existing programs (often with modifications), allows some programs to expire, and creates new programs. The most recent authorization act in surface transportation, for example, is the Fixing America's Surface Transportation (FAST) Act ( P.L. 114-94 ), enacted in December 2015. The vast majority of federal transportation funding is distributed directly to states, local governments, and transportation authorities by formulas that are set in these laws. For example, under the FAST Act about 92% of highway program spending through FY2020 will be distributed by formula. This is up from the 84% distributed by formula in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA; P.L. 109-59 ), the 2005 law that was the last long-term surface transportation authorization enacted prior to the earmark ban. Under the formula programs, the decisions about which projects get funded are made by state and local governments, subject to federal guidelines. Authorization legislation also creates a number of discretionary (non-formula) transportation grant programs. These programs collectively distribute a relatively small portion of federal transportation funding. Under these programs, the U.S. Department of Transportation (DOT) awards grants at its discretion through a competitive application process. For several years prior to 2011, funding for discretionary transportation grant programs was heavily earmarked by Congress in authorization legislation and in the annual DOT appropriations acts. In addition, Congress on occasion earmarked portions of highway formula funding. Earmarks were not prevalent in all parts of the transportation funding process. For example, the Federal Aviation Administration (FAA) budget historically was largely free of earmarks, with the Airport Improvement Program's discretionary funding being the major exception. The magnitude of transportation earmarking is difficult to estimate. Earmarks were found in both authorization and appropriations legislation. While Congress specifically identified "earmarks and congressionally directed spending items" in appropriations legislation from FY2008 through FY2011, those lists did not include earmarks in authorization legislation, such as those found in SAFETEA, that might be funded in that fiscal year. DOT's Inspector General (IG) examined transportation earmarking in both the authorization and appropriations bills for FY2006 and estimated that 13.5% of total budget authority provided to DOT in that year was congressionally directed. The IG also estimated that 80% of the earmarks originated in authorizations and 20% in the appropriations bill ( Table 1 ). A major attraction of transportation earmarks to Members is that they provide specific, identifiable benefits for constituents. A downside is that earmarks often go unused because the amount of the earmark is too small for the project, because state and local authorities will not or cannot provide the necessary matching funds, or because the project is misidentified in law and the funding cannot be used unless Congress modifies the law. Funding for earmarks is typically available until expended, so unused earmarks may exist "on the books" for many years, sometimes decades, after enactment. Even if it is clear that a project will not be undertaken, earmarked funding usually cannot be spent for other purposes or rescinded absent congressional action. In the past, Congress has dealt with the issue of long-term unobligated earmarks in at least three ways. First, Congress has redesignated unused earmarks for other specific projects. This was done, for example, in the FY2003 DOT Appropriations Act ( P.L. 108-7 ). The current earmark ban does not allow earmarks to be redesignated for other specified projects. Second, Congress has rescinded budget authority for old earmarks as it did, for example, in the Department of Defense and Full-Year Continuing Appropriations Act, 2011 ( P.L. 112-10 , §§2210 and 2211). Third, Congress has also allowed old unused earmark funding ("orphaned earmarks") to be used for other transportation projects. Beginning with the Consolidated Appropriations Act, 2016 ( P.L. 114-113 , §125), for example, Congress has allowed states to redirect long-term unobligated earmarks to a surface transportation project within 50 miles of the original project. The legislation defines a long-term unobligated earmark as one that is over 10 years old and for which 90% or more of the funding remains unobligated. Similar language has been included in annual appropriations legislation enacted each year since then. What Is a Congressional Earmark? The rules in both houses of Congress include identical definitions of "congressionally directed spending." The rules define an earmark as a provision or report language included primarily at the request of a [Member, Delegate, Resident Commissioner, or] Senator providing, authorizing, or recommending a specific amount of discretionary budget authority, credit authority, or other spending authority for a contract, loan, loan guarantee, grant, loan authority, or other expenditure with or to an entity, or targeted to a specific State, locality or Congressional district, other than through a statutory or administrative formula-driven or competitive award process. This definition covers earmarks in authorization and appropriations bills as well as in committee reports. Provisions in committee reports may not have the force of law but are often used to give guidance to executive branch departments. One example of such an earmark appeared in the conference committee's explanatory statement on the Omnibus Appropriations Act, 2009 ( P.L. 111-8 ): "Soft" Earmarks and "Hard" Earmarks The definition of "congressionally directed spending item" under House and Senate rules appears to permit some "soft" transportation earmarks. Whereas "hard" earmarks specify the project place, purpose, and funding amount in bill or bill report language, "soft" earmarks do not specify the amount of funding. Two types of soft earmarks are found in federal transportation legislation: place naming and road naming. Under place naming, the project location is named in the bill or report language, but no funding amount is designated. The appropriators direct the agency to give priority to grant applications from the named places. This form of congressional designation has been most commonly used to influence Airport Improvement Program (AIP) spending. For example, in the FY1990 Department of Transportation Appropriations bill, the House conference report (H.Rept. 101-183) urged the Federal Aviation Administration (FAA) to give priority to grant applications involving the construction or further development of the following airports: Akron-Canton Regional Airport, Ohio. Alexander Hamilton Airport, Virgin Islands ... By not designating the amount, place naming appears not to be covered by the definition of earmarks under current House and Senate rules. Road naming is similar to place naming, but has been used less often. The Surface Transportation Assistance Act of 1982 ( P.L. 97-424 ; H.Rept. 97-987) directed the states to give priority in use of federal highway funds to the primary routes designated in a particular committee print. Whether soft earmarks are included in legislation or in conference reports under an earmark ban depends on how strictly the ban is enforced by congressional leaders. The definition of an earmark in congressional rules also appears to exclude most of the Capital Investment Grants (CIG) Program funding distributed by the Federal Transit Administration (FTA) (also known as New Starts). Prior to the earmark ban, Congress had appropriated amounts for specific projects each year, but these projects were chosen through a competitive, multi-step approval process that is administered by FTA according to law. However, appropriators had sometimes added projects to the list of projects chosen through this process, and these additional projects may have fallen within the definition of earmark in House and Senate rules. Since the earmark ban, Congress has not named projects in the appropriations bill, but it has sometimes prioritized the available funding. For example, in the FY2015 appropriations bill ( P.L. 113-235 ) Congress directed that when distributing funds among Recommended New Starts [CIG] Projects, the Administrator shall first fully fund those projects covered by a full funding grant agreement, then fully fund those projects whose section 5309 share is less than 40 percent, and then distribute the remaining funds so as to protect as much as possible the projects' budgets and schedules. Earmark Ban In the 112 th Congress, which convened in January 2011, the House and Senate began observing an earmark ban. The ban is not a formal rule in either the House or the Senate, and thus is not enforced by points of order. Instead, the ban has been established through party and committee rules and protocols, and is enforced by chamber and committee leadership. The rules of the House Republican Conference for the 112 th Congress included a standing order labeled Earmark Moratorium that stated, "It is the policy of the House Republican Conference that no Member shall request a congressional earmark, limited tax benefit, or limited tariff benefit, as such terms have been described in the Rules of the House." This was extended for the 113 th , 114 th , and 115 th Congresses. The Senate Republican Conference adopted a similar resolution on November 14, 2012. Subsequent to the House Republican Conference instituting its earmark rule, President Obama vowed at the State of the Union Address given on January 25, 2011, to veto legislation that contained earmarks. In early 2011, the Senate Appropriations Committee issued a press release stating that the committee would implement a two-year ban on earmarks, which was also later extended. These actions have effectively stopped both the House and the Senate from considering legislation with earmarks. In remarks of January 9, 2018, President Trump expressed support for a return to limited earmarking. Earmarking of Surface Transportation Funding Extensive earmarking of surface transportation programs is a relatively recent phenomenon. It was common in authorizations that covered the period from FY1992 through FY2012 and for appropriations from FY2001 through FY2010. The House rule establishing a separate Committee on Roads, adopted on June 2, 1913, included a point of order against any provision for a specific road. According to an analysis by Transportation Weekly , the rule was reasonably effective in preventing the earmarking of highway projects until the 1970s, when the House Rules Committee began waiving the rule on earmarks within larger transportation bills. However, highway earmarks in the authorization and appropriations bills were few in number until the late 1980s. The increase to 152 earmarks in the Surface Transportation and Uniform Relocation Assistance Act of 1987 ( P.L. 100-17 ), up from 10 under the 1982 Act, elicited a presidential veto and President Ronald Reagan's comment that "I haven't seen this much lard since I handed out blue ribbons at the Iowa State Fair." Congress overrode the veto. The number of highway earmarks grew in each of the next three surface transportation authorization acts to a high of 5,671 in SAFETEA, enacted in 2005. The Moving Ahead for Progress in the 21 st Century Act (MAP-21; P.L. 112-141 ), enacted in 2012, and the FAST Act, enacted in 2015, contain no earmarks. There were typically fewer than 50 highway earmarks in annual appropriations bills through FY1990, and there were none in the FY1996-FY1998 period. The 1913 House ban on highway earmarks was repealed in 1999. The number of highway earmarks in appropriations bills grew quickly from 96 in FY2000 to 614 in FY2010. The Role of the Department of Transportation in Project Spending DOT is responsible for the administration of most transportation programs of the federal government. Most of that funding is distributed under formula programs, with projects selected by states, local governments, or transportation authorities pursuant to a federally mandated planning process at the state and local levels. DOT's direct involvement in project selection is mostly limited to the funding in the department's discretionary programs. Highways About 92% of the $226.3 billion of highway funding authorized in the FAST Act, the most recent surface transportation authorization act, is to be distributed through formula programs. These funds are under the control of the states. Some of the $7.9 billion authorized for highway safety programs administered by the National Highway Traffic Safety Administration and the Federal Motor Carrier Administration is also distributed by formula. Some highway funding is distributed to states and localities through discretionary programs such as the Nationally Significant Freight and Highway Projects Program, also referred to as INFRA. INFRA project awards are decided within the Office of the Secretary of Transportation. The remainder of highway funding goes for transportation facilities on federal lands such as national parks, research and training, and administrative expenses. Whether for discretionary or formula program projects, federal law requires that all highway projects must be a product of the planning process under the auspices of a Metropolitan Planning Organization (MPO) or the state department of transportation. To be eligible for federal highway funding, either discretionary or formula, the projects must be included in the State Transportation Improvement Plan (STIP), which is issued by each state's department of transportation. The STIP lists the state's planned highway projects, often in priority order. Transit and Rail Like highway funding, most federal transit funding is distributed by statutory funding formulas. Under current law more than 75% of the roughly $12 billion authorized annual budget is distributed in this way. To be eligible for federal funds, transit projects must be included in a STIP or a Transportation Improvement Program approved by an MPO. Unlike federal highway funding, most of which flows to the states, most transit funding flows directly to local transit authorities. Only transit funds designated for urbanized areas with populations of 200,000 people or less and non-urbanized (rural) areas are administered by the states. Under the formula programs, such as the Urbanized Area Formula Grant Program and the State of Good Repair Program, FTA simply administers the funds and does not select projects. Two major programs overseen by FTA are not governed by formula: the Capital Investment Grants (CIG) program (authorized at $2.4 billion in FY2019) and the competitive element of the Bus and Bus Facilities program (authorized at $322 million in FY2019). In the case of the CIG program, FTA allocates funding based on factors determined in authorization legislation. Competitive Bus and Bus Facilities program funding is distributed by FTA based on either asset age/condition or for no- or low-emissions bus deployment. By far the largest intercity passenger rail program is support for Amtrak. Amtrak receives both operating and capital support. The expenditure of these funds is determined by Amtrak (though Amtrak's capital spending is concentrated in the Northeast, where most of the infrastructure that it owns is located). There are several other smaller discretionary programs administered by the Federal Railroad Administration (FRA), such as funding for intercity passenger rail grade crossing improvements, positive train control implementation, and passenger rail corridor investment planning. These programs do not all receive funding every year. Aviation Most federal aviation funding is spent by the Federal Aviation Administration (FAA) on operating air traffic control, known as the Operations and Maintenance (O&M) account, and acquiring and maintaining air traffic control equipment, known as the Facilities and Equipment (F&E) account. Lesser amounts are also spent by the FAA on aviation safety programs and research. About 20% of FAA's authorized funding goes for the Airport Improvement Program (AIP). The AIP is both a formula and a discretionary grant program. All development projects identified in the National Plan of Integrated Airport Systems (NPIAS) are eligible for AIP funding. Generally, about two-thirds of funding is distributed as "entitlements" through formulas set forth in the authorization act. Entitlement funds may generally be used for any AIP-eligible projects. However, FAA policy and statutory requirements discourage airport sponsors from using entitlements for lower-priority projects if they are also seeking discretionary funds. This linkage with the availability of discretionary funds is a tool that FAA uses to make airport sponsors think twice about using entitlement funds for low-priority projects. FAA oversees the distribution of AIP entitlement funds and enforces compliance with the eligibility criteria. Unlike the Federal-Aid Highway Program, federal aid to airports flows directly to the airport sponsor, usually an airport authority. After the entitlement funds are apportioned, whatever is left over is available for discretionary grants. Airports compete against each other for discretionary grants in the sense that they compete against each other for high national priority ratings (NPR) within the Airport Capital Improvement Plan process, which is a subset of the NPIAS and is developed by FAA, airport sponsors, states, and planning agencies. AIP discretionary funds were often earmarked substantially before the earmark ban. Earmarking moved an airport up the priority list and provided funding. On the other hand, it also moved the non-earmarked projects down. The discretionary funds are also subject to set-asides for nationwide priorities set by Congress, such as the 35% noise set-aside and the 4% Military Airport Program set-aside. Prior to the earmark ban, some earmarks also appeared in the F&E account of the FAA budget. The most significant of these were for projects under FAA's Tower/Terminal Air Traffic Control Program and the Instrument Landing Systems Program. The priorities for spending under these programs also are established through a national planning process. According to DOT's inspector general, earmarking delayed some projects assigned high priority through this process while funding lower-priority projects. Virtually all aviation earmarks occurred in appropriations legislation. Maritime DOT's Federal Maritime Administration provides support for certain maritime operations and vessel construction, typically under criteria set by law. Most capital programs to benefit marine transportation, such as harbor dredging and lock repair, are undertaken by other federal agencies, notably the U.S. Army Corps of Engineers, rather than by DOT. BUILD Program One of the largest discretionary programs overseen by DOT is the Better Utilizing Investments to Leverage Development (BUILD) program, which replaced the preexisting Transportation Investment Generating Economic Recovery (TIGER) program. BUILD is a multimodal funding program with the stated intention of supporting "projects that will have a significant impact on the Nation, a metropolitan area, or a region" (Consolidated Appropriations Act, 2018; P.L. 115-141 ). Enacted initially as part of the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5 ), the program has been funded in all subsequent annual appropriations bills. Funding, appropriated from the general fund, is $1.5 billion in FY2018. Projects are selected by DOT on a competitive basis according to merit criteria that include safety, economic competitiveness, quality of life, environmental protection, state of good repair, innovation, partnership, and additional nonfederal revenue for future transportation infrastructure investments. Transportation Spending Under an Earmark Ban Highways, transit, and intercity passenger rail are included in a single multi-year surface transportation authorization bill, which establishes programs and sets authorized spending levels. In the House, highways, transit, and rail are under the jurisdiction of the Transportation and Infrastructure Committee (T&I). In the Senate, the Environment and Public Works Committee has jurisdiction over the highway provisions, the Banking, Housing, and Urban Affairs Committee handles transit, and the Commerce, Science, and Transportation Committee handles rail. Provisions involving highway trust fund and revenue issues are under the jurisdiction of the Ways and Means Committee in the House and the Committee on Finance in the Senate. Aviation reauthorization bills are primarily under the jurisdiction of the T&I Committee in the House and the Commerce, Science, and Transportation Committee in the Senate. For appropriations legislation, highways, transit, and aviation are under the jurisdiction of the appropriations committees in each house. Members of the appropriations committees also oversee the implementation of federal transportation spending through hearings that provide the opportunity to publicly call the attention of DOT officials to issues that are important to the Member's state or district. The process of developing a transportation authorization bill typically begins with a schedule of hearings in which Members can participate, and at which local officials promoting the need for particular projects can testify. Once the bill is introduced, Members may discuss their concerns with the committee (both at the Member and staff levels). Such discussions may continue through the bill markup and even during the eventual floor debate. An earmark ban does not affect the ability of Members and their staffs to engage in such discussions. Nor does it limit their ability to correspond and meet with DOT officials in support of projects. A ban on transportation earmarks principally affects discretionary programs overseen by DOT. It has little direct impact on the formula programs that make up most federal transportation funding. Earmarks serve as a way for Members of Congress to ensure that discretionary transportation funds are distributed according to their priorities, rather than those of the Administration, or in some cases the relevant state department of transportation. With earmarks prohibited, and if Congress does not act in other ways to set funding priorities within the discretionary programs, then the job of setting priorities is left to DOT, subject to the grant selection criteria set forth in law and regulation. One alternative to earmarks is more detailed legislative language to govern the allocation of funds. Divergences between congressional and Administration priorities for transportation funding have come to the fore on several occasions. In FY2007, a year in which Congress passed a year-long continuing resolution and the appropriators did not earmark the discretionary programs, the George W. Bush Administration decided to consolidate virtually all discretionary funds in the highway and transit programs to advance its focus on comprehensive congestion mitigation strategies in metropolitan areas through urban partnership agreements. The roughly $850 million in discretionary funding was divided among just five cities. This amount included unallocated discretionary bus program funds that had been divided among hundreds of projects by Congress in the previous fiscal year. Similarly, the Obama Administration used unallocated FY2009 Bus and Bus Facilities funds to support one of its policy priorities, "livability." Livability, which involves providing alternatives to the car and integrating transportation, housing, and environmental policies, was not specifically established as a policy priority by Congress. An earmark ban elevates the visibility of the programmatic selection process and of the selection criteria, which may be established by Congress. Under the earmark ban, other traditional avenues for Members of Congress to influence the flow of transportation funding become more important, such as involvement in the policymaking aspects of transportation budgeting and interaction with both federal and state transportation officials. Increased reliance on formula funding may make it more critical for Members to try to make sure that projects of importance to their constituents are included in transportation plans at an acceptable priority level. Members of the appropriations committees can improve the chances that a specific project will be funded without earmarking by increasing the amount of funding provided to a particular program. Members also have the opportunity to include provisions in appropriations legislation that may affect transportation program expenditures, including project selection, without identifying specific projects. Highway Programs Without Earmarks Due to its size, the Federal-Aid Highway Program has the largest impact on highway spending at the state and local levels. Reauthorization bills may extend existing programs, create new or revised programs, or allow programs to lapse. Typically, Members may support increased spending for programs that are more important to their state or district relative to other programs. For example, a Member from a state or district with air quality problems might give priority to an increased share of funding for the Congestion Mitigation and Air Quality Improvement Program. In the past, in lieu of earmarking, Members also would also support the creation of programs that would benefit their districts, states, or regions, such as the Coordinated Border Infrastructure Program or the Alaska Highway Program. In the absence of earmarks, highway program formulas become more important in directing the flow of highway funding. For example, the Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ), enacted in 2005, added factors to two programs' funding formulas based on the annual contributions to the highway account of the Highway Trust Fund by state motorists. This directed money toward states whose motorists paid larger amounts of highway taxes and away from states whose motorists paid relatively less in highway taxes. However, in MAP-21, the 2012 legislation that was the first surface transportation act passed under the earmark ban, Congress made changes that limited the likelihood that Members could change formulas to benefit their districts or states. MAP-21 fundamentally changed the way that the formulas were structured. Instead of each of the several highway programs having its own set of formula factors that determined the distribution of the program's authorization to the states, there was one large authorization that was broken down into state shares before each state's share of the authorization was divided among the programs. This meant that there are no longer individual program formulas to modify as a substitute for earmarking. Under the post-MAP-21 distribution structure, the ways to bring more money to a state or district are to increase the overall funding authorized, change the calculation of the overall state amounts, create new discretionary programs, or modify existing discretionary programs' eligibility and selection criteria. Transit and Rail Programs Without Earmarks Like the highways programs, most federal transit programs rely heavily on funding formulas established in authorization laws. Formulas are not a neutral way of distributing funds, as the way in which a formula is constructed and subsequently modified can have significant effects on the allocation of funding. For example, in the 1980s transit funding dedicated to fixed guideway modernization was distributed by DOT based on an administrative formula that sent most funds to transit rail systems that existed before the creation of the federal transit program in 1964. This administrative formula was altered and inserted into law in 1991 in part to widen the distribution of funds to include rail systems built in the 1970s and 1980s. This change was reinforced by modifications made to the formula in the surface authorization law passed in 1997. The allocation of funding among the various transit programs is more important in the absence of earmarks. For example, districts with rail transit systems are likely to do well when more funds are dedicated to the State of Good Repair Program. Rural districts, by contrast, are likely to benefit when more funding goes to the Rural Area Formula Program. FTA also administers the Bus and Bus Facilities Program, which was heavily earmarked in the past. While MAP-21 distributed Bus Program funding entirely by formula, the FAST Act added a competitive discretionary component. With a ban on earmarks, funding will be distributed according to FTA criteria, and Congress may want to provide FTA with guidance in developing those criteria. The earmark ban has not made much of a difference in the realm of intercity passenger rail because, as noted earlier, these funding programs have not been earmarked. Aviation Programs Without Earmarks The earmark ban is less significant for aviation than for surface transportation, due to the relatively minor role of earmarking in aviation funding. An earmark ban does not affect the ability of Members to help make the case for a higher priority for particular projects in the Airport Capital Improvement Plan. Alternatively, Members may seek to adjust the entitlement formulas in the Airport Improvement Program in ways that might benefit particular airports. In the absence of earmarking, Members whose states or districts have particular concerns about noise mitigation or conversion of a military airfield to civilian or dual use could support increases in the set-asides for those purposes, increasing the likelihood that a particular project will be funded without naming the project. Members could also intervene in the process of setting priorities for FAA facilities and equipment expenditures under the Tower/Terminal Air Traffic Control Program and the Instrument Landing Systems Program. One of the federal government's more visible aviation programs, the Essential Air Service Program, subsidizes commercial flights to airports that lost service under airline deregulation. This program is not earmarked, although Congress has from time to time altered the criteria that determine whether a particular airport is eligible for the program.

In the 112th Congress, which convened in January 2011, the House and Senate began observing an earmark ban. Earmarks—formally known as congressionally directed spending—directed a significant amount of federal transportation spending prior to the ban. This report discusses how federal highway, transit, rail, and aviation funding were distributed before and after the earmark ban, and how Members of Congress might influence the distribution with a ban in place. The rules in both houses of Congress include identical definitions of "congressionally directed spending." The rules define an earmark as a provision or report language included primarily at the request of a [Member, Delegate, Resident Commissioner, or] Senator providing, authorizing, or recommending a specific amount of discretionary budget authority, credit authority, or other spending authority for a contract, loan, loan guarantee, grant, loan authority, or other expenditure with or to an entity, or targeted to a specific State, locality or Congressional district, other than through a statutory or administrative formula-driven or competitive award process. This definition covers earmarks in authorization and appropriations bills as well as in committee reports. Currently, about 92% of federal highway funds and more than 75% of transit funds are distributed by statutory formulas. The use of formula highway funds is under the control of the states. The bulk of formula transit funding is under the control of local governments and public transit agencies. Most federal funding for aviation is for operation of the air traffic control system and safety-related programs, and generally has not been earmarked. Most aviation infrastructure spending is distributed according to priorities set forth in national plans, but a small percentage was available for earmarking prior to 2011. Most rail funding goes to Amtrak to operate national intercity passenger service. Federal funding for maritime purposes is directed by statute and has not been earmarked. Most of the remaining federal transportation funding is distributed under discretionary programs. U.S. Department of Transportation (DOT) discretionary funds are typically distributed through a competitive grant-making process, within guidelines established by Congress and DOT. In practice, however, much of this funding was earmarked by Congress prior to 2011. The precise share of federal transportation dollars that was spent on earmarks cannot readily be calculated, but, according to a DOT Inspector General report, in FY2006 approximately 13% of DOT's total budgetary resources were earmarked. Banning earmarks has not eliminated the opportunity for Members to influence the allocation of transportation resources. The funding formulas and eligibility rules in authorization bills can be shaped to favor particular states, congressional districts, and projects. The definition of "congressionally directed spending" under House and Senate rules appears to permit some "soft" earmarks, which do not specify a place or amount of funding. Without earmarking, Members can continue to call or write DOT in support of projects. Members may also seek to influence the priority a project receives under mandated state and local planning procedures, which can increase the likelihood of federal funding without an earmark. Members can also attribute their support for transportation authorizations to federally funded projects in their districts or states generally.

Introduction On April 20, 2010, the Deepwater Horizon oil drilling rig was nearing completion of BP's deepwater oil well when an uncontained release of hydrocarbons (oil and natural gas) caused explosions and fire, resulting in 11 crew member fatalities. The incident produced the largest oil spill that has occurred in U.S. waters, releasing more than 200 million gallons over approximately 84 days. Although several companies were and are involved (to varying degrees) with the Deepw ater Horizon incident, BP was (and continues to be) the most prominent private party in oil spill response and compensation activities. Thus, for the purpose of this report, BP is discussed as if it is the sole responsible party—a key term in the existing liability and compensation framework. The United States has not encountered a spill comparable to the 2010 Gulf spill since the 1989 Exxon Valdez in Prince William Sound, Alaska. The Exxon Valdez spill tallied approximately $2 billion in cleanup costs and $1 billion in natural resource damages in 1990 dollars. These combined figures equate to approximately $5 billion in today's dollars and do not include the wider array of claims for which responsible parties are now liable. The total costs of the 2010 Gulf spill are projected to dwarf those of the Exxon Valdez . In its 2010 financial statement, BP estimated the combined oil spill costs—cleanup, natural resource and economic damages, potential Clean Water Act (CWA) penalties, and other obligations—will be approximately $41 billion. This estimate includes payments made to date as well as projected future payments, such as claims. However, BP acknowledges the difficulty in estimating some costs and does not include these costs in its projection. Therefore, this estimate is subject to considerable uncertainty. The incident received considerable attention in 2010, highlighting multiple policy matters regarding oil spills and their aftermath. An issue that has generated (and to some degree continues to generate) particular interest is the oil spill liability and compensation framework. This framework, which is grounded in federal statute and regulations, determines the following: 1. who is responsible for paying for oil spill cleanup costs; 2. who is responsible for paying for economic and natural resource damages associated with an oil spill; 3. how these costs and damages are defined (i.e., what is covered); and 4. the degree to which (or conditions in which) the costs and damages are limited and/or shared by other parties, including general taxpayers. The first section of this report provides an overview of the existing liability and compensation framework. The second section highlights many of the liability and compensation issues raised by the Deepwater Horizon event. The third section discusses options for policymakers to adjust, amend, or supplement the current framework. Existing Liability and Compensation Framework President George H. W. Bush signed into law the Oil Pollution Act of 1990 (OPA) on August 18, 1990, consolidating existing federal oil spill laws, expanding authorities within the CWA, and creating new provisions regarding oil spill liability and compensation. The OPA liability and compensation framework includes a combination of elements that distribute the costs of an oil spill between the responsible party (or parties) and a trust fund, which is largely financed through a per-barrel tax on domestic and imported oil. Responsible parties are liable up to their liability caps (if applicable); the Oil Spill Liability Trust Fund covers costs above liability limits up to a per-incident cap of $1 billion. These elements are discussed in some detail below. Responsible Party A critical term and concept in the OPA liability and compensation framework is the responsible party. The liability provisions of OPA apply to "each responsible party for a vessel or a facility from which oil is discharged" (33 U.S.C. § 2702). The responsible party is specifically tasked with further OPA obligations, including claim duties. Some have identified OPA's specific assignment of liability (often referred to as "channeling") and other duties as a key component of the framework. The channeling mechanism may simplify the compensation process, because the responsible party assignment makes it unnecessary for agencies and courts to determine which party caused the spill. The term "responsible party" has a specific meaning for different sources of oil spills. As defined by OPA (Section 1001), "responsible party" means the following: (A) Vessels. - In the case of a vessel, any person owning, operating, or demise chartering the vessel. (B) Onshore facilities. - In the case of an onshore facility (other than a pipeline), any person owning or operating the facility, except a Federal agency, State, municipality, commission, or political subdivision of a State, or any interstate body, that as the owner transfers possession and right to use the property to another person by lease, assignment, or permit. (C) Offshore facilities. - In the case of an offshore facility (other than a pipeline or a deepwater port licensed under the Deepwater Port Act of 1974 (33 U.S.C. § 1501 et seq.)), the lessee or permittee of the area in which the facility is located or the holder of a right of use and easement granted under applicable State law or the Outer Continental Shelf Lands Act (43 U.S.C. § 1301-1356) for the area in which the facility is located (if the holder is a different person than the lessee or permittee), except a Federal agency, State, municipality, commission, or political subdivision of a State, or any interstate body, that as owner transfers possession and right to use the property to another person by lease, assignment, or permit. (D) Deepwater ports. - In the case of a deepwater port licensed under the Deepwater Port Act of 1974 (33 U.S.C. § 1501- 1524), the licensee. (E) Pipelines. - In the case of a pipeline, any person owning or operating the pipeline. (F) Abandonment. - In the case of an abandoned vessel, onshore facility, deepwater port, pipeline, or offshore facility, the persons who would have been responsible parties immediately prior to the abandonment of the vessel or facility. Liability OPA unified the liability provisions of existing oil spill statutes, creating a freestanding liability regime. Section 1002 states that responsible parties are liable for any discharge of oil (or threat of discharge) from a vessel or facility to navigable waters, adjoining shorelines, or the exclusive economic zone of the United States (i.e., 200 nautical miles beyond the shore). Liability under OPA is strict, meaning that impacted parties need not show or prove that the spiller acted negligently for liability to attach. Under OPA, a responsible party is liable for cleanup costs incurred, not only by a government entity, but also by a private party. But the cleanup activities must be consistent with the National Oil and Hazardous Substances Pollution Contingency Plan, generally referred to as the National Contingency Plan (NCP), the regulations governing oil and hazardous substance response operations. In addition, OPA broadened the scope of damages (i.e., costs) for which an oil spiller would be liable. (For a historical comparison of oil spill liability provisions, see Table A-1 in the Appendix to this report.) Damages include the following: Natural resources : "damages for injury to, destruction of, loss of, or loss of use of, natural resources, including the reasonable costs of assessing the damage, which shall be recoverable by a United States trustee, a State trustee, an Indian tribe trustee, or a foreign trustee." Real or personal property : "damages for injury to, or economic losses resulting from destruction of, real or personal property, which shall be recoverable by a claimant who owns or leases that property." Subsistence use : "damages for loss of subsistence use of natural resources, which shall be recoverable by any claimant who so uses natural resources which have been injured, destroyed, or lost, without regard to the ownership or management of the resources." Revenues : "damages equal to the net loss of taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by the Government of the United States, a State, or a political subdivision thereof." Profits and earning capacity : "damages equal to the loss of profits or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, or natural resources, which shall be recoverable by any claimant." Public services : "damages for net costs of providing increased or additional public services during or after removal activities, including protection from fire, safety, or health hazards, caused by a discharge of oil, which shall be recoverable by a State, or a political subdivision of a State." OPA provided limited defenses from liability: Act of God, act of war, and act or omission of certain third parties. These defenses are similar to those of the Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA), enacted in 1980 for releases of hazardous substances and pollutants or contaminants (but not oil). Liability Limits OPA provides liability limits (or caps) for those responsible for a spill. Liability limits are not unique to OPA and limits existed in several federal statutes preceding OPA. (For a historical comparison of liability limits see Table A-2 in the Appendix to this report.) However, the limits are not automatic, but 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. According to the National Pollution Funds Center—an office of the U.S. Coast Guard that manages the Oil Spill Liability Trust Fund (discussed below)—liability limits are "not usually well defined until long after response," and litigation may be required to resolve the issue. The liability limits differ based on the source of the oil spill ( Table A-2 ). The limits for most sources are simple dollar amounts. Vessel liability limits are generally based on the size of the vessel (measured in gross tonnage). For example, a tank vessel matching the size of the Exxon Valdez (95,000 gross tons) would have a cap of either $304 million (single-hull) or $190 million (double hull). Onshore facility (which includes pipelines) liability is limited to $350 million. Although OPA allows the President to decrease this limit through regulations, this authority has not been exercised. Deepwater port (e.g., Louisiana Offshore Oil Port, LOOP) liability is limited to $350 million. OPA authorizes the Secretary of the department in which the Coast Guard is operating (i.e., Homeland Security) to adjust this limit to not less than $50 million. This authority was exercised in 1995, setting the liability limit at $62 million, and subsequently increased to $87 million in 2009. Offshore facilities (like the BP oil well involved in the 2010 Gulf of Mexico spill) have unlimited liability for oil removal (cleanup) costs and a $75 million limit on other damages—natural resources and the five categories of economic damages (listed above). Mobile offshore drilling units (MODUs), like the Deepwater Horizon , are first treated as tank vessels for their liability cap. If removal and damage costs exceed this liability cap, a MODU is deemed to be an offshore facility for the excess amount. OPA requires the President to issue regulations to adjust the liability limits at least every three years to take into account changes in the consumer price index (CPI). Despite this requirement, adjustments to liability limits were not made until Congress amended OPA in July 2006 ( Table A-2 ). As of the date of this report, onshore and offshore facility liability limits remain at the same level established in 1990. If the adjustments had been made, offshore facility liability limits for economic and natural resource damages would be approximately $125 million (plus unlimited removal costs). Financial Responsibility To ensure that parties responsible for an oil spill can provide funding for oil spill response and compensation to affected parties, OPA requires that vessels and offshore facilities maintain evidence of financial responsibility (e.g., insurance or financial statements documenting significant revenue). OPA does not have an analogous requirement for onshore facilities. The current levels of financial responsibility are related to the current liability limits for various sources (e.g., vessels, offshore facilities) of potential oil spills. The liability limits differ by potential source. In the case of vessels, whose liability limits are a single dollar amount encompassing both removal costs and other damages, the financial responsibility levels are directly tied to the corresponding liability caps. Current law requires responsible parties for vessels to demonstrate the "maximum amount of liability to which the responsible party could be subjected under [the liability limits in OPA Section 1004; 33 U.S.C. § 2704]." Because the structure of offshore facility liability limit is different than vessels (liability for removal costs is unlimited), the corresponding financial responsibility limit provisions differ. Responsible parties for offshore facilities in federal waters must demonstrate $35 million financial responsibility, unless the President determines a greater amount (not to exceed $150 million) is justified (33 U.S.C. § 2716(c)). The federal regulations that implement this statutory provision (30 CFR Part 254) base the financial responsibility amount—between $35 million and $150 million—on a facility's worst-case discharge volume (as defined in 30 CFR Section 253.14). For example, a facility with a worst-case discharge volume over 105,000 barrels—the highest level of worst-case discharge listed in the regulations—must maintain $150 million in financial responsibility. The Coast Guard's National Pollution Funds Center (NPFC) implements the financial responsibility provisions for vessels; the Bureau of Ocean Energy Management, Regulation, and Enforcement (formerly the Minerals Management Service, MMS) implements this requirement for offshore facilities. The Oil Spill Liability Trust Fund Prior to OPA's passage, a topic of debate concerned the mechanisms and hurdles of private parties recovering damages resulting after an oil spill. To address this and other concerns, 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. In complementary legislation, Congress imposed a 5-cent-per-barrel tax on domestic and imported oil to support the fund. Collection of this fee started January 1, 1990, and ceased on December 31, 1994, due to a sunset provision in the law. 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. In 2017, the rate is set to increase to 9 cents. The tax is scheduled to terminate at the end of 2017. The National Pollution Funds Center (NPFC), an office within the Coast Guard, manages the trust fund. The trust fund plays a substantial role in the liability and compensation framework, as discussed below. Compensation or Claims Process OPA established a claims process for compensating parties affected by an oil spill. In general, before claims for removal costs and other costs/damages can be presented to the OSLTF, they must be presented first to a responsible party. If the party to whom the claim is presented denies all liability, or if the claim is not settled by payment within 90 days after the claim was presented, the claimant may elect either to initiate an action in court against the responsible party or present the claim directly to the OSLTF. If a responsible party denies a claim that is subsequently processed and awarded with monies from the OSLTF, the federal government may seek to recover these costs from the responsible party. Regulations implementing the OSLTF claims process are found in 33 C.F.R. Part 136. The NPFC's guidance document— Claimant's Guide: A Compliance Guide for Submitting Claims Under the Oil Pollution Act of 1990 (November 2009)—provides assistance to those submitting claims. OSLTF managers are limited in the amount of payments that may be awarded for each incident. Under current law, the per-incident cap is $1 billion. Because of this per-incident cap on the OSLTF, a scenario could arise in which the trust fund managers would be prohibited from compensating claimants who were initially denied by a responsible party. Such a scenario has not occurred in OPA's history. Costs (including, for example, natural resource damages, economic losses, etc.) beyond this per-incident limit could be addressed in several ways. One mechanism would be for parties to use state laws. OPA does not preempt states from imposing additional liability or requirements relating to oil spills, or establishing analogous state oil spill funds. OPA legislative history and statements from OPA drafters indicate the intention that state laws and funds would supplement (if necessary) the federal liability framework under OPA. Alternatively, existing federal authorities could be used to provide assistance in some circumstances. For example, an emergency declaration under the Stafford Act would appear to be a potential approach for the current situation, because it is intended to lessen the impact of an imminent disaster. Such a declaration in the context of a manmade disaster is unprecedented: during the Exxon Valdez spill, the President turned down the governor of Alaska's two requests for an emergency declaration. CRS is not aware of similar requests made during the Deepwater Horizon incident. Issues for Policymakers The 2010 Deepwater Horizon oil spill generated considerable interest in the existing oil spill liability and compensation framework. The incident placed a spotlight on multiple elements of the framework, in particular the liability limits and the size and limitations of the OSLTF. The issues raised by the spill highlight a central policy debate: how should policymakers allocate the costs associated with a catastrophic oil spill? What share of costs should be borne by the responsible party (e.g., oil vessel owner/operators) compared to other groups, such as the oil industry (e.g., through the per-barrel tax), and/or the general treasury (assuming Congress would appropriate funds to compensate for unpaid costs/damages)? Policymakers may want to consider the magnitude of the Deepwater Horizon incident and the liability and compensation issues raised under a scenario in which BP had refused to finance response activities or establish a claims process to comply with the relevant OPA provisions. BP has either directly funded oil spill response operations or reimbursed the federal government for actions taken by various agencies. According to BP, response costs have tallied over $10 billion. BP has paid damage claims well above its liability limit of $75 million (assuming it would apply) and outside the scope of its liable damages (e.g., human health-related claims). BP and the Obama Administration jointly announced on June 16, 2010, the creation of the Gulf Coast Claims Facility (GCCF), an independent claims facility that BP will finance with incremental payments eventually totaling $20 billion. Liability Limits In the aftermath of the Deepwater Horizon spill, many Members of the 111 th Congress expressed concern about the level of the liability limit for offshore facilities. Several Members offered proposals that would have either significantly increased the offshore facility liability limit or removed the limit entirely. These increases (e.g., to $10 billion) would have been well above the inflation adjustment increase required by OPA (if implemented would have raised the limit to $125 million). In July 2010, the House passed legislation that would have removed the liability limit for offshore facilities. The Senate placed a comparable bill ( S. 3663 ) on its Legislative Calendar in late July 2010, but did not vote on its passage. In the 112 th Congress, several Members have offered proposals that would eliminate the liability limit for offshore facilities. Liability limits have been a part of the oil spill framework for decades ( Table A-2 ). Eliminating the offshore facility liability limit altogether would constitute a substantial change in U.S. oil spill policy. In the current system, costs from a major spill are shared between the responsible party (an individual company) and the OSLTF (largely financed through a tax on oil). Until the Deepwater Horizon incident, no individual spill threatened the framework. Unlimited liability for offshore facilities would shift the burden to the individual company. Although such a shift would likely reduce the risk of depleting the OSLTF during a catastrophic spill, the OSTLF would continue to provide multiple functions, including a role as a compensation backstop. Within a system of unlimited liability, the risk remains that the responsible party would fail to meets its compensation obligations (for whatever reason), and the OSLTF would continue to provide funds. Indeed, raising or removing the liability limits would not guarantee that a company would be able to fund all response costs and compensate all affected parties. If Congress increases or eliminates the liability cap without making a corresponding change to the financial responsibility requirements, a responsible party could comply with its financial responsibility requirements and still go bankrupt before paying even a small fraction of the damage associated with a spill. Some proponents of increasing (or abolishing) the liability limit have argued that the current cap distorts economic decisions and provides incentives that may increase the likelihood of an oil spill. Others point out that a liability cap represents a subsidy to the offshore oil industry—the lower the cap, the greater the subsidy. Others argue that a significant increase in the liability cap (or its removal) would be problematic from an insurance standpoint, depending, in part, on whether the financial responsibility requirements have corresponding increases. Some contend that the insurance market does not have the capacity to meet a significant increase in the liability limit (e.g., to $10 billion). These concerns are based on current market conditions, but the market may be able to adjust to different requirements. To what degree it can adjust is beyond the scope of this report, but some initial evidence suggests the market is adjusting. The January 2011 final report from the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling highlighted a September 2010 announcement from an insurance company (Munich Re) advertising coverage in the $10 billion to $20 billion range. Some have argued that higher liability limits would be a disadvantage to the companies that cannot self-insure (as BP has done), because insurance may become cost-prohibitive or even unobtainable (as argued above). Along this line of reasoning, increased liability provisions (and corresponding financial responsibility demonstrations) may preclude (relatively) smaller companies from offshore operations and increase the marketshare of the small group of major oil companies. Others counter that if companies cannot afford to bear the potential costs of their activities, they should not be in operation. OSLTF Limitations Per-Incident Cap Although reaching the OSLTF's per-incident ($1 billion) cap would be an unprecedented event in the fund's history, it is a conceivable occurrence with the Deepwater Horizon incident. As of November 7, 2010, the trust fund expenditures and obligations have exceeded $690 million. As reported on the federal government's Deepwater Horizon response website, BP has reimbursed the federal government through multiple payments, totaling over $600 million. Although the reimbursement payments would be transferred into the OSLTF, they have no effect on the trust fund expenditures and obligations and their relationship with the per-incident cap. Several proposals from the 111 th Congress would have increased the per-incident cap to varying amounts. Often these proposals were coupled with provisions to bolster the revenues in the trust fund (discussed below). In the 112 th Congress, several Members have offered proposals that would increase the per-incident cap. Level of Funding The magnitude of the costs associated with Deepwater Horizon has spurred concern regarding the level of funding in the OSLTF. As Figure 1 illustrates, the OSLTF unobligated balance was approximately of $1.7 billion at the end of FY2010. The National Pollution Funds Center projects the fund will reach approximately $2.7 billion at the end of FY2014. Although these projected levels are substantially higher than historic levels, they are unlikely to be sufficient to mitigate impacts—finance response activities and compensate injured parties—from a catastrophic spill akin to the Deepwater Horizon incident. However, data from a 2007 GAO report suggest that the projected levels may be sufficient to address the more common mix of spills that have historically occurred. In 2007, GAO examined occurrences of vessel liability limits being exceeded and resulting trust fund vulnerability. GAO found that "major oil spills [defined by GAO as those with response costs and damage claims exceeding $1 million] that exceed the vessel's limit of liability are infrequent, but their impact on the Fund could be significant…. Of the 51 major oil spills that occurred since 1990 [which accounted for 2% of all oil spills since 1990], 10 spills resulted in limit of liability claims on the Fund." In the 111 th Congress, Members offered several proposals that would have increased the per-barrel tax that finances the OSLTF. Some of these proposals would have increased the rate substantially, and over time, provided substantial revenue to the OSLTF. In the 112 th Congress, Members have offered at least one bill that would alter the OSLTF tax rate. Potential CWA penalties may play a role in increasing the level of funding in the OSLTF. Unless specifically addressed otherwise, the Miscellaneous Receipts Act (31 U.S.C. §3302(b)) provides that all court, or administratively imposed penalties are paid to the U.S. Treasury. The underlying statutory provisions of the OSLTF effectively override this general provision by transferring CWA Section 311 penalties (among others) into the OSLTF. CWA penalties from the Deepwater Horizon incident could be substantial. Sections 311(b)(7)(A) and 311(b)(7)(D) provide for the maximum civil penalties under the CWA. The amount of revenue generated by applying these provisions depends on several key factors, including (1) the estimate of the amount of oil discharged; (2) a determination of whether the oil spill was a result of "gross negligence or willful misconduct;" (3) a decision of whether the oil that was directly captured—approximately 820,000 barrels—by BP via a pipeline-to-surface-vessel system is subtracted from the total estimate; and (4) the application of the CWA factors that must be considered by the "EPA Administrator, the Secretary [of Homeland Security], or the court, as the case may be," when determining penalty amounts. The recent National Commission report included a range of $4.5 billion to $21.5 billion for possible CWA penalty revenue. Providing a more precise estimate is impossible, due to the four factors identified above. Moreover, several Members of Congress (with support from the Administration) have offered legislation that would redirect any CWA Deepwater Horizon penalties to fund Gulf restoration efforts. The degree to which this goal is met will impact the level of funding in the OSLTF. Claims Process The OPA oil spill claims process has generated considerable interest in the aftermath of the Deepwater Horizon incident. BP is seeking to fulfill its OPA claims obligations through the Gulf Coast Claims Facility (GCCF, see text box below). Many have voiced concerns that claimants were/are not receiving adequate payments for their losses or receiving payments in a timely fashion. The 111 th Congress held at least four hearings on compensation and claims process issues. Some interest has remained in the 112 th Congress. Evaluating the validity of criticism expressed toward the GCCF presents challenges. A key reason for difficulty is the lack of information (i.e., transparency) available to assess the GCCF process. Indeed, some have pointed to the lack of transparency as a substantial concern. To address transparency concerns, the GCCF offered its final claim payment methodology for public comment February 2, 2011. The final claim methodology includes several assumptions about the expected recovery of the Gulf ecosystem and economy. For example, the GCCF states that "it is anticipated that, for all businesses other than oyster harvesting, recovery will continue in 2011 with full recovery expected in 2012." Final claim payments are based on this future losses assumption, which the GCCF states will be reassessed every four months and thus may decrease/increase over time. It is unclear how the future losses assumption was derived. The final methodology includes an expert opinion (as an appendix) which provides some basis for the assumption. Regardless of one's perspective concerning this assumption, payment of final claims (that award claimants with expected losses in upcoming years) necessitates some projection of the timing of ecosystem recovery and associated economic losses. The GCCF does provide some statistical data on its website, allowing for a limited evaluation. For example, GCCF data indicate that (as of February 10, 2011) approximately 38% of submitted claims have been paid, with percentages varying by state ( Table 1 ). Some have argued that the percent of claims receiving some payment (38%) may be overstating the effectiveness of the GCCF to pay out claims. The basis for this argument is that a substantial portion of the paid claims (86,835 or 34%) are so-called "quick payments." These are expedited final claims (i.e., additional documentation not required) for individuals ($5,000) and businesses ($25,000) who received emergency advance payments (or would qualify for interim payments). If these expedited claims are not included in the data in Table 1 , the percent of total paid claims decreases to 29%. A key piece of information that emerged in a January 2011 Senate hearing raised the issue of whether BP (until August 23, 2010) and the GCCF (on and after August 23, 2010) have processed claims in accordance with procedures of the NPFC. During the hearing, the Director of the NPFC (Craig Bennett) stated that the NPFC has received approximately 500 claims related to the Gulf spill. The Director stated that the NPFC has adjudicated 200 of these claims, all of which were denied. In the hearing this fact was presented as evidence that the GCCF was processing claims in accordance with NPFC protocols. However, the status of the claims that have not been adjudicated was not discussed. Without this information, an assessment of the BP/GCCF claims process and its consistency with the NPFC would be premature. Although OPA does provide authority to the Comptroller General to audit claim activities of the NPFC, OPA does not provide a federal agency with the authority to oversee or audit the claims activities of the responsible party. At least one proposal from the 111 th Congress included provisions that would have addressed this issue. A related concern shared by some Members of Congress is the time period embedded in the OPA claims process. Before seeking compensation from the OSLTF, claimants must first submit their claim to the responsible party. If the claim is not settled within 90 days, the claimant may either pursue the claim through the OSLTF or seek recourse through litigation. Many argued that the 90-day clock was too long for impacted parties to wait, and several proposals from the 111 th Congress would have altered the waiting period (many shortening the clock to 45 days). At least one proposal in the 112 th Congress would amend this provision. During the GCCF claims process, several stakeholders have criticized the "proximate cause" language of various GCCF protocols, arguing that such provisions are not consistent with OPA and its claims process. The issue has evolved, with the GCCF Administrator addressing the concerns to some degree. The GCCF's August 2010 Emergency Advance Payment Protocol text read: The GCCF will only pay for harm or damage that is proximately caused by the Spill. The GCCF's causation determinations of OPA claims will be guided by OPA and federal law interpreting OPA and the proximate cause doctrine. Determinations of non-OPA claims will be guided by applicable law. The GCCF will take into account, among other things, geographic proximity, nature of industry, and dependence upon injured natural resources. In October 2010, Administrator Feinberg announced the GCCF was removing the geographic proximity text (referred to as the "geographic test") for claim eligibility that is part of the above protocol. The interim and final claim protocol now reads: The GCCF will only pay for harm or damage that is proximately caused by the Spill. The GCCF's causation determinations of OPA claims will be guided by OPA and federal law interpreting OPA. Determinations of physical injury and death claims will be guided by applicable law. The relevant OPA provision does not specifically address geographic proximity, but states that "each responsible party for a vessel or a facility from which oil is discharged, or which poses the threat of a discharge of oil is liable for the removal costs and damages … that result from such an incident." Moreover, neither the implementing regulations (33 C.F.R. Part 136) nor OSLTF claim guidance documents indicates that proximate cause is a consideration. Of course, as a practical matter the OSLTF must apply some cut-off akin to proximate cause so that injuries far down the causal chain of events following a spill are not compensated. On this matter, the Presidential Deepwater Commission concluded: There is no easy legal answer to the question of how closely linked those lost profits or earnings must be to the spill before they should be deemed compensable. The search for such a rational endpoint for liability has already stymied the Gulf Coast Claims Facility in its processing of claims. Potential Options for Policymakers The current combination of liability limits and $1 billion per-incident cap is not sufficient to withstand a spill with damages/costs that exceed a responsible party's liability limit (assuming it would apply) by $1 billion. Even if the per-incident cap were increased, the current (and projected) level of funds in the OSLTF may not be sufficient to address costs from a catastrophic spill. The options available to address these issues depend upon on the overall objective of Congress. One objective—which has been expressed by many in and outside Congress—is to provide full restoration and timely compensation for the impacts from a catastrophic spill, without directly burdening the general taxpayers. In the context of this objective, "timely" compensation means that an injured party would have access to compensation without going through a court system, which would likely require more of a claimant's time and resources. With that objective in mind, several options are discussed below. Potential options for Congress include (but are not limited to) the following, many of which were proposed in various legislation in the 111 th Congress and some of which are included in proposals in the 112 th Congress: Increase the liability limits, so that the responsible party would be required to pay a greater portion of the total spill cost before accessing trust fund dollars. Congress may consider different limits for different offshore activities. Precedent exists in OPA for setting different liability limits to account for different oil spill risks: The liability limit for single-hulled tank vessels is approximately 50% higher than for double-hulled vessels. In the outer continental shelf (OCS) oil exploration and development sector, policymakers may consider a wide array of factors that could influence (1) the risk of an oil spill occurring and (2) the risk that the oil spill could not be contained before impacting sensitive ecosystems and/or affecting large populations. Policymakers could then structure the liability limit framework based on certain behavior, the use of specific technologies, and/or the location of the activity. However, CRS is not aware of a comprehensive risk assessment of individual factors (or their combinations) regarding OCS drilling activities. A rigorous analysis of possible risk factors could be instructive to policymakers. Increase the required financial responsibility coverage, either matching the increased liability limit (as OPA requires for vessels) or setting the coverage at a level based on other factors, such as capacity in the insurance market. Congress could increase coverage amounts through a staggered approach, to allow more time for the market to adjust. Remove or raise the per-incident cap on the trust fund. If removed entirely, the fund could be at risk of depletion with one incident. Increase the per-barrel oil tax to more quickly raise the fund's balance. Authorize "repayable advances" to be made (via the appropriations process) to the trust fund, so that the fund would have the resources to carry out its functions (cleanup efforts, claim awards). Up until 1995, the fund had this authority, in order to ensure it could respond to a major spill before the fund had an opportunity to grow (via the per-barrel tax). Require industry to establish a pool of funds (of significant magnitude) that would be available to finance response actions, injured party compensation, or both. Such a fund could either replace or complement the existing OPA system of individual liability and support from the OSLTF. This would be analogous to the framework for the nuclear power industry created by the Price-Anderson Act (primarily Section 170 of the Atomic Energy Act of 1954, 42 U.S.C. § 2210). Another objective might be to maintain the existing system, which may be sufficient to address all but the most extreme scenarios. Catastrophic spills in U.S. waters have historically been rare. Some may argue that establishing a system that can withstand a catastrophic event would impose costs and yield consequences that would not justify the (expected) ability to address a catastrophic event. Interest in issues raised by the 2010 Gulf oil spill has waned in recent months. However, Members in the 112 th Congress have introduced multiple proposals, many of which would address liability and compensation framework issues. Legislative activity in the 112 th Congress may be influenced by several factors, including (but not limited to) assessments of conditions in the Gulf region, reports from other independent inquiries, further information regarding the claims process, and results from the natural resource damage assessment process. Moreover, it may be worth noting that passage of the Oil Pollution Act of 1990 occurred 18 months after the Exxon Valdez spill. Appendix. Liability Tables—Historical Perspectives

The 2010 Deepwater Horizon incident produced the largest oil spill that has occurred in U.S. waters, releasing more than 200 million gallons into the Gulf of Mexico. BP has estimated the combined oil spill costs—cleanup activities, natural resource and economic damages, potential Clean Water Act (CWA) penalties, and other obligations—will be approximately $41 billion. The Deepwater Horizon oil spill raised many issues for policymakers, including the ability of the existing oil spill liability and compensation framework to respond to a catastrophic spill. This framework determines (1) who is responsible for paying for oil spill cleanup costs and the economic and natural resource damages from an oil spill; (2) how these costs and damages are defined (i.e., what is covered?); and (3) the degree to which, and conditions in which, the costs and damages are limited and/or shared by other parties, including general taxpayers. The existing framework includes a combination of elements that distribute the costs of an oil spill between the responsible party (or parties) and the Oil Spill Liability Trust Fund (OSLTF), which is largely financed through a per-barrel tax on domestic and imported oil. Responsible parties are liable up to their liability caps (if applicable); the trust fund covers costs above liability limits up to a per-incident cap of $1 billion. Policymakers may want to consider the magnitude of the Deepwater Horizon incident and the liability and compensation issues raised under a scenario in which BP had refused to finance response activities or establish a claims process to comply with the relevant OPA provisions. BP has either directly funded oil spill response operations or reimbursed the federal government for actions taken by various agencies. BP has paid damage claims well above its liability limit and outside the scope of its liable damages. Although evidence indicates that the levels of current framework (liability limits and OSLTF) may be sufficient to address the more common mix of spills that have historically occurred, the current combination of liability limits and $1 billion per-incident OSLTF cap is not sufficient to withstand a spill with damages/costs that exceed a responsible party's liability limit by $1 billion. Even if the per-incident cap were increased, the current (and projected) level of funds in the OSLTF may not be sufficient to address costs from a catastrophic spill. The options available to address these issues depend upon the overall objective of Congress. One objective—which has been expressed by many in and outside Congress—is to provide full restoration and timely compensation (i.e., through channels other than litigation) for the impacts from the spill, without directly burdening the general taxpayers. If this is the objective, Congress may consider some combination of (1) increasing the offshore facility liability limit and corresponding financial responsibility demonstration; (2) increasing the OSLTF per-incident cap; or (3) increasing the level of funds available in the OSLTF. In addition, policymakers may want to consider an industry-financed fund, akin to the nuclear power industry's fund, that could supplement or potentially replace the current system. Another objective might be to maintain the existing system, which may be sufficient to address all but the most extreme scenarios. Catastrophic spills in U.S. waters have historically been rare. Some may argue that establishing a system that can withstand a catastrophic event would impose costs and yield consequences that would not justify the (expected) ability to address a catastrophic event.

Introduction The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is the lead federal law enforcement agency charged with administering and enforcing federal laws related to firearms and explosives commerce. ATF is also responsible for investigating arson cases with a federal nexus, and criminal cases involving the diversion of alcohol and tobacco from legal channels of commerce. As an agency within the Department of Justice (DOJ), ATF is funded through an annual appropriation in the Departments of Commerce and Justice, Science, and Related Agencies (CJS) Appropriations Act. The Federal Bureau of Investigation (FBI) administers the National Instant Criminal Background Check System (NICS). Through this system, the FBI facilitates an electronic background check process to determine the firearms eligibility of unlicensed, private persons seeking to acquire firearms from federally licensed gun dealers, or firearms licenses or permits from state or local authorities. The Centers for Disease Control and Prevention (CDC) collects and publishes national mortality and morbidity data, including firearms-related death and injuries; however, grants issued by CDC for gun violence research in the past have proven controversial. This report provides coverage of congressional action on President Barack Obama's FY2017 budget request for his gun safety initiative. This coverage includes analysis of the ATF Congressional Budget Submission , Fiscal Year 2017 , including discussion of selected data trends that could affect ATF workloads during FY2017. One of those data trends, for example, is the number and type of federally licensed gun dealers, manufacturers, and importers, whom ATF monitors periodically for compliance with federal and state law. Another data trend is the significant growth in newly manufactured and imported firearms introduced into the civilian gun stock annually. This data trend suggests that ATF and the FBI could see increased demands on their resources in FY2017. A third data trend is annual change in firearms-related violent crime: criminal homicides, armed robberies, and aggravated assaults. This report also includes a brief discussion of a controversial annual appropriations limitation that Congress has placed on CDC for 20 years that prohibits the use of appropriated funding to "advocate or promote gun control." The report concludes with an Appendix that describes 15 other gun control-related appropriations limitations that Congress has placed on the ATF, FBI, and the Department of State. Overview of the FY2017 Appropriations Cycle for Gun Safety As shown in Table 1 , for FY2016, Congress appropriated ATF $1.24 billion in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). For FY2017, the Obama Administration requested $1.306 billion for ATF. House- and Senate-Reported FY2017 CJS Appropriations Bills On April 21, 2016, the Senate Committee on Appropriations reported a bill ( S. 2837 ; S.Rept. 114-239 ) that would have provided ATF with $1.259 billion for FY2017. This amount was $18.6 million above the FY2016 appropriation and $47.5 million below the request. On June 7, 2016, the House Committee on Appropriations reported a bill ( H.R. 5393 ) that would have provided ATF with $1.258 billion for FY2017. This amount was $17.8 million above the FY2016 appropriation and $48.3 million below the request. Both the Senate and House bills would have provided the FBI with a $35 million increase to address firearms-related background checks. The Senate bill would have provided $75 million, and the House bill $73 million, to improved information sharing on persons prohibited from receiving or possessing firearms. As noted below, the Obama Administration requested $50 million for those purposes. Neither bill would have provided a requested $10 million for gun violence research. FY2017 Continuing Resolutions On September 29, 2016, President Obama signed into law a Continuing Appropriations Act, 2017 ( P.L. 114-203 ), which funded most of the federal government through December 9, 2016, at nearly the same levels as appropriated for FY2016. For those activities and projects funded under P.L. 114-203 , the act provided an across-the-board decrease of 0.496% for the period October 1, 2016, through December 9, 2016. On December 10, 2016, President Obama signed into law a Further Continuing and Security Assistance Appropriations Act, 2017 ( P.L. 114-254 ), which funded most of the federal government through April 28, 2017, at nearly the same levels as appropriated for FY2017. For those activities and projects funded under P.L. 114-154 , the act provided an across-the-board decrease of 0.1901% for the period December 10, 2016, through April 28, 2017. On April 28, 2017, President Donald Trump signed a further continuing appropriations act ( P.L. 115-30 ), which extended the previous continuing resolution through May 5, 2017, until Congress passed full-year appropriations in P.L. 115-31 . Consolidated Appropriations Act, 2017 In the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), Congress appropriated $1.259 billion for ATF, about $47 million less than the Obama Administration's budget request. Like the FY2017 continuing resolutions described above, P.L. 115-31 extended the long-standing gun control limitations on ATF, CDC, HHS, and the Departments of Labor and Education discussed above through that date, as well as those described in the Appendix to this report. FY2017 ATF and Gun Violence Appropriations Request In its Congressional Budget Submission, Fiscal Year 201 7 , the Obama Administration proposed an appropriation of $1.306 billion for ATF. If appropriated, this amount would have been $66.1 million above the FY2016 appropriation. This amount included $11.8 million and 73 full-time equivalents in technical and base adjustments to anticipate inflation and other variable costs. It also included $54.3 million, 155 full-time equivalents, and 230 permanent positions in budget enhancements. As part of President Barack Obama's gun safety initiative, these budget enhancements included $35.6 million for ATF to hire 80 additional special agents and 120 industry operations investigators; $4.0 million (including 8 positions) to upgrade the National Integrated Ballistics Information Network (NIBIN) and ballistic imaging hardware and software; $5.7 million and 22 positions to help process federal firearms and explosives licenses and National Firearms Act (NFA) applications, and expand the use of firearms trace data by ATF and other federal, state, and local law enforcement agencies; and $9.0 million to integrate ATF's disparate case management systems into a Next Generation Case Management system. The FY2017 budget request also called for the repeal of two appropriations limitations that have prevented ATF from requiring federal firearms licensees (FFLs) to inventory their gun stocks prior to annual inspections and changing an administrative definition of "curios and relics." In addition, the President Obama's gun safety initiative included $35.0 million for the FBI to address an increase in firearms background checks through the National Instant Criminal Background Check System; $50.0 million for the National Criminal History Improvement Program (NCHIP); $5.0 million for NICS Act Record Improvement Program (NARIP); and $10.0 million for gun violence research. NICS was established by the FBI in November 1998 to facilitate firearms background checks. Through both NCHIP and NARIP, the DOJ Office of Justice Programs provides grants to states, tribes, and territories to improve NICS accessibility to records on persons prohibited from acquiring firearms under federal or state law. ATF Funding and Staffing for Enforcement Operations and Support Services Table 2 shows breakouts for the ATF FY2016 enacted budget, FY2017 base budget (current services), and FY2017 request by two budget decision units. Those decision units include "law enforcement operations (LEO)" and "investigative support services (ISS)." These two budget decision units include the amounts of resources and staff allocated to the agency's enforcement and regulatory operations, respectively. ATF adopted this budget decision unit structure during the FY2015 budget request and appropriations cycle. As shown in Table 2 , for FY2016, ATF reported that it had allocated $1.033 billion (83.3%) of its $1.240 billion appropriation under its "law enforcement operations" budget decision unit. ATF proposed allocating a similar percentage (83.7%) for FY2017 for this budget decision unit. This means that 16.7% of ATF appropriated funding was to be allocated for its other budget decision unit, "investigative support services," which funds other mission-critical activities, including FFL qualification and compliance inspections, administrative actions, and firearms traces, as well as other firearms and explosives regulatory efforts. Table 2 and Table 3 show that the anticipated FY2016 FTE level funded through appropriations was 5,028 and the requested FY2017 FTE level was 5,216, or a net increase of 188 FTEs. Table 2 and Table 3 also show the permanent positions associated with the funded FTE. For FY2017, 115 FTE were associated with the requested additional 230 permanent positions and $54.3 million for FY2017. The other requested 73 FTE and $11.8 million were for "technical and base adjustments." These amounts are not associated with any additional permanent positions; rather, they are being requested for a "staffing restoration." The "technical and base adjustments" added to the FY2016 enacted appropriation essentially represent the estimated level of resources that ATF projected it would need for the then-upcoming fiscal year (FY2017) to provide the same level of services that it anticipated providing during the then-current fiscal year (FY2016). Table 4 shows ATF permanent positions by selected Office of Personnel Management (OPM) job series for FY2012-FY2016, for which Congress appropriated funding, and the Administration's FY2017 request. Special Agents (SAs, or criminal investigators—OPM job series 1811) are authorized to make arrests and carry firearms. SAs accounted for nearly half of the permanent positions under the FY2017 request. Industry Operations Investigators (IOIs—OPM job series 1801), by comparison, are not authorized to make arrests or carry firearms. Instead, IOIs monitor federally licensed firearms and explosives dealers, manufacturers, and importers for their compliance with federal law. IOIs accounted for 17.9% of the permanent positions under the FY2016 request. Besides a FY2013 reduction, the level of funded positions for these two job series discussed above has not changed. According to ATF, the FY2013 reduction in permanent positions was due to sequestration and the three-year DOJ hiring freeze. The level of funded positions for Intelligence Analysts (OPM job series 132) and Attorneys (OPM job series 905) has also remained level, but those job series did not see an FY2013 reduction. Nor did "other" positions see an FY2013 reduction. The requested 230 additional positions for FY2017 included 80 Special Agents, 120 Industry Operations Investigators, and 30 "other" positions. Curios and Relics, Dealer Inventories, and Appropriations Limitations For FY2017, the Obama Administration requested the elimination of two long-standing provisos, included previously in the ATF salaries and expenses appropriations language, that prohibit the use of appropriations by ATF to alter the regulatory definition of "curios and relics," and require federally licensed gun dealers to conduct physical inventories. Under the Consolidated and Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ), Congress included "words of futurity" ("in the current fiscal year and any fiscal year thereafter") that appear to be intended to make those provisos permanent law. In the Appendix to this report, there is a comprehensive list of gun control-related spending limitations that Congress has placed on ATF. Like the limitations described above, some, but not all, of these provisos no longer appear in the ATF salaries and expenses appropriations language. This is because Congress included words of futurity in these provisos in either FY2012 or FY2013, after gun control advocacy groups called for their elimination. These provisos were viewed by some as unduly constraining ATF efforts to monitor firearms-related commerce. Neither the Senate- nor House-reported FY2017 CJS Appropriation bills include language to alter or overturn these provisions. Congress did not accept the Obama Administration's request to repeal these limitations in the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). Selected Data Trends That Could Have Affected ATF Workloads Below is discussion of selected, year-to-year data trends that could have affected and may continue to affect ATF workloads, such as the number and type of federal firearms licensees, growth in the civilian gun stock, and firearms-related violent crime rates. ATF Firearms Licensing of Gun Dealers, Manufacturers, and Importers Under the Gun Control Act of 1968 and the National Firearms Act of 1934, as amended, persons who wish to be "engaged in the business" of manufacturing, importing, or selling firearms must be licensed by ATF. Persons who are issued those licenses are known as "Federal Firearms Licensees (FFLs)." As summarized by ATF in January 2016 guidance: A person engaged in the business of dealing in firearms is a person who "devotes time, attention and labor to dealing in firearms as a regular course of trade or business with the principal objective of livelihood and profit through the repetitive purchase and resale of firearms." Conducting business "with the principal objective of livelihood and profit" means that "the intent underlying the sale or disposition of firearms is predominantly one of obtaining livelihood and pecuniary gain, as opposed to other intents, such as improving or liquidating a personal firearms collection." Consistent with this approach, federal law explicitly exempts persons "who make occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms." Under current law, FFLs may ship, transport, and receive firearms that have moved in interstate and foreign commerce. In nearly all cases, unlicensed persons must engage the services of an FFL to facilitate interstate firearms transfers to another unlicensed person. ATF has maintained that the agency cannot meet its goal of inspecting every FFL for compliance on a three-year cycle. The Obama Administration, moreover, maintained that the ATF had been hamstrung by limitations appended to appropriations legislation, listed in the Appendix to this report; an increase in the number of FFLs; and a surge in firearms-related commerce. For FY2014, for example, ATF reported that it could conduct only 10,000 FFL compliance inspections, a 24% decrease from the previous year, covering 7% of the FFL population. For FY2015, ATF reported that it completed approximately 8,700 FFL compliance inspections, a 13% decrease compared to the previous fiscal year, covering 6% of the FFL population. Table 5 shows that, as of January 11, 2016, there were 138,370 FFLs according to ATF. Type 3 FFLs, Collectors of Curios and Relics, comprised 43.0% of FFLs. These federal licensed firearms collectors are authorized to engage in limited interstate transfers of "curios and relics." Types 1 and 2 FFLs, Dealers and Pawnbrokers in Firearms, comprised the next largest percentage, 40.4%. Dealers and Pawnbrokers essentially include retail firearms dealers who routinely make transfers to unlicensed, private persons. Prior to such transfers, federal law requires that a background check be conducted on the unlicensed, prospective transferee (buyer). Type 1 FFLs range from "big box" sporting goods stores to much smaller enterprises. Types 6, 7, and 8 FFLs include ammunition manufacturers, firearms manufacturers, and firearms and ammunition importers. Types 9, 10, and 11 FFLs include dealers, manufacturers, and importers of firearms and other devices regulated under the National Firearms Act of 1934. Figure 1 shows the number of FFLs by year for 1975 through 2015 in three broad categories: Type 1 and 2 FFLs, Dealers and Pawnbrokers; Type 3 FFLs, Collectors of Curios and Relics; and all other FFL types. It shows that the number of Type 1 and 2 FFLs, Dealers and Pawnbrokers, decreased precipitously, from about 258,607 in 1992 through the ensuing decade to 73,044 in 2001, a decrease of about 72%. This reduction was partly the result of higher licensing fees that Congress raised in the 1993 Brady Handgun Violence Prevention Act (Brady Act; P.L. 103-159 ). This reduction has also been attributed to ATF changes in licensing regulations, such as a requirement that applicants submit a photograph and fingerprints. Congress codified this regulation in 1994. The number of Type 1 and 2 FFLs continued to decrease, but not as steeply until 2009. Since then, those numbers have increased by 18.3%, from 54,184 in 2009 to 64,087 in 2015. On the other hand, Figure 1 also shows that the number of Type 3 FFLs, Collectors of Curios and Relics, have increased from 13,512 in 1997 to 64,449 in 2015, an increase of about 377%. Growth in the Civilian Gun Stock Figure 2 illustrates the net annual increase in the U.S. civilian gun stock. Over a 35-year period, from 1980 to 2014, over 250 million firearms were introduced into the U.S. civilian gun stock. From 1992 to 1994, there were spikes as Congress debated and later passed the Brady Act ( P.L. 103-159 ) and the Violent Crime Control and Reduction Act ( P.L. 103-322 ). There were even greater spikes beginning in 2006. These increases were possibly spurred by fears that either the Administration or Congress would move to regulate firearms more stringently, when the Democrats took control of Congress in 2006, the Virginia Tech tragedy occurred in 2007, President Barack Obama was elected in 2008, several other high-profile mass public shootings occurred in 2009, and the Aurora, CO, and Newtown, CT, tragedies and other mass public shootings occurred in 2012. In 2013, the year following the December 2012 Newtown, CT, mass shooting, about 16 million firearms were introduced into the U.S. civilian gun stock, marking this year for the single highest net annual increase of firearms in the U.S. civilian gun stock since such data have been collected. As described below, in April 2013, December 2015, and June 2016, the Senate considered legislation to expand background checks for firearms. These increases in the civilian gun stock could be viewed as one possible measure for ATF's correspondingly increasing responsibilities to regulate and monitor the domestic firearms industry and commerce. According to Small Arms Survey, there were between 290 and 314 million firearms in the United States held by civilians in 2010, or nearly one firearm for every person in the United States. The Government Accountability Office (GAO) estimated that there were an estimated 350 million firearms in the United States as of 2013. Another source estimated that the U.S. civilian gun stock was between 310 and 320 million firearms as of 2014. In addition, there were about 1 million firearms in police possession and 4 million firearms in military possession. According to polls, about 35% of households own a gun, and 25% of adults own a gun (60 million adults). About 37% of men and 12% of women own guns. Downward Trend in Violent Firearms-Related Crime In its Congressional Budget Submission, Fiscal Year 201 7 , ATF cited incidents of criminal homicide, robbery, and aggravated assault committed with a firearm in calendar year 2014. The data in Figure 3 show criminal homicide victim rates, as well as estimated victim rates for all firearm- and handgun-related homicides. Gleaned from the FBI-compiled Uniform Crime Reports (UCRs), the data show that from year-to-year, about two-thirds of all victims were killed with firearms, and one-half of all victims were killed with handguns. Criminal homicide victim rates, with or without firearms, were lower in 2014 than they were in 1968. In earlier years, however, criminal homicides peaked in 1974 at 20,710, 1980 at 23,040, 1991 at 24,700, and 1993 at 24,526. While firearms-related homicides bumped up slightly in 2006 and 2012, overall they have decreased by over half from 1993 to 2014, from 6.6 to 3.0 victims per 100,000 population. The estimated firearms murder rate per 100,000 population in 2014 was lower than in 1968. In 2014, it was 3.0 per 100,000 population. In 1968, it was 4.4 per 100,000 population. According to the FBI Uniform Crime Reports , about 40% of robberies, or two in five, are committed with firearms, and about 22% of aggravated assaults, or one in five, are committed with a firearm. Firearms-related robberies and aggravated assaults have also decreased since 1993. There were about 109 firearms-related robberies per 100,000 population in 1993 compared to 41 in 2014, and there were about 112 firearms-related aggravated assault per 100,000 population in 1993, compared to 52 in 2014. Concluding Observations About ATF Workloads and Data Trends As noted above, the number of federally licensed dealers and pawnbrokers (Type 1 and Type 2 FFLs) decreased substantially from 1992 to 2009. Since then, that number increased by 18.3%, to 64,087 in 2015. Nevertheless, there were fewer Type 1 and Type 2 FFLs than there were in 1992, when there were 258,607. Meanwhile, the number of firearms introduced into civilian gun stock grew appreciably to 8 million or more newly introduced firearms per year since 2009. These two phenomena together suggest that at least some federally licensed Type I firearms dealers were transferring substantially greater quantities of firearms at the retail level to unlicensed, private persons. ATF had traditionally allocated the lion's share of its resources toward its enforcement mission over its regulatory (administrative) mission. Moreover, the emphasis on enforcement over administration arguably might have increased after Congress transferred most of ATF from the Department of the Treasury to DOJ. If firearms-related violent crime should continue to decrease nationally, Congress could consider whether ATF should allocate a greater share of its resources toward its regulatory mission, particularly the monitoring of FFLs and explosives licensees and permittees. Increase in National Firearms Act (NFA) Applications for Silencers Under the NFA, as amended, the ATF regulates nonmilitary commerce in machine guns, short-barreled rifles and shotguns, silencers, a "catch-all" class of other "concealable" firearms identified as "any other weapon," and destructive devices. However, according to the American Suppressor Association, since 2011 17 states legalized suppressors [silencers] for hunting, bringing the total number of states allowing such activities to 39; 15 states passed "shall sign" or "shall certify" legislation that requires the presiding chief law enforcement officers in a community where an applicant lives to sign off on federal NFA applications for suppressors; and 3 states legalized suppressor ownership. Eight states prohibit civilian ownership of suppressors. These changes in state law governing suppressors have led to an increase in workload for ATF. The number of legally registered suppressors in the ATF National Firearms Registry and Transfer Record (NFRTR) system have increased from 285,087 in December 2010 to 762,282 in February 2015, an increase of 167.3%. Senate Committee Action The Senate-reported FY2017 CJS appropriations bill ( S. 2837 ) would have provided ATF with $1.259 billion for FY2017. This amount was $18.6 million above the ATF's FY2016 appropriation, but $47.5 million below the Obama Administration's request. However, this amount was $6.8 million above the ATF projected base budget. Senate report language ( S.Rept. 114-239 ) expressed support for the National Integrated Ballistics Information Network (NIBIN) and ongoing ATF efforts to address gun violence and enforce existing gun laws, while maintaining regulatory oversight over the U.S. domestic firearms industry; moving the U.S. Bomb Data Center (USBDC) permanently to the National Center for Explosives Training and Research (NCETR) and for ongoing efforts to provide advanced bomb disposal training to state, tribal, and local technicians; and ATF efforts to combat firearms trafficking across the U.S.-Mexico border. Report language, however, was silent on increased staffing for firearms compliance inspections, increased NFA applications, and funding for a new investigative case management computer system. House Committee Action The House Committee on Appropriations reported an FY2017 appropriations bill ( H.R. 5393 , H.Rept. 114-605 ). This bill would have provided ATF with $1.258 billion for FY2017. This amount was nearly $17.8 million above the ATF's FY2016 appropriation, but was $48.3 million below the Obama Administration's FY2016 request. With regard to ballistic imaging, House report language expressed concern that federal law enforcement agencies had not consistently entered crime scene ballistic evidence into NIBIN, "despite evidence that doing so aids investigations and reduces gun violence." House report language also directed ATF to report back to the committee on its plans to upgrade NIBIN and establish revised protocols for information sharing through this computer network. With regard to the NCETR, report language urged ATF to continue its support of the Center's efforts to counter advanced improvised explosive devices. With regard to ATF's growing NFA workload, report language noted the committee's concern with longer processing times, and the committee recommendation included $6.0 million to address this workload. The House-reported bill included no provisions to change ATF appropriations limitations related to dealer inventory-taking or the curios and relics definition. On the other hand, as in years past, the House-reported bill included words of futurity in other limitations that would have possibly made them permanent law. Those riders addressed "gun walking" across the U.S.-Mexico border, firearms parts exports to Canada, curios and relics imports, and importation restrictions on shotguns that have been characterized as nonsporting. In addition, as in the past, the House bill included a provision that would have prohibited ATF from collecting multiple long gun (rifle and shotgun) sales reports from federally licensed gun dealers in southern border states (California, Arizona, New Mexico, and Texas). Several amendments were adopted in full committee markup. According to Congressional Quarterly , one amendment was defeated by a vote of 17-29. This amendment would have authorized the Attorney General to deny a firearms transfer to anyone considered to be a "dangerous terrorist." Post-Orlando Senate Floor Debate Following the June 12, 2016, Orlando, FL, mass shooting, Senator Christopher Murphy and other Democrats successfully advocated for the consideration of gun control legislation after holding the Senate floor for nearly 15 hours. When the Senate took up the FY2017 Departments of Commerce and Justice, Science, and Related Agencies (CJS) Appropriations bill ( H.R. 2578 , the expected vehicle for S. 2837 ), several gun control-related amendments were debated. Senator Murphy offered an amendment ( S.Amdt. 4750 ) that would have expanded federal background check requirements to capture intrastate firearms transfers between unlicensed persons (nondealers). Supporters of the Murphy amendment maintain that it would have required "universal" background checks, although it too included exceptions. The Senate rejected further consideration of the Murphy amendment on procedural grounds. The Senate also rejected a procedural motion on an amendment offered by Senator Grassley ( S.Amdt. 4751 ) that included some provisions that were identical to those included in the amendment he previously offered in December 2015 to the Health Care Reconciliation bill ( H.R. 3762 ) . Those provisions were intended to improve background checks, but did not include any provisions that would have expanded background check requirements. In addition, the Senate considered several other amendments ( S.Amdt. 4720 , S.Amdt. 4749 , S.Amdt. 4858 , and S.Amdt. 4859 ) that would have authorized the denial of firearms and explosives transfers to any person whom the Attorney General deemed to be a "dangerous terrorist." While some of those amendments made reference to the "No Fly" list, all of these amendments were loosely modeled on the "Terror Gap" proposal, which was originally developed by DOJ under then-Attorney General Alberto Gonzalez. None of these amendments would have prohibited anyone from receiving or possessing a firearm simply because they were on the "No Fly" list, a claim mistakenly but repeatedly made by many mass media outlets. All but one of those "Terror Gap" amendments were blocked on procedural votes. The Senate voted on a procedural motion on a modified "Terror Gap" proposal ( S.Amdt. 4858 ) that has commonly been referred to as the "Collins compromise." The Senate, however, rejected this motion (46 to 52) to recommit H.R. 2578 to the Committee on the Judiciary with instructions to report the bill back with the language of the Collins compromise. And, the 52 votes against that motion were not enough to suggest that the Senate would be able to obtain the 60 votes likely required to amend the bill successfully. This motion was described as a "test vote." Other Appropriated Funding NICS and FBI Funding In November 1998, the FBI activated the National Instant Criminal Background Check System. Through this system, background checks are completed for all unlicensed persons seeking to obtain firearms from FFLs or firearms-related licenses and permits from state authorities. Intrastate transfers between unlicensed persons are not covered by the federal background check requirements. In recent years, the FBI has seen a significant increase in NICS transactions associated with firearms-related background checks by federal and state authorities. FBI-administered background checks through NICS increased from about 6.6 million in FY2011 to 8.5 million in FY2015. For FY2017, the Obama Administration requested a $35 million increase for NICS. This amount included $15 million to sustain 75 professional support positions for FY2016, and $20 million to secure an additional 160 contractors. Report language accompanying both the Senate- and House-reported FY2017 CJS Appropriations bills ( S. 2837 and H.R. 5393 ) indicated that those bills would have provided the requested $35 million for NICS. For FY2016, the FBI reports that the NICS program budget was anticipated to be $94.1 million. Hence a $35 million enhancement would bring the FY2017 NICS programs budget to $121.1 million. The NICS program falls under the FBI Criminal Justice Information Services (CJIS) decision unit, for which the Obama Administration requested $506.3 million for 2017. The Explanatory Statement accompanying H.R. 244 , submitted by the House Committee on Appropriations Chair, Representative Rodney Frelinghuysen, indicated that P.L. 115-31 included $511.3 million for CJIS, and that this funding supports fully the CJIS programs, including NICS. NCHIP and NARIP Grants Congress has appropriated funding to improve criminal history recordkeeping under a DOJ-administered grant program known as the National Criminal History Improvement Program. This program was originally authorized under the 1993 Brady Act ( P.L. 103-159 ). After the April 2007 Virginia Tech mass shooting, Congress passed the NICS Improvement Amendments Act of 2007 (NIAA; P.L. 110-180 ). This act strengthens a provision of the Brady Act that requires federal agencies to make records on persons prohibited from possessing firearms available electronically to the FBI for the purposes of firearms-related background checks through NICS. It also includes provisions designed to encourage states to make such records available to the FBI. This act prioritizes federal–state record sharing on persons deemed too mentally incompetent to be trusted with firearms, as well as records on domestic violence misdemeanor convictions and restraining orders. The Obama Administration designated the grant program under P.L. 110-180 to be the NICS Amendments Improvement Act (NARIP). For FY2016, Congress provided $73 million for these purposes, of which not less than $25 million was for grants for purposes addressed in P.L. 110-180 . For FY2017, the Obama Administration requested $48 million for NCHIP and $5 million for NARIP. The Senate bill ( S. 2837 ) would have provided $75 million for these purposes, of which not less than $25 million would have been for grants for purposes addressed in P.L. 110-180 . The House bill ( H.R. 5398 ) would have provided $73 million for these purposes, of which not less than $25 million would have been for grants for purposes addressed in P.L. 110-180 . The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes $73 million for these purposes, including the $25 million set aside for the grant programs established by P.L. 110-180 . Gun Violence Prevention Research For FY2017, the Obama Administration requested $10 million for the Centers for Disease Control and Prevention (CDC) to sponsor research into preventing and ameliorating gun violence. Although the budget request uses the term "violence," CDC's stated intent was to use the funds "to address gaps in knowledge about firearm injury prevention," which were identified in a report prepared by the Institute of Medicine and National Research Council in 2013 following the Newtown, CT, mass shooting in December 2012. Based on this report, CDC stated that the research to be funded would have addressed questions related to "youth access to firearms, risk factors for firearm violence, and risks and benefits of firearms ownership, among other issues." The Obama Administration made similar requests for FY2014, FY2015, and FY2016, but Congress did not appropriate funding for these purposes. For FY1997 and every fiscal year thereafter, Congress has attached a provision to Departments of Labor, Health and Human Services (HHS), and Education appropriations prohibiting the use of appropriated funds to "advocate or promote gun control." On June 14, 1996, during subcommittee markup of the FY1997 Labor, HHS, and Education appropriations bill ( H.R. 3755 ), Representative Jay Dickey offered an amendment that would have redirected $2.6 million in funding away from a CDC program that had previously funded research on the risks of gun death and injury associated with gun ownership. Although the Dickey amendment was not approved, the subcommittee gave voice vote approval to an alternative amendment by the Committee Chair, Representative Robert Livingston. This amendment read, "Provided further, That none of the funds made available for injury prevention and control at the Centers for Disease Control and Prevention may be used to advocate or promote gun control." Although this language was not offered by Representative Dickey, it has become known as the "Dickey" amendment. Regarding the enacted provision, House FY1997 report language noted the following: The bill contains a limitation to prohibit the National Center for Injury Prevention and Control at the Centers for Disease Control and Prevention from engaging in any activities to advocate or promote gun control. The CDC may need to collect data on the incidence of gun related violence, but the Committee does not believe that it is the role of the CDC to advocate or promote policies to advance gun control initiatives, or to discourage responsible private gun ownership. The Committee expects research in this area to be objective and grants to be awarded through an impartial peer review process. At issue, in 1996, was CDC-sponsored research by Dr. Arthur L. Kellermann, who had his findings published in 1993 in the New England Journal of Medicine . In 1996, the House Committee on Appropriations heard testimony from several witnesses who either provided "scathing attacks" or "passionate defenses" of Dr. Kellermann's work. From FY1997 through FY2011, this appropriations limitation was embedded in CDC appropriations language and applied only to the Centers. For FY2012, Congress expanded the scope of the prohibition to all of HHS. In addition, for FY2012, Congress modified another limitation in previous years' bills that prohibited any department or agency funded under the bill from conducting "publicity or propaganda ... designed to support or defeat the enactment of legislation," so that it extended to "any proposed, pending, or future requirement or restriction on any legal consumer product, including its sale or marketing, including but not limited to the advocacy or promotion of gun control." According to one news outlet editorial, at issue in 2011 were three National Institutes of Health (NIH)-sponsored research initiatives that examined links between alcohol availability and gun violence, alcohol use and firearms carrying among adolescent assault victims, and parental gun ownership as a hazard to children. Though these appropriations limitations for FY1997-2011 did not overtly prohibit research on gun violence, they were possibly a congressional response to research that was objectionable to at least some Members of Congress for advocating or promoting gun control with taxpayer-funded research. The House Appropriations Subcommittee Chair who oversaw the expansion of the Dickey amendment to include NIH and other HHS agencies for FY2012 argued that in one study that tried to determine why parents chose to own a gun, the NIH characterized parental gun ownership as a "hazard" to their children's safety, and aimed to solidify the notion that a "home free of hazards" was essential to a child's well-being. The clear insinuation is the federal government is telling citizens that if they have a gun in the house they are not a good parent. Other Members of Congress see these limitations as having "chilled unbiased scientific research into the causes of gun violence and the means of preventing it." In the aftermath of the December 2012 Newtown, CT, mass shooting, President Barack Obama released a plan, Now Is The Time , to reduce gun violence. In this plan, the President stated that "research on gun violence is not advocacy." As an executive action, the President issued a memorandum directing CDC and other agencies within HHS to conduct or sponsor research into the causes of gun violence and the ways to prevent it. The Secretary shall begin by identifying the most pressing research questions with the greatest potential public health impact, and by assessing existing public health interventions being implemented across the Nation to prevent gun violence. For FY2017, the Senate and House Committees on Appropriations reported Labor-HHS-Education Appropriations bills ( S. 3040 and H.R. 5926 ) that would have continued the limitations described above, and neither bill would have provided the requested $10 million for gun violence prevention research. The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) included both limitations (Division H of the FY2017 Labor, HHS, and Education Appropriations Act, §§210 and 503) and did not provide funding for gun violence prevention research. Appendix. Firearms-Related Appropriations Limitations and Other Provisions Congress has placed nine provisos related to domestic gun control on Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) appropriations for salaries and expenses (S&E) and included another six provisos in either the Department of Justice (DOJ) general provisions or the general provisions for the entire Commerce, Justice, Science (CJS) and Related Appropriations Act. Congress has included "words of futurity" (e.g., "in each fiscal year thereafter") in several of these provisos that appear to be intended to make them permanent law. One proviso—the "Tiahrt amendment"—has included words of futurity since FY2005, but was included in subsequent appropriations acts through FY2012. This proviso restricts ATF from using appropriations to release unfiltered firearms trace data, and prohibits the use of such data for the purposes of supporting civil lawsuits. Gun control advocates have argued that the Tiahrt amendment and other limitations on the ATF appropriations have unduly hampered that agency from enforcing the law, and consequently have called for their repeal. Supporters of gun rights, on the other hand, maintain that these limitations prevent ATF from overreaching its statutory and regulatory authority. For FY2012, Congress included words of futurity in four of those provisos that appear to be intended to make them permanent law. Those FY2012 provisos are S&E Proviso One: Firearms Acquisition/Disposition Data Collection; S&E Proviso Six: Trace Data and Tiahrt Amendment; S&E Proviso Eight: Out-of-Business Dealers' Records Searches; and NICS Fee Prohibition and Next-Day Destruction of Records. For FY2013, Congress included words of futurity in several additional provisos. Those FY2013 provisions are S&E Proviso Two: Curios or Relics Definition; S&E Proviso Seven: Dealer Inventory; S&E Proviso Nine: Dealer License Denials for Lack of Business; and Trace Data Caveats. As discussed in the text of this report and below, the Obama Administration requested for FY2014, FY2015, and FY2016 that two of those provisos be repealed. Those provisos are S&E Proviso Two: Curios or Relics Definition; and S&E Proviso Seven: Dealer Inventory. For FY2013, FY2014, FY2015, and FY2016, the House CJS appropriations bills included words of futurity in two other provisions. While these provisos were included in the enacted appropriations laws, the words of futurity were not. Those provisos are Firearms Parts Exports to Canada; and Curios and Relics Imports. In the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), Congress included words of futurity in these two additional provisions. There are five other provisos for which Congress has not included words of futurity. Those provisos are S&E Proviso Three: Relief from Firearms Disabilities for Individuals; S&E Proviso Four: Relief from Firearms Disabilities for Corporations; S&E Proviso Five: ATF Reorganization and Dismantlement; Anti-Gun Walking Amendment; and Shotgun Imports. In the 114 th Congress, legislation has been introduced to repeal several of these provisos (see H.R. 1449 and H.R. 2939 ). A more detailed legislative history of all these provisos discussed above along with their language is provided below. Salaries and Expenses (S&E) Provisos ATF S&E Proviso One: Firearms Acquisition/Disposition Data Collection For FY1979 through FY2012, Congress included a proviso in the ATF S&E appropriations language in response to an administrative proposal made during the Carter Administration that would have required firearms manufacturers, importers, and dealers to submit quarterly reports on the sale and disposition of firearms. House and Senate report language expressed the view that this proposed regulation exceeded ATF's authority under the Gun Control Act of 1968 ( H.R. 12930 ; H.Rept. 95-1259 and S.Rept. 95-939). In addition, a proviso was enacted that prohibits ATF from using appropriations for the purposes of creating what has often been characterized as a "registry of firearms or firearms owners." For FY2012, a word of futurity ("hereafter") was included in this proviso, which appears to be intended to make it permanent law. The proviso reads as follows: Provided , That no funds appropriated herein or hereafter shall be available for salaries or administrative expenses in connection with consolidating or centralizing, within the Department of Justice, the records, or any portion thereof, of acquisition and disposition of firearms maintained by [F]ederal firearms licensees. ATF S&E Proviso Two: Curios or Relics Definition For FY1996 through FY2013, Congress included a proviso in the ATF S&E appropriations language that prohibits ATF from using appropriated funding for the purposes of changing the definition of "curios or relics." This provision was in response to an ATF proposal to amend the definition of "curios or relics," because of concerns about the volume of surplus military firearms that could be imported into the United States. ATF has consistently opposed the importation of certain World War II-era surplus military firearms. The language of this proviso is as follows: Provided further, That no funds appropriated herein shall be used to pay administrative expenses or the compensation of any officer or employee of the United States to implement an amendment or amendments to 27 CFR 478.118 or to change the definition of "Curios or relics" in 27 CFR 478.11 or remove any item from ATF Publication 5300.11 as it existed on January 1, 1994. For FY2013, Congress included words of futurity ("the current fiscal year and any fiscal year thereafter") in this proviso, which appear to have made it permanent law. For each fiscal year thereafter, FY2014 through FY2017, the Obama Administration requested as part of its annual congressional budget submissions that this proviso be repealed. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included no provision to repeal or change this appropriations limitation. Neither the Senate nor the House FY2017 CJS appropriations bills ( S. 2837 and H.R. 5393 ) included any provisions to repeal or change this appropriations limitation, nor does the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). ATF S&E Proviso Three: Relief from Firearms Disabilities for Individuals For FY1993 and every year thereafter, Congress included a proviso in the ATF S&E appropriations language that prevents that agency from using appropriations to consider applications for disabilities relief (i.e., reinstatement of an applicant's right to gun ownership) from individuals who are otherwise ineligible to be transferred a firearm. In the 102 nd Congress, House report language ( H.R. 5488 ; H.Rept. 102-618) included the following justification: "the Committee believes that the $3.75 million and the 40 man-years annually spent investigating and acting upon these applications for relief would be better utilized by ATF in fighting violent crime." Senate and Conference report language were silent on this issue. The language of this proviso is as follows: Provided further, That none of the funds appropriated herein shall be available to investigate or act upon applications for relief from Federal firearms disabilities under 18 U.S.C. 925(c). For FY2015, this proviso was included in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). For FY2016, the Senate Committee on Appropriations included identical language in its reported CJS appropriations bill ( H.R. 2578 , as amended). The House-passed version of H.R. 2578 , however, reflected a floor amendment ( H.Amdt. 302 ) that would have required ATF to process disability relief applications for individuals. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ), however, did not include this amended provision. Instead, it included and maintained the appropriations limitation described above. Both the Senate and House FY2017 CJS Appropriations bills ( S. 2837 and H.R. 5393 ) included identical provisions, as does the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). ATF S&E Proviso Four: Relief from Firearms Disabilities for Corporations For FY1994 and every year thereafter, Congress added a related proviso explicitly stating that appropriated funds could be used to process disability relief applications for corporations. Provided further, That such funds shall be available to investigate and act upon applications filed by corporations for relief from Federal firearms disabilities under section 925(c) of title 18, United States Code. For FY2015, this proviso was included in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). For FY2016, an identical proviso was included in the House-passed CJS appropriations bill ( H.R. 2578 ) and Senate-reported bill ( H.R. 2578 , as amended). The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included this appropriations limitation. Both the Senate and House FY2017 CJS Appropriations bills ( S. 2837 and H.R. 5393 ) included identical provisions, as does the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). ATF S&E Proviso Five: ATF Reorganization or Dismantlement For FY1994 and every year thereafter, Congress included a proviso in the ATF S&E appropriations language that prevents the use of appropriations to dismantle that agency. That provision was a response to Vice President Al Gore's National Performance Review report released on September 7, 1993, which called for the transfer of ATF's law enforcement functions to the FBI. Under this recommendation, ATF's regulatory and revenue functions were to remain at the Department of the Treasury, but be transferred to the Internal Revenue Service. The language of this proviso is as follows: Provided further, That no funds made available by this or any other Act may be used to transfer the functions, missions, or activities of the Bureau of Alcohol, Tobacco, Firearms and Explosives to other agencies or Departments. For FY2015, this proviso was included in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). For FY2016, identical language was included in the House-passed and Senate-reported versions of H.R. 2578 . Similarly, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included this appropriations limitation. Both the Senate and House FY2017 CJS appropriations bills ( S. 2837 and H.R. 5393 ) included identical provisions, as does the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). ATF S&E Proviso Six: Trace Data and the Tiahrt Amendment For FY2004 through FY2012, Congress included a proviso in the ATF S&E appropriations language that is known for the Member who originally offered the amendment, Representative Todd Tiahrt. For FY2003, Congress had previously included a related provision in the Treasury-Postal appropriations act, which was reportedly included in the bill at the request of Representative George R. Nethercutt. As shown below, the Nethercutt provision was drawn more narrowly than the Tiahrt proviso. The Tiahrt amendment prohibits ATF from using appropriations to make unfiltered trace data available to any parties other than domestic and foreign law enforcement (with greater restrictions in the latter case) and national security agencies. The proviso exempts trace reports, which ATF has traditionally produced for statistical purposes and firearms trafficking trend analysis. Unlike other ATF appropriations provisions, this one has been substantively altered several times. The last substantive revision was for FY2010. Nevertheless, it has included some form of futurity language ("in each fiscal year thereafter") since its inception, most recently for FY2012. The language of this proviso is as follows: Provided further, That, during the current fiscal year and in each fiscal year thereafter, no funds appropriated under this or any other Act may be used to disclose part or all of the contents of the Firearms Trace System database maintained by the National Trace Center of the Bureau of Alcohol, Tobacco, Firearms and Explosives or any information required to be kept by licensees pursuant to section 923(g) of title 18, United States Code, or required to be reported pursuant to paragraphs (3) and (7) of such section, except to: (1) a Federal, State, local, or tribal law enforcement agency, or a Federal, State, or local prosecutor; or (2) a foreign law enforcement agency solely in connection with or for use in a criminal investigation or prosecution; or (3) a Federal agency for a national security or intelligence purpose; unless such disclosure of such data to any of the entities described in (1), (2) or (3) of this proviso would compromise the identity of any undercover law enforcement officer or confidential informant, or interfere with any case under investigation; and no person or entity described in (1), (2) or (3) shall knowingly and publicly disclose such data; and all such data shall be immune from legal process, shall not be subject to subpoena or other discovery, shall be inadmissible in evidence, and shall not be used, relied on, or disclosed in any manner, nor shall testimony or other evidence be permitted based on the data, in a civil action in any State (including the District of Columbia) or Federal court or in an administrative proceeding other than a proceeding commenced by the Bureau of Alcohol, Tobacco, Firearms and Explosives to enforce the provisions of chapter 44 of such title, or a review of such an action or proceeding; except that this proviso shall not be construed to prevent: (A) the disclosure of statistical information concerning total production, importation, and exportation by each licensed importer (as defined in section 921(a)(9) of such title) and licensed manufacturer (as defined in section 921(a)(10) of such title); (B) the sharing or exchange of such information among and between Federal, State, local, or foreign law enforcement agencies, Federal, State, or local prosecutors, and Federal national security, intelligence, or counterterrorism officials; or (C) the publication of annual statistical reports on products regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives, including total production, importation, and exportation by each licensed importer (as so defined) and licensed manufacturer (as so defined), or statistical aggregate data regarding firearms traffickers and trafficking channels, or firearms misuse, felons, and trafficking investigations. After FY2012, this proviso has not appeared in any subsequent ATF appropriations. It appears that the words of futurity discussed above were considered to make this proviso permanent law. Congress included a related provision in the FY2003 Treasury-Postal appropriations act. This provision arguably has prohibited, and possibly would continue to prohibit, ATF from using appropriated funding for the purposes of processing Freedom of Information Act (FOIA) requests for trace data. Report language stated the following: The need to maintain these databases [firearms trace data and multiple handgun sales reports] on a limited confidential basis that has been in place at ATF for several years for tracing records derives from the long-term nature of criminal investigations. In addition to jeopardizing criminal investigations and officer safety, such information, once released, might easily be disseminated through the Internet. This would not only pose a risk to law enforcement and homeland security, but also to the privacy of innocent citizens ( H.Rept. 107-575 ). The language of this provision is as follows: Sec. 644. No funds appropriated under this Act or any other Act with respect to any fiscal year shall be available to take any action based upon any provision of 5 U.S.C. 552 with respect to records collected or maintained pursuant to 18 U.S.C. 846(b), 923(g)(3) or 923(g)(7), or provided by Federal, State, local, or foreign law enforcement agencies in connection with arson or explosives incidents or the tracing of a firearm, except that such records may continue to be disclosed to the extent and in the manner that records so collected, maintained, or obtained have been disclosed under 5 U.S.C. 552 prior to the date of the enactment of this Act. This provision was not included in subsequent appropriations laws. However, it too includes words of futurity ("with respect to any fiscal year"), which appear to be intended to make it permanent law. The scope of subsequent Tiahrt provisos also prohibited all FOIA disclosures of trace data. ATF S&E Proviso Seven: Dealer Inventory For FY2004 through FY2013, Congress included a proviso in the ATF S&E appropriations language that prohibits the agency from using any appropriations to require federal firearms licensees to conduct inventories before an inspection. This provision was also part of the FY2004 Tiahrt amendment. The language of this proviso is as follows: Provided further, That no funds made available by this or any other Act shall be expended to promulgate or implement any rule requiring a physical inventory of any business licensed under section 923 of title 18, United States Code. For FY2013, Congress included words of futurity ("for any fiscal year thereafter") in this provision, which appear to have been intended to make it permanent law. As part of its FY2014, FY2015, and FY2016 budget request, the Obama Administration requested that this proviso be repealed. The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included no provision that would have changed this appropriations limitation. Neither the Senate nor the House FY2017 CJS Appropriations bills ( S. 2837 and H.R. 5393 ) included any provisions to repeal or change this limitation, nor does the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ). ATF S&E Proviso Eight: Out-of-Business Dealers' Records Searches For FY1997 through FY2012, Congress included a proviso in the ATF S&E appropriations language that prohibits ATF from using appropriations to search computerized records of out-of-business FFLs. Such records—the bound logs of firearms acquisitions and dispositions and ATF Form 4473s—are digitized for storage purposes and kept in a microform format for evidentiary purposes. For FY2012, a word of futurity ("hereafter") was included in this proviso, which appears to be intended to make it permanent law ( P.L. 112-55 ). The language of this provision is as follows: Provided further, That, hereafter, no funds made available by this or any other Act may be used to electronically retrieve information gathered pursuant to 18 U.S.C. 923(g)(4) by name or any personal identification code. ATF S&E Proviso Nine: Dealer License Denials for Lack of Business For FY2004 and through FY2013, Congress included a proviso in the ATF S&E appropriations language that prohibits ATF from using appropriations to deny or renew a dealer license for lack of business. This proviso was in response to ATF efforts during the Clinton Administration to reduce the number of individuals who arguably held federal firearms licenses simply for the sake of convenience, as opposed to the means to pursue their principal source of livelihood. Pro-gun control groups referred to such dealers as "kitchen table top dealers." It too was part of the FY2004 Tiahrt amendment. The language of this provision is as follows: Provided further, That no funds authorized or made available under this or any other Act may be used to deny any application for a license under section 923 of title 18, United States Code, or renewal of such a license due to a lack of business activity, provided that the applicant is otherwise eligible to receive such a license, and is eligible to report business income or to claim an income tax deduction for business expenses under the Internal Revenue Code of 1986. After 2013, this provision was not included in any subsequent appropriation, possibly because of words of futurity language ("for any fiscal year thereafter") in P.L. 113-6 , which appear to have been intended to make it permanent law. Other Stand-Alone Appropriations Provisions Anti-Gun Walking Amendment For FY2012 through FY2015, Congress included a provision in the annual CJS appropriations acts that prohibits an investigative tactic known as "gun walking." As part of a flawed investigation known as "Operation Fast and Furious," the DOJ Office of the Inspector General found that ATF special agents did not act in a timely manner to arrest, or at least confront, suspected "straw purchasers" and interdict the firearms they had purchased in multiple transactions from federally licensed gun dealers, when the agents arguably had a reasonable suspicion or probable cause to believe that they, the straw purchasers, were trafficking firearms illegally to known associates of Mexican drug trafficking organizations. Senator John Cornyn sponsored an amendment to the FY2012 CJS appropriations act that included a related provision to prevent "gun walking." While the language of the Cornyn amendment was modified, the related FY2012 provision reads as follows: Sec. 219. None of the funds made available under this Act, other than for the national instant criminal background check system established under section 103 of the Brady Handgun Violence Prevention Act, may be used by a Federal law enforcement officer to facilitate the transfer of an operable firearm to an individual if the Federal law enforcement officer knows or suspects that the individual is an agent of a drug cartel, unless law enforcement personnel of the United States continuously monitor or control the firearm at all times. For FY2015, Congress included this provision in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ; §215). The Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) included this provision (§216). For FY2017, both the Senate and House Appropriations bills ( S. 2837 and H.R. 5393 ) included this provision (§215 and §213, respectively). The House bill included words of futurity ("for fiscal year FY2017 and each fiscal year thereafter"). The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes two similar, but slightly different versions of this provision (§§216 and 526). Neither provision includes futurity language, however. NICS Fee Prohibition and Next-Day Destruction of Records For FY1999 through FY2012, Congress has included a provision in the annual CJS appropriations acts that prohibits the Department of Justice from using appropriations to levy a fee for firearms-related background checks under the National Instant Criminal Background Check System. This provision was crafted to counter a Clinton Administration proposal to levy a $5 fee for such checks. For FY2004 and every year thereafter, along with the fee prohibition, Congress has included a provision that requires the FBI to destroy background check records within 24 hours on persons who are eligible to receive firearms. This provision was originally part of the FY2004 Tiahrt amendment and was crafted in response to a 90-day audit log that was maintained by the FBI during the Clinton Administration for audit and other purposes. For FY2012, Congress inserted a word of futurity ("hereafter") in this provision. The language of this provision is as follows: Sec. 511. Hereafter, none of the funds appropriated pursuant to this Act or any other provision of law may be used for— (1) the implementation of any tax or fee in connection with the implementation of subsection 922(t) of title 18, United States Code; and (2) any system to implement subsection 922(t) of title 18, United States Code, that does not require and result in the destruction of any identifying information submitted by or on behalf of any person who has been determined not to be prohibited from possessing or receiving a firearm no more than 24 hours after the system advises a Federal firearms licensee that possession or receipt of a firearm by the prospective transferee would not violate subsection (g) or (n) of section 922 of title 18, United States Code, or State law. After FY2012, this provision was not included in any subsequent CJS appropriations, possibly because of the words of futurity in P.L. 112-55 , which appear to have been intended to make this provision permanent law. Trace Data Limitations and Caveats This proviso was first included in the FY2004 CJS appropriations bill as part of the FY2004 Tiahrt amendment. The language of this provision (originally number §516) is as follows: (a) Tracing studies conducted by the Bureau of Alcohol, Tobacco, Firearms and Explosives are released without adequate disclaimers regarding the limitations of the data. (b) The Bureau of Alcohol, Tobacco, Firearms and Explosives shall include in all such data releases, language similar to the following that would make clear that trace data cannot be used to draw broad conclusions about firearms-related crime: (1) Firearm traces are designed to assist law enforcement authorities in conducting investigations by tracking the sale and possession of specific firearms. Law enforcement agencies may request firearms traces for any reason, and those reasons are not necessarily reported to the Federal Government. Not all firearms used in crime are traced and not all firearms traced are used in crime. (2) Firearms selected for tracing are not chosen for purposes of determining which types, makes, or models of firearms are used for illicit purposes. The firearms selected do not constitute a random sample and should not be considered representative of the larger universe of all firearms used by criminals, or any subset of that universe. Firearms are normally traced to the first retail seller, and sources reported for firearms traced do not necessarily represent the sources or methods by which firearms in general are acquired for use in crime. For FY2013, Congress included words of futurity ("for FY2013 and thereafter") in this provision that appear to have been intended to make it permanent law. Firearms Parts Exports to Canada Congress first included this provision in the FY2006 Science, State, Justice, Commerce, and Related Agencies Appropriations Act to prohibit the use of funds provided under this act to require certain export licenses. This provision was a congressional response to new regulations promulgated during the Clinton Administration (1999) that were based on the Organization of American States (OAS) Model Regulations for the Control of the International Movement of Firearms. As a result of the export licensing provisions in these regulations, it arguably became cost prohibitive for a Canadian resident to acquire certain firearms parts from U.S. gun dealers. Hence, this provision (originally number §520) makes certain firearms parts exempt from some, but not all export licensing requirements. It reads as follows: (a) Notwithstanding any other provision of law or treaty, none of the funds appropriated or otherwise made available under this Act or any other Act may be expended or obligated by a department, agency, or instrumentality of the United States to pay administrative expenses or to compensate an officer or employee of the United States in connection with requiring an export license for the export to Canada of components, parts, accessories or attachments for firearms listed in Category I, section 121.1 of title 22, Code of Federal Regulations (International Trafficking in Arms Regulations (ITAR), part 121, as it existed on April 1, 2005) with a total value not exceeding $500 wholesale in any transaction, provided that the conditions of subsection (b) of this section are met by the exporting party for such articles. (b) The foregoing exemption from obtaining an export license— (1) does not exempt an exporter from filing any Shipper's Export Declaration or notification letter required by law, or from being otherwise eligible under the laws of the United States to possess, ship, transport, or export the articles enumerated in subsection (a); and (2) does not permit the export without a license of–(A) fully automatic firearms and components and parts for such firearms, other than for end use by the Federal Government, or a Provincial or Municipal Government of Canada; (B) barrels, cylinders, receivers (frames) or complete breech mechanisms for any firearm listed in Category I, other than for end use by the Federal Government, or a Provincial or Municipal Government of Canada; or (C) articles for export from Canada to another foreign destination. (c) In accordance with this section, the District Directors of Customs and postmasters shall permit the permanent or temporary export without a license of any unclassified articles specified in subsection (a) to Canada for end use in Canada or return to the United States, or temporary import of Canadian-origin items from Canada for end use in the United States or return to Canada for a Canadian citizen. (d) The President may require export licenses under this section on a temporary basis if the President determines, upon publication first in the Federal Register, that the Government of Canada has implemented or maintained inadequate import controls for the articles specified in subsection (a), such that a significant diversion of such articles has and continues to take place for use in international terrorism or in the escalation of a conflict in another nation. The President shall terminate the requirements of a license when reasons for the temporary requirements have ceased. This provision was included in the Consolidated and Continuing Appropriations Act, 2015 ( P.L. 113-235 , §517). For FY2013 through FY2016, the House Committee on Appropriations included words of futurity in its versions of that provision, but such language was not included in any of the enacted appropriations laws for those fiscal years. Section 517 of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) continued to prohibit the use of funds in that act to require export licenses for the purposes described above. For FY2017, both the Senate and House CJS Appropriations bills ( S. 2837 and H.R. 5393 ) included this provision (§517 and §516, respectively). The House bill included words of futurity (in FY2017 and each fiscal year thereafter). The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes this provision (§517) with words of futurity ("made available under this Act or any other Act") that appear to have been intended to make this provision permanent law. Curios and Relics Imports Congress first included this provision in the FY2006 Science, State, Justice, Commerce, and Related Agencies Appropriations Act to prohibit the use of funds in this act to deny certain import applications. The language of this provision (originally numbered §521) is as follows: Notwithstanding any other provision of law, no department, agency, or instrumentality of the United States receiving appropriated funds under this Act or any other Act shall obligate or expend in any way such funds to pay administrative expenses or the compensation of any officer or employee of the United States to deny any application submitted pursuant to 22 U.S.C. 2778(b)(1)(B) and qualified pursuant to 27 CFR section 478.112 or .113, for a permit to import United States origin "curios or relics" firearms, parts, or ammunition. This provision was included in the Consolidated and Continuing Appropriations Act, 2015 ( P.L. 113-235 ; §517). For FY2013 through FY2015, the House Committee on Appropriations included words of futurity in its version of that provision, but such language was not included in any of the enacted appropriations laws for those fiscal years. Section 518 of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) continued to prohibit the use of funds in that act to deny import applications for "curios or relics" firearms, parts, or ammunition. For FY2017, both the Senate and House CJS Appropriations bills ( S. 2837 and H.R. 5393 ) included this provision (§518 and §517, respectively). The House provision included words of futurity (in fiscal year 2017 and each fiscal year thereafter). The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes this provision (§518) with words of futurity ("under this Act or any other Act") that appear to have been intended to make this provision permanent law. Shotgun Imports Congress first included this provision in the FY2012 CJS appropriations law in response to an ATF study, which characterized certain shotguns as "non-sporting," because they include certain "military-style" features (e.g., pistol grips, folding or collapsible stocks, laser sights, as well as the ability to accept large capacity ammunition feeding devices). The language of this provision (originally number §541) is as follows: None of the funds made available by this Act may be used to pay the salaries or expenses of personnel to deny, or fail to act on, an application for the importation of any model of shotgun if— (1) all other requirements of law with respect to the proposed importation are met; and (2) no application for the importation of such model of shotgun, in the same configuration, had been denied by the Attorney General prior to January 1, 2011, on the basis that the shotgun was not particularly suitable for or readily adaptable to sporting purposes. This provision was included in the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ; §533). For FY2013 through FY2015, the House Committee on Appropriations included words of futurity in its version of this provision, but such language was not included in any of the enacted appropriations laws for those fiscal years. Section 532 of the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) continued to prohibit the use of funds provided in that act from being used to deny the importation of certain shotgun models on the basis that the shotgun was not particularly suitable for or readily adaptable to sporting purposes For FY2017, both the Senate and House CJS Appropriations bills ( S. 2837 and H.R. 2578 ) included this provision (§531 and §530, respectively). The House provision included words of futurity (for FY2017 and each fiscal year thereafter). The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes this provision (§531), but it does not include words of futurity. United Nations Arms Trade Treaty For FY2013 and every year thereafter, Congress has included a provision in the CJS Appropriations Act that has prohibited expenditure of any funding provided under that act to implement an Arms Trade Treaty (ATT) that the United Nations General Assembly adopted on April 2, 2013. U.S. Secretary of State John Kerry signed the ATT on September 25, 2013. The FY2013 language of this provision is as follows: Sec. 7075. None of the funds appropriated by this Act may be obligated or expended to implement the Arms Trade Treaty until the Senate approves a resolution of ratification for the Treaty. The Consolidated Appropriations Act, 2017 ( P.L. 115-31 ) includes an identical provision (§7062). The Obama Administration transmitted the ATT to the Senate for its advice and consent to ratification on December 9, 2016. The purpose of the ATT is to reduce illicit small arms trafficking by creating a legally binding framework to govern arms transfers. The U.S. Department of State argued that the treaty would promote common international standards for the import, export, and the transfer of advanced conventional weapons and, thus, to prevent terrorists, criminals, human rights abusers, and regimes subject to UN embargoes from acquiring certain types of weapons. Under the treaty, the term "advanced conventional weapons" includes tanks, armored combat vehicles, artillery systems, military aircraft, naval vessels, missiles, missile launchers, combat support equipment, as well as small arms and light weapons. The State Department has maintained that the treaty essentially requires other countries adopting arms export control statutes and regulations that are comparable to current law in the United States. By adopting comparable export controls, the State Department maintains that the international community will arguably be better positioned to address illicit arms trafficking. Opponents of the ATT, including some Members of Congress, have generally opposed any international arms control treaty that could possibly diminish an individual's ability to keep and bear arms as provided under the Second Amendment. The State Department has asserted that the treaty clearly protects the sovereignty of the United States and U.S. interests, including the rights protected under the U.S. Constitution. The ATT's preamble reads, in part: "Reaffirming the sovereign right of any State to regulate and control conventional arms exclusively within its territory, pursuant to its own legal or constitutional system"; and "Mindful of the legitimate trade and lawful ownership, and use of certain conventional arms for recreational, cultural, historical, and sporting activities, where such trade, ownership and use are permitted or protected by law." Opponents countered that the treaty pays only cursory attention to the legitimate uses of firearms by individuals and their constitutionally enumerated rights thereto, and that the rest of the document does not adequately address such concerns. Before the United Nations General Assembly adopted the ATT, Senator James Inhofe offered an amendment ( S.Amdt. 139 ) to the Concurrent Resolution on the Budget, Fiscal Year 2013 ( S.Con.Res. 8 ) on March 22, 2013, that essentially repudiated the treaty. The amendment passed by a roll call vote, in which 8 Democrats joined 45 Republicans in was been characterized by the press as a "test vote" on possible Senate ratification of the treaty, which requires a two-thirds majority. According to the Heritage Foundation, though opponents of the treaty may view the United Nations' efforts to thwart illicit arms trafficking commendable, they argue that the methods and strategies devised to counter those illicit activities must be balanced with more adequate protections for the lawful ownership of firearms by civilians. In addition, the National Shooting Sports Foundation maintains that the treaty could increase already existing burdens on the U.S. firearms industry and drastically increase the cost of doing business.

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) is the lead federal agency charged with administering and enforcing federal laws related to firearms and explosives commerce. ATF is also responsible for investigating arson cases with a federal nexus, and criminal cases involving the diversion of alcohol and tobacco from legal channels of commerce. As an agency within the Department of Justice (DOJ), ATF is funded through an annual appropriation in the Departments of Commerce and Justice, Science, and Related Agencies (CJS) Appropriations Act. For FY2017, Congress has appropriated $1.259 billion for ATF in the Consolidated Appropriations Act, 2017 (P.L. 115-31), about $47.5 million less than the Obama Administration's budget request and $18.6 million more than the FY2016 appropriation. This report chronicles the FY2017 appropriations cycle for ATF and other gun control initiatives, including legislative histories for several ATF funding limitations related to firearms. It also includes discussion of year-to-year data trends that could affect ATF workloads, such as the number and type of federal firearms licensees (FFLs), growth in the civilian gun stock, and firearms-related violent crime. The Obama Administration's FY2017 budget request included $1.306 billion for ATF. This amount was $66.1 million above the FY2016 appropriation. This proposed increase included $11.8 million in technical and base adjustments to anticipate inflation and other variable costs and $54.3 million in budget enhancements. As part of President Barack Obama's gun safety initiative, these budget enhancements included $35.6 million for ATF to hire 80 additional special agents and 120 industry operations investigators; $4 million (including 8 positions) to upgrade the National Integrated Ballistics Information Network (NIBIN) hardware and software; $5.7 million and 22 positions to process firearms and explosives licenses and National Firearms Act (NFA) applications, and expand the use of firearms trace data by ATF and other federal and state law enforcement agencies; and $9 million to integrate ATF's case management systems into a single system. The FY2017 budget request called for the repeal of two limitations that prevent ATF from (1) requiring FFLs to inventory their gun stocks prior to inspection and (2) changing an administrative definition of "curios and relics." In P.L. 115-31, Congress maintained these and other firearms-related limitations/provisos (appropriations riders) described in an Appendix to this report. Two additional provisos appear to have been made permanent law by the inclusion of "words of futurity," like "hereafter," "henceforward," and "this and any other fiscal year." In addition, President Obama's gun safety initiative included $35 million for the Federal Bureau of Investigation (FBI) to address an increase in firearms background checks through the National Instant Criminal Background Check System (NICS); $55 million for grants to state, local, tribal, and territorial authorities under the National Criminal History Improvement Program (NCHIP) and NICS Amendments Record Improvement Program (NARIP; P.L. 110-180); and $10 million for gun violence prevention research. NICS was established in 1998 by the FBI to facilitate an electronic background check process to determine firearms eligibility of unlicensed, private persons seeking to acquire firearms from FFLs, or firearms permits and licenses from state authorities. Through both NCHIP and NARIP, the DOJ provides grants to states, tribes, and territories to improve NICS access to records on persons prohibited from acquiring firearms under federal or state law. According to the Explanatory Statement accompanying H.R. 244 (P.L. 115-31), Congress provided funding to support NICS fully, and $73 million for NICS improvement grants. However, Congress did not provide the funding requested for gun violence prevention research. In addition, Congress maintained a limitation in P.L. 115-31 that continues to prohibit the Centers for Disease Control and Prevention (CDC) and other agencies from using appropriated funding to advocate or promote gun control.

Layers of the Internet Many may consider the Internet and World Wide Web (web) to be synonymous; they are not. Rather, the web is one portion of the Internet, and a medium through which information may be accessed. In conceptualizing the web, some may view it as consisting solely of the websites accessible through a traditional search engine such as Google. However, this content—known as the "Surface Web"—is only one portion of the web. The Deep Web refers to "a class of content on the Internet that, for various technical reasons, is not indexed by search engines," and thus would not be accessible through a traditional search engine. Information on the Deep Web includes content on private intranets (internal networks such as those at corporations, government agencies, or universities), commercial databases like Lexis Nexis or Westlaw, or sites that produce content via search queries or forms. Going even further into the web, the Dark Web is the segment of the Deep Web that has been intentionally hidden. The Dark Web is a general term that describes hidden Internet sites that users cannot access without using special software. While the content of these sites may be accessed, the publishers of these sites are concealed. Users access the Dark Web with the expectation of being able to share information and/or files with little risk of detection. In 2005, the number of Internet users reached 1 billion worldwide. This number surpassed 2 billion in 2010 and crested over 3 billion in 2014. As of July 2016, more than 46% of the world population was connected to the Internet. While data exist on the number of Internet users, data on the number of users accessing the various layers of the web and on the breadth of these layers are less clear. Surface Web. The magnitude of the web is growing. According to one estimate, there were 334.6 million Internet top-level domain names registered globally during the second quarter of 2016. This is a 12.9% increase from the number of domain names registered during the same period in 2015. As of February 2017, there were estimated to be more than 1.154 billion websites. As researchers have noted, however, these numbers "only hint at the size of the Web," as numbers of users and websites are constantly fluctuating. Deep Web. The Deep Web, as noted, cannot be accessed by traditional search engines because the content in this layer of the web is not indexed. Information here is not "static and linked to other pages" as is information on the Surface Web. As researchers have noted, "[i]t's almost impossible to measure the size of the Deep Web. While some early estimates put the size of the Deep Web at 4,000–5,000 times larger than the surface web, the changing dynamic of how information is accessed and presented means that the Deep Web is growing exponentially and at a rate that defies quantification." Dark Web. Within the Deep Web, the Dark Web is also growing as new tools make it easier to navigate. Because individuals may access the Dark Web assuming little risk of detection, they may use this arena for a variety of legal and illegal activities. It is unclear, however, how much of the Deep Web is taken up by Dark Web content and how much of the Dark Web is used for legal or illegal activities. Accessing and Navigating the Dark Web The Dark Web can be reached through decentralized, anonymized nodes on a number of networks including Tor (short for The Onion Router) or I2P (Invisible Internet Project) . Tor, which was initially released as The Onion Routing project in 2002, was originally created by the U.S. Naval Research Laboratory as a tool for anonymously communicating online. Tor "refers both to the software that you install on your computer to run Tor and the network of computers that manages Tor connections." Tor's users connect to websites "through a series of virtual tunnels rather than making a direct connection, thus allowing both organizations and individuals to share information over public networks without compromising their privacy." Users route their web traffic through other users' computers such that the traffic cannot be traced to the original user. Tor essentially establishes layers (like layers of an onion) and routes traffic through those layers to conceal users' identities. To get from layer to layer, Tor has established "relays" on computers around the world through which information passes. Information is encrypted between relays, and "all Tor traffic passes through at least three relays before it reaches its destination." The final relay is called the "exit relay," and the IP address of this relay is viewed as the source of the Tor traffic. When using Tor software, users' IP addresses remain hidden. As such, it appears that the connection to any given website "is coming from the IP address of a Tor exit relay, which can be anywhere in the world." While data on the magnitude of the Deep Web and Dark Web and how they relate to the Surface Web are not clear, data on Tor users do exist. According to metrics from the Tor Project, the mean number of daily Tor users in the United States across the first two months of 2017 was 353,753—or 19.2% of total mean daily Tor users. The United States has the largest number of mean daily Tor users, followed by Russia (11.9%), Germany (9.9%), and United Arab Emirates (9.2%). Communicating On (and About) the Dark Web There are several different ways to communicate about the Dark Web. One of the first places individuals may turn is Reddit. There are several subreddits pertaining to the Dark Web, such as DarkNetMarkets, DeepWeb, or Tor. These forums often provide links to sites within the Dark Web. Reddit provides a public platform for Dark Web users to discuss different aspects of the Tor. It is not encrypted or anonymous, as users who wish to engage in forum discussion must create an account. Individuals who wish to use a more secure form of communication may choose to utilize email, web chats, or personal messaging hosted on Tor: Email service providers, for instance, typically only require users to input a username and password to sign up. In addition, email service providers generally offer anonymous messaging and encrypted storage. A number of anonymous, real-time chat rooms such as The Hub and OnionChat are hosted on Tor. Feeds are organized by topic. While some sites do not require any information from users before participating in chats, others require a user to register with an email address. Personal messaging, through Tor Messenger, is another option for Tor users who wish to communicate with an added layer of anonymity. Bitmessage is a popular messaging system which offers encryption and strong authentication. Decentralized, peer-to-peer instant messaging systems, such as Ricochet, also run on Tor and allow for anonymized communication. Specific vendor sites may host private messaging as well. Navigating the Deep Web and Dark Web Traditional search engines often use "web crawlers" to access websites on the Surface Web. This process of crawling searches the web and gathers websites that the search engines can then catalog and index. Content on the Deep (and Dark) Web, however, may not be caught by web crawlers (and subsequently indexed by traditional search engines) for a number of reasons, including that it may be unstructured, unlinked, or temporary content. As such, there are different mechanisms for navigating the Deep Web than there are for the Surface Web. Users often navigate Dark Web sites through directories such as the "Hidden Wiki," which organizes sites by category, similar to Wikipedia. In addition to the wikis, individuals can also search the Dark Web with search engines. These search engines may be broad, searching across the Deep Web, or they may be more specific. For instance, Ahmia, an example of a broader search engine, is one "that indexes, searches and catalogs content published on Tor Hidden Services." In contrast, Grams is a more specific search engine "patterned after Google" where users can find illicit drugs, guns, counterfeit money, and other contraband. When using Tor, website URLs change formats. Instead of websites ending in .com, .org, .net, etc., domains usually end with an "onion" suffix, identifying a "hidden service." Notably, when searching the web using Tor, an onion icon displays in the Tor browser. Tor is notoriously slow, and this has been cited as one drawback to using the service. This is because all Tor traffic is routed through at least three relays, and there can be delays anywhere along its path. In addition, speed is reduced when more users are simultaneously on the Tor network. On the other hand, increasing the number of users who agree to use their computers as relays can increase the speed on Tor. Tor and similar networks are not the only means to reach hidden content on the web. Other developers have created tools—such as Tor2web—that may allow individuals access to Tor-hosted content without downloading and installing the Tor software. Using bridges such as Tor2web, however, does not provide users with the same anonymity that Tor offers. As such, if users of Tor2web or other bridges access sites containing illegal content—for instance, those that host child pornography—they could more easily be detected by law enforcement than individuals who use anonymizing software such as Tor. Is the Dark Web Anonymous? Guaranteed anonymity is not foolproof. While tools such as Tor aim to anonymize content and activity, researchers and security experts are constantly developing means by which certain hidden services or individuals could be identified or "deanonymized." For example, in October 2011 the "hacktivist" collective Anonymous, through its Operation Darknet, crashed a website hosting service called Freedom Hosting—operating on the Tor network—which was reportedly home to more than 40 child pornography websites. Among these websites was Lolita City, cited as one of the largest child pornography sites with over 100GB of data. Anonymous had "matched the digital fingerprints of links on [Lolita City] to Freedom Hosting" and then launched a Distributed Denial of Service (DDoS) attack against Freedom Hosting. In addition, through Operation Darknet, Anonymous leaked the user database—including username, membership time, and number of images uploaded—for over 1,500 Lolita City members. In 2013, the Federal Bureau of Investigation (FBI), reportedly took control of Freedom Hosting and infected it with "custom malware designed to identify visitors." Since 2002, the FBI has supposedly been using some form of a "computer and internet protocol address verifier"—consistent with the malware in the Freedom Hosting takeover—to "identify suspects who are disguising their location using proxy servers or anonymity services, like Tor." In February 2017, hackers purportedly affiliated with Anonymous took down Freedom Hosting II—a website hosting provider on the dark web that was stood up after the original Freedom Hosting was shut down in 2013. Hackers claimed that over 50% of the content on Freedom Hosting was related to child pornography. Website data were dumped, some of which may now identify users of these sites. Of note, security researchers estimated that Freedom Hosting II housed 1,500–2,000 hidden services (about 15-20% of their estimated number of active sites). The FBI conducted an investigation into a child pornography website known as Playpen, which was operating on the Dark Web and had nearly 215,000 members. In 2015, Virginia District Court judge authorized a search warrant allowing law enforcement to employ a network investigative technique to try to identify actual IP addresses of computers used to access Playpen. Through the use of the NIT, the FBI was able to uncover about 1,300 IP addresses and subsequently trace those to individuals. Criminal charges have been filed against more than 185 individuals. Why Anonymize Activity? A number of reasons have been cited why individuals might use services such as Tor to anonymize online activity. Anonymizing services have been used for legal and illegal activities ranging from keeping sensitive communications private to selling illegal drugs. Of note, while a wide range of legitimate uses of Tor exist, much of the research on and concern surrounding anonymizing services involves their use for illegal activities. As such, the bulk of this section focuses on the illegal activities. Online Privacy Tor is used to secure the privacy of activities and communications in a number of realms. Privacy advocates generally promote the use of Tor and similar software to maintain free speech, privacy, and anonymity. There are several examples of how it might be used for these purposes: Anti-Censorship and Political Activism. Tor may be used as a "censorship circumvention tool, allowing its users to reach otherwise blocked destinations or content." Because individuals may rely upon Tor to access content that may be blocked in certain parts of the world, some governments have reportedly suggested tightening regulations around using Tor. Some have purportedly blocked access to it at times. Political dissidents may also use Tor to secure and anonymize their communications and locations, as they have reportedly done in dissident movements in Iran and Egypt. Sensitive Communication . Tor may also be used by individuals who want to access chat rooms and other forums for sensitive communications—both for personal and business uses. Individuals may seek out a safe haven for discussing private issues such as victimization or physical or mental illnesses. They may also use Tor to protect their children online by concealing the IP addresses of children's activities. Businesses may use it to protect their projects and help prevent spies from gaining a competitive advantage. Leaked Information . Journalists may use Tor for communicating "more safely with whistleblowers and dissidents." The New Yorker 's Strongbox, for instance, is accessible through Tor and allows individuals to communicate and share documents anonymously with the publication. In addition, Edward Snowden reportedly used Tails (an "operating system optimized for anonymity")—which automatically runs Tor—to communicate with journalists and leak classified information on U.S. mass surveillance programs. Among the documents leaked by Snowden was a top-secret presentation outlining National Security Agency (NSA) efforts to exploit the Tor browser and de-anonymize users. Illegal Activity and the Dark Web Just as nefarious activity can occur through the Surface Web, it can also occur on the Deep Web and Dark Web. A range of malicious actors leverage cyberspace, from criminals to terrorists to state-sponsored spies. The web can serve as a forum for conversation, coordination, and action. Specifically, they may rely upon the Dark Web to help carry out their activities with reduced risk of detection. While this section focuses on criminals operating in cyberspace, the issues raised are certainly applicable to other categories of malicious actors. Twenty-first century criminals increasingly rely on the Internet and advanced technologies to further their criminal operations. For instance, criminals can easily leverage the Internet to carry out traditional crimes such as distributing illicit drugs and sex trafficking. In addition, they exploit the digital world to facilitate crimes that are often technology driven, including identity theft, payment card fraud, and intellectual property theft. The FBI considers high-tech crimes to be among the most significant crimes confronting the United States. The Dark Web has been cited as facilitating a wide variety of crimes. Illicit goods such as drugs, weapons, exotic animals, and stolen goods and information are all sold for profit. There are gambling sites, thieves and assassins for hire, and troves of child pornography. Data on the prevalence of these Dark Web sites, however, are lacking. Tor estimates that only about 1.5% of Tor users visit hidden services/Dark Web pages. The actual percentage of these that serve a particular illicit market at any one time is unclear, and it is even less clear how much Tor traffic is going to any given site. One study from the University of Portsmouth examined Tor traffic to hidden services. Researchers "ran 40 'relay' computers in the Tor network ... which allowed them to assemble an unprecedented collection of data about the total number of Tor hidden services online—about 45,000 at any given time—and how much traffic flowed to them." While about 2% of the Tor hidden service websites identified were sites that researchers deemed related to child abuse, 83% of the visits to hidden services sites were to these child abuse sites—"just a small number of pedophilia sites account for the majority of Dark Web http traffic." As has been noted, however, there are a number of variables that may have influenced the results. Another study from King's College London scanned hidden services on the Tor network. Starting with two popular Dark Web search engines, Ahmia and Onion City, they used a web crawler to identify 5,205 live websites. Of these 5,205 websites, researchers identified content on about half (2,723) and classified them by the nature of the content. Researchers determined that 1,547 sites contained illicit content. This is a sample of websites on hidden services in Tor; the researchers' crawler accessed about 300,000 websites (including 205,000 unique pages) on the network of Tor hidden services. Of note, in 2015 Tor estimated that there were about 30,000 hidden services that "announce themselves to the Tor network every day." Further, Tor estimated that "hidden service traffic is about 3.4% of total Tor traffic." More recent data from March 2016 to March 2017 indicate that there were generally between 50,000 and 60,000 hidden services, or unique .onion addresses, daily. The Dark Web can play a number of roles in malicious activity. As noted, it can serve as a forum—through chat rooms and communication services—for planning and coordinating crimes. For instance, there have been reports that some of those engaged in tax-refund fraud discussed techniques on the Dark Web. The Dark Web can also provide a platform for criminals to sell illegal or stolen goods. Take the role of the Dark Web in data breaches, for example: Malware used in large-scale data breaches to capture unencrypted credit and debit card information has been purchased on the Dark Web. One form of malware, RAM scrapers, can be purchased and remotely installed on point-of-sale systems, as was done in the 2013 Target breach, among others. Thieves can sell stolen information for profit on the Dark Web. For instance, within weeks of the Target breach, the underground black markets were reportedly "flooded" with the stolen credit and debit card account information, "selling in batches of one million cards and going for anywhere from $20 to more than $100 per card." Such "card shops" are just one example of the specialty markets on the Dark Web. Not only can data be stolen and sold through the Dark Web, it can happen quickly . In one experiment by security vendor BitGlass, researchers created a treasure trove of fake "stolen" data including over 1,500 names, social security numbers, credit card numbers, and more. They then planted these data on DropBox and seven well-known black market sites. Within 12 days, the data had been viewed nearly 1,100 times across 22 countries. Cybercriminals can victimize individuals and organizations alike, and they can do so without regard for borders. How criminals exploit borders is a perennial challenge for law enforcement, particularly as the concept of borders and boundaries has evolved. Physical Borders. For law enforcement purposes, jurisdictional boundaries have been drawn between nations, states, and other localities. Within these territories, various enforcement agencies are designated authority to administer justice. When crimes cross boundaries, a given entity may no longer have sole responsibility for criminal enforcement, and the laws across jurisdictions may not be consistent. Criminals have long understood these phenomena—and exploited them. Physical–Cyber Borders. The relatively clear borders within the physical world are not always replicated in the virtual realm. High-speed Internet communication has not only facilitated the growth of legitimate business, but it has bolstered criminals' abilities to operate in an environment where they can broaden their pool of potential targets and rapidly exploit their victims. Frauds and schemes that were once conducted face-to-face can now be carried out remotely from across the country or even across the world. For instance, criminals can rely upon botnets to target victims across the globe without crossing a single border themselves. Cyber Borders. While cyberspace crosses physical borders, boundaries within cyberspace—both jurisdictional and technological—still exist. Some web addresses, for instance, are country-specific, and the administration of those websites is controlled by particular nations. Another barrier in cyberspace involves the lines between the Surface Web and the Deep Web. Crossing these boundaries may involve subscriptions or fee-based access to particular website content. Certain businesses—news sites, journals, file-sharing sites, and others—may require paid access. Other sites may only be accessed through an invitation. Do malicious actors need, or benefit from, the Dark Web to carry out their activities? Researchers have pointed to pros and cons of relying upon the anonymity of the Dark Web. Criminals selling illicit goods may benefit from the Dark Web's added protection of anonymity by being better able to evade law enforcement. However, they may have more trouble getting business. Trend Micro's study of the Dark Web notes that on it, "[s]ellers suffer from lack of reputation caused by increased anonymity. Being untraceable can present drawbacks for a seller who cannot easily establish a trust relationship with customers unless the marketplace allows for it." In other words, anonymity can be a barrier online if one is trying to sell goods and has not been otherwise vetted. Payment on the Dark Web Bitcoin is the currency often used in transactions on the Dark Web. It is a decentralized digital currency that uses anonymous, peer-to-peer transactions. Individuals generally obtain bitcoins by accepting them as payment, exchanging them for traditional currency, or "mining" them. When a bitcoin is used in a financial transaction, the transaction is recorded in a public ledger, called the block chain. The information recorded in the block chain is the bitcoin addresses of the sender and recipient. An address does not uniquely identify any particular bitcoin; rather, the address merely identifies a particular transaction. Users' addresses are associated with and stored in a wallet. The wallet contains an individual's private key, which is a secret number that allows that individual to spend bitcoins from the corresponding wallet, similar to a password. The address for a transaction and a cryptographic signature are used to verify transactions. The wallet and private key are not recorded in the public ledger; this is where Bitcoin usage has heightened privacy. Wallets may be hosted on the web, by software for a desktop or mobile device, or on a hardware device. Government Use of the Dark Web Because of the anonymity provided by Tor and other software such as I2P, the Dark Web can be a playground for nefarious actors online. As noted, however, there are a number of areas in which the study and use of the Dark Web may provide benefits. This is true not only for citizens and businesses seeking online privacy, but also for certain government sectors—namely the law enforcement, military, and intelligence communities. Law Enforcement Just as criminals can leverage the anonymity of the Dark Web, so too can law enforcement. It may use this to conduct online surveillance and sting operations and to maintain anonymous tip lines. While individuals may anonymize activities, some have speculated about means by which law enforcement can still track malicious activity. As noted, the FBI has put resources into developing malware that can compromise servers in an attempt to identify certain users of Tor. Since 2002, the FBI has reportedly used a "computer and internet protocol address verifier" (CIPAV) to "identify suspects who are disguising their location using proxy servers or anonymity services, like Tor." It has been using this program to target "hackers, online sexual predators, extortionists, and others." Law enforcement has also reportedly been working with companies to develop additional technologies to investigate crimes and identify victims on the Dark Web. In addition to developing technology to infiltrate and deanonymize services such as Tor, law enforcement may rely upon more traditional crime fighting techniques; some have suggested that law enforcement can still rely upon mistakes by criminals or flaws in technology to target nefarious actors. For instance, in 2013 the FBI took down the Silk Road, then the "cyber-underworld's largest black market." Reportedly, "missteps" by the site's operator led to its demise; some speculate that "federal agents found weaknesses in the computer code used to operate the Silk Road website and exploited those weaknesses to hack the servers and force them to reveal their unique identifying addresses. Federal investigators could then locate the servers and ask law enforcement in those locations to seize them." Less than one month after federal agents disbanded the Silk Road, another site (Silk Road 2.0) came online. After discovering that the site's proprietor made critical errors, such as using his personal email address to register the servers, federal agents seized the servers and shut down the site. While law enforcement may aim to defeat criminals operating in the Dark Web technologically, some of their strongest tools may be traditional law enforcement crime-fighting means. For example, law enforcement can still request information from entities that collect identifying information on users. In March 2015, federal investigators "sent a subpoena to Reddit demanding that the site turn over a collection of personal data about five users of the r/darknetmarkets forum [a subreddit where users discussed anonymous online sales of drugs, weapons, stolen financial data, and other contraband]." Though, as some have suggested, such law enforcement actions could drive these conversations and activities to anonymous forums such as those on Tor. Military and Intelligence Anonymity in the Dark Web can be used to shield military command and control systems in the field from identification and hacking by adversaries. The military may use the Dark Web to study the environment in which it is operating as well as to discover activities that present an operational risk to troops. For instance, evidence suggests that the Islamic State (IS) and supporting groups seek to use the Dark Web's anonymity for activities beyond information sharing, recruitment, and propaganda dissemination, using Bitcoin to raise money for their operations. In its battle against IS, the Department of Defense (DOD) can monitor these activities and employ a variety of tactics to foil terrorist plots. Tor software can be used by the military to conduct a clandestine or covert computer network operation such as taking down a website or a denial of service attack, or to intercept and inhibit enemy communications. Another use could be a military deception or psychological operation, where the military uses the Dark Web to plant disinformation about troop movements and targets, for counterintelligence, or to spread information to discredit the insurgents' narrative. These activities may be conducted either in support of an ongoing military operation or on a stand-alone basis. DOD's Defense Advanced Research Projects Agency (DARPA) is conducting a research project, called Memex, to develop a new search engine that can uncover patterns and relationships in online data to help law enforcement and other stakeholders track illegal activity. Commercial search engines such as Google and Bing use algorithms to present search results by popularity and ranking, and are only able to capture approximately 5% of the Internet. By sweeping websites that are often ignored by commercial search engines, and capturing thousands of hidden sites on the Dark Web, the Memex project ultimately aims to build a more comprehensive map of Internet content. Specifically, the project is currently developing technologies to "find signals associated with trafficking in prostitution ads on popular websites." This is intended to help law enforcement target their human trafficking investigations. Similar to the military's use of the Dark Web, the Intelligence Community's (IC's) use of it as a source of open intelligence is not a secret, though many associated details are classified. According to Admiral Mike Rogers, Director of the National Security Agency (NSA) and Commander of U.S. Cyber Command, they "spend a lot of time looking for people who don't want to be found." Reportedly, an investigation into the NSA's XKeyscore program—one of the programs revealed by Edward Snowden's disclosure of classified information—demonstrated that any user attempting to download Tor was automatically fingerprinted electronically, allowing the agency to conceivably identify users who believe themselves to be untraceable. While specific IC activities associated with the Deep Web and Dark Web may be classified, at least one program associated with Intelligence Advanced Research Projects Activity (IARPA) may be related to searching data stored on the Deep Web. Reportedly, conventional tools such as signature-based detection don't allow researchers to anticipate cyber threats; as such, officials are responding to rather than anticipating and mitigating these attacks. The Cyber-attack Automated Unconventional Sensor Environment (CAUSE) program seeks to develop and test "new automated methods that forecast and detect cyber-attacks significantly earlier than existing methods." It could use factors such as actor behavior models and black market sales to help forecast and detect cyber events. Going Forward The Deep Web and Dark Web have been of increasing interest to researchers, law enforcement, and policy makers. However, clear data on the scope and nature of these layers of the Internet are unavailable; anonymity often afforded by services such as Tor for users accessing the deepest corners of the web contributes to this lack of clarity, as does the sometimes temporary nature of the websites hosted there. Individuals, businesses, and governments may all rely upon the digital underground. It may be used for legal and illegal activities ranging from keeping sensitive communications private to selling illegal contraband. Despite some reaching for increased privacy and security online, researchers have questioned whether there will be a corresponding uptick in individuals turning to anonymizing services such as Tor. They've suggested that while there may not be the incentive for individuals to migrate their browsing to these anonymizing platforms, "it is much more likely for technological developments related to the Dark Web to improve the stealthiness of darknets." As such, law enforcement and policy makers may question how best to contend with evolving technology such as encryption and the challenges of attribution in an anonymous environment to effectively combat malicious actors who exploit cyberspace, including the Dark Web.

The layers of the Internet go far beyond the surface content that many can easily access in their daily searches. The other content is that of the Deep Web, content that has not been indexed by traditional search engines such as Google. The furthest corners of the Deep Web, segments known as the Dark Web, contain content that has been intentionally concealed. The Dark Web may be used for legitimate purposes as well as to conceal criminal or otherwise malicious activities. It is the exploitation of the Dark Web for illegal practices that has garnered the interest of officials and policy makers. Individuals can access the Dark Web by using special software such as Tor (short for The Onion Router). Tor relies upon a network of volunteer computers to route users' web traffic through a series of other users' computers such that the traffic cannot be traced to the original user. Some developers have created tools—such as Tor2web—that may allow individuals access to Tor-hosted content without downloading and installing the Tor software, though accessing the Dark Web through these means does not anonymize activity. Once on the Dark Web, users often navigate it through directories such as the "Hidden Wiki," which organizes sites by category, similar to Wikipedia. Individuals can also search the Dark Web with search engines, which may be broad, searching across the Deep Web, or more specific, searching for contraband like illicit drugs, guns, or counterfeit money. While on the Dark Web, individuals may communicate through means such as secure email, web chats, or personal messaging hosted on Tor. Though tools such as Tor aim to anonymize content and activity, researchers and security experts are constantly developing means by which certain hidden services or individuals could be identified or "deanonymized." Anonymizing services such as Tor have been used for legal and illegal activities ranging from maintaining privacy to selling illegal goods—mainly purchased with Bitcoin or other digital currencies. They may be used to circumvent censorship, access blocked content, or maintain the privacy of sensitive communications or business plans. However, a range of malicious actors, from criminals to terrorists to state-sponsored spies, can also leverage cyberspace and the Dark Web can serve as a forum for conversation, coordination, and action. It is unclear how much of the Dark Web is dedicated to serving a particular illicit market at any one time, and, because of the anonymity of services such as Tor, it is even further unclear how much traffic is actually flowing to any given site. Just as criminals can rely upon the anonymity of the Dark Web, so too can the law enforcement, military, and intelligence communities. They may, for example, use it to conduct online surveillance and sting operations and to maintain anonymous tip lines. Anonymity in the Dark Web can be used to shield officials from identification and hacking by adversaries. It can also be used to conduct a clandestine or covert computer network operation such as taking down a website or a denial of service attack, or to intercept communications. Reportedly, officials are continuously working on expanding techniques to deanonymize activity on the Dark Web and identify malicious actors online.

Most Recent Developments The FY2008 agriculture appropriations bill was combined with 10 other appropriations bills into the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ). The consolidated bill passed the House on December 17, 2007, the Senate on December 18, 2007, and was signed by the President on December 26, 2007. The act provides $90.8 billion in total funds for agriculture and related agencies: $18.1 billion in official discretionary appropriations, and $72.7 billion in mandatory funds. The discretionary amount is 1.6% greater than the amount in FY2007 (+$281 million), although "gross" discretionary appropriations actually available to agencies grew 5.3% to $19.5 billion. Mandatory spending decreased about $7 billion overall from FY2007. Mandatory transfers for the farm commodity programs decreased $10 billion because of less need for price-triggered income support, while food stamp benefits rose about $2.2 billion (+4.2%). The act also extends most provisions of the 2002 farm bill until March 15, 2008. The extension is expected to be sufficient for conference negotiations to resolve differences between the House- and Senate-passed farm bills. The farm bill extension states that, unless otherwise excepted, 2002 farm bill provisions shall continue until March 15, 2008. Among the relatively short list of programs that are not extended are the farm commodity programs for the 2008 crop year. Components of Agriculture Appropriations USDA Activities The U.S. Department of Agriculture (USDA) carries out widely varied responsibilities through about 30 separate internal agencies and offices staffed by some 100,000 employees. USDA is responsible for many activities outside of the agriculture budget function. Hence, USDA spending is not synonymous with farm program spending. Similarly, agriculture appropriations bills are not limited to USDA and include related programs such as the Food and Drug Administration and the Commodity Futures Trading Commission but exclude the USDA Forest Service. USDA estimated that its outlays in FY2007 would be $93 billion. Food and nutrition programs comprise the largest mission area with $55 billion, or 60% of the total, to support the food stamp program, the nutrition program for Women, Infants, and Children (WIC), and child nutrition programs ( Figure 1 ). The second-largest mission area, with an expected $21 billion (23%) in outlays, is farm and foreign agricultural services. This mission area includes the farm commodity price and income support programs of the Commodity Credit Corporation, certain mandatory conservation and trade programs, crop insurance, farm loans, and foreign food aid programs. Other USDA activities include natural resource and environmental programs (9% of the total), rural development (3%), research and education programs (3%), marketing and regulatory programs (2%), and food safety (1%). Nearly two-thirds of the outlays for natural resources programs goes to the Forest Service (about $5.4 billion), which is funded through the Interior appropriations bill. The Forest Service, included with natural resources in Figure 1 , is the only USDA agency not funded through the agriculture appropriations bill. USDA defines its programs using "mission areas" that do not always correspond to categories in the agriculture appropriations bill. For example, foreign agricultural assistance programs are a separate title (Title V) in the appropriations bill but are joined with domestic farm support in USDA's "farm and foreign agriculture" mission area (compare Figure 1 with Figure 2 ). Conversely, USDA has separate mission areas for marketing and regulatory programs, and agricultural research, but both are joined with other domestic farm support programs in Title I (agricultural programs) of the appropriations bill. Related Agencies In addition to the USDA agencies mentioned above, the agriculture appropriations subcommittees have jurisdiction over appropriations for the Food and Drug Administration (FDA) of the Department of Health and Human Services (HHS) and, in the House, the Commodity Future Trading Commission (CFTC, an independent financial markets regulatory agency). These agencies are included in the agriculture appropriations bill because of their historical connection to food and agricultural markets. However, food and agricultural issues have become less dominant at these agencies as medical and drug issues have grown in FDA and non-agricultural futures markets have grown at CFTC. Their combined share of the overall agriculture and related agencies appropriations bill is usually less than 2% (see Title VI in Figure 2 ). Mandatory vs. Discretionary Spending Mandatory and discretionary spending are treated differently in the budget process. Congress generally controls spending on mandatory programs by setting rules for eligibility, benefit formulas, and other parameters rather than approving specific dollar amounts for these programs each year. Eligibility for mandatory programs (sometimes referred to as entitlement programs) is usually written into authorizing law, and any individual or entity that meets the eligibility requirements is entitled to the benefits authorized by the law. The 2002 farm bill—and its expected successor, the 2007/08 farm bill, H.R. 2419 —determine most of the parameters for this mandatory spending. Spending for discretionary programs is controlled by annual appropriations acts. The subcommittees of the House and Senate Appropriations Committees originate bills each year that provide funding to continue current activities as well as any new discretionary programs. Approximately 80% of the total agriculture and related agencies spending is classified as mandatory, which by definition occurs independently of annual appropriations ( Table 1 ). The vast majority of USDA's mandatory spending is for the following programs: the food stamp program, most child nutrition programs, the farm commodity price and income support programs (authorized by the 2002 farm bill and various disaster/emergency appropriations), the federal crop insurance program, and various agricultural conservation and trade programs. Mandatory spending is highly variable and driven by program participation rates, economic and price conditions, and weather patterns ( Figure 3 ). Although these programs have mandatory status, many of these accounts receive funding in the annual agriculture appropriations act. For example, the food stamp and child nutrition programs are funded by an annual appropriation based on projected spending needs. Supplemental appropriations generally are made if these estimates fall short of required spending. The Commodity Credit Corporation operates on a line of credit with the Treasury, but receives an annual appropriation to reimburse the Treasury and to maintain its line of credit. The other 20% of the agriculture and related agencies appropriations bill is for discretionary programs. Major discretionary programs include certain conservation programs, most rural development programs, research and education programs, agricultural credit programs, the supplemental nutrition program for women, infants, and children (WIC), the Public Law (P.L.) 480 international food aid program, meat and poultry inspection, and food marketing and regulatory programs. Action on FY2008 Appropriations The agriculture appropriations bill includes all of USDA (except the Forest Service), plus the Food and Drug Administration (FDA) in the Department of Health and Human Services, and the Commodity Futures Trading Commission (CFTC). Consolidated Appropriations Act, 2008 (P.L. 110-161) The FY2008 agriculture appropriations bill was combined with 10 other appropriations bills into the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ). The bill passed the House on December 17, 2007, the Senate on December 18, 2007, and was signed by the President on December 26, 2007 ( Table 2 ). The conference report is available as a committee print, not as a numbered committee report. The agriculture provisions in the Consolidated Appropriations Act were not controversial. Debate over the bill primarily concerned funding for the war in Iraq. Temporary Extension of the 2002 Farm Bill The Consolidated Appropriations Act extends certain provisions of the 2002 farm bill until March 15, 2008 (Division A, Sec. 751). The duration of the extension is expected to be sufficient for conference negotiations to resolve differences between the House- and Senate-passed farm bills. A new farm bill is expected to become effective for the 2008 crop year for most of the supported farm commodities, and for other programs for the remainder of FY2008 and beyond. The extension states that, unless otherwise excepted, 2002 farm bill provisions in effect on September 30, 2007, shall continue until March 15, 2008. Three conservation programs are funded at specific levels (Farmland Protection Program at $97 million/year, Ground and Surface Water Conservation at $60 million/year, and Wildlife Habitat Incentives Program at $85 million/year). The dairy and sugar programs are included in the extension. The dairy price support program would have expired December 31 and would have been replaced with costlier support provisions in permanent law. Price support loan programs for wool and mohair also are extended since those crop years begin on January 1. Programs that are not extended include the direct, counter-cyclical, and marketing loan programs for the 2008 crop year for all other supported commodities, peanut storage payments, agricultural management assistance for conservation, community food projects in the food stamp program, the rural broadband program, value-added market development grants, federal procurement of biobased products (2002 farm bill, Sec. 9002), the biodiesel fuel education program (Sec. 9004), and the renewable energy systems program (Sec. 9006). For more information about farm bill extension and expiration, see CRS Report RL34154, Possible Expiration (or Extension) of the 2002 Farm Bill , coordinated by [author name scrubbed]. House Action The House of Representatives passed the FY2008 agriculture appropriations bill ( H.R. 3161 , H.Rept. 110-258 ) on August 2, 2007, by a vote of 237-18, far short of the 435 seats in the House. Many Members of the minority party did not cast votes on final passage of the bill because of a controversy over floor procedures that was separate from the content of the bill. The full Committee on Appropriations reported the bill on July 19, 2007, by voice vote, after subcommittee markup a week earlier on July 12. Floor Proceedings Controversy On the floor, when the bill initially was under an open rule ( H.Res. 581 ), only two amendments were adopted before the bill was pulled from the floor. Both amendments reduced appropriations for the Secretary of Agriculture's office by a marginal amount ($150,150, or 3%) and debate time was used to discuss another bill that was not being given floor time. Because of the diversion, the agriculture appropriations bill was pulled from the floor and returned two days later under a more restrictive rule ( H.Res. 599 ). Under the new rule, a manager's amendment with six non-monetary amendments was considered as adopted, including a provision to remove a proposal that would have limited the transportation of horses across state lines for purposes other than slaughter. Twelve other amendments were allowed for floor consideration, but none were adopted. Most of these amendments would have eliminated earmarks or reduced funding. As floor debate on the bill was nearing completion, there was a motion to recommit the bill to committee. As some Members were changing their vote, the vote was closed with the motion failing, but the tally subsequently showed the motion receiving sufficient votes to pass. The outcome was not reconsidered, and many Members of the minority party chose not to vote on final passage of the bill as a show of protest. The House passed H.R. 3161 by a vote of 237-18. Senate Action The Senate Appropriations Committee reported its version of the bill ( S. 1859 , S.Rept. 110-134 ) on July 19, 2007, by a vote of 29-0. This was the same day that the House full committee reported its bill. Subcommittee markup in the Senate occurred two days earlier on July 17. The agriculture appropriations bill, along with four other appropriations subcommittee bills, did not reach the Senate floor. Funding and Policy Issues The Consolidated Appropriations Act, 2008, provides $90.8 billion in total funds for agriculture and related agencies: $18.1 billion in official "net" discretionary appropriations, and $72.7 billion in mandatory funds. The discretionary amount is 1.6% greater than the amount in FY2007 (+$281 million), although "gross" discretionary appropriations before scorekeeping adjustments grew 5.3% from $18.5 billion in FY2007 to $19.5 billion in FY2008 ( Table 3 ). Mandatory spending decreased about $7 billion overall—farm bill appropriations for the farm commodity programs decreased $10 billion (-44%) because of less need for price-triggered income support, and mandatory food stamp program benefits rose about $2.2 billion (+4.2%). As stand-alone bills, the House and Senate versions contained about $1 billion more in net discretionary spending than FY2007, about $700 million more than eventually enacted in the Consolidated Appropriations Act. The Administration's request was for virtually no increase, and thus the bills drew a veto threat from the White House. The Administration also opposed prescription drug importation as allowed in the House bill and had raised a veto threat over the issue in previous years' bills. The enacted appropriation for FY2008 provides notable increases above FY2007 for conservation (+$85 million, +10%), meat and poultry inspection (+$38 million, +4.3%), agricultural research (+$39 million, +3.4%), animal and plant health programs (+$16 million, +1.9%), agricultural statistics (+$15 million, +10%), and the Food and Drug Administration (+$143 million, +9.1%). Rural development funding decreased $166 million (-6.6%) from FY2007, but remained higher than the Administration's request. The law removes the delay on implementation of country-of-origin labeling for meat, and requires labeling to begin by September 2008. The "common computing environment," formerly funded as a separate account ($108 million in FY2007), received no funding for FY2008, but increases were provided to appropriate agency accounts (e.g., Farm Service Agency and Natural Resources Conservation Service). The Senate bill was higher than the House bill for the Agricultural Research Service, animal and plant health inspection, some domestic food programs, foreign food aid, and FDA. The Senate bill contained less than the House bill for rural development, and the cooperative state research program, and slightly less for conservation. See Table 8 at the end of this report for a tabular summary of funding for each agency at various stages during the appropriations process. The Administration released its FY2008 budget request on February 5, 2007, seeking $17.8 billion in discretionary spending for agencies funded through the agriculture appropriations bill (the same as for FY2007, 1.5% less than the FY2008 enacted amount, 5.2% less than the House version, and 4.7% less than the Senate version). Both the House and Senate agriculture appropriations subcommittees held hearings on the Administration's request in the spring of 2007. Regarding overall funding guidelines, the House and Senate passed a concurrent FY2008 budget resolution ( S.Con.Res. 21 ) on May 17, 2007. To guide spending at the subcommittee level, the House Appropriations Committee approved a discretionary 302(b) allocation of $18.817 billion for the agriculture bill ( H.Rept. 110-236 ), and the Senate Appropriations Committee allowed $18.709 billion ( S.Rept. 110-133 ). Although the 302(b) allocation in the Senate is less than the House, the difference is approximately equal to the budget for the Commodity Futures Trading Commission, which is not in the Senate bill. Thus, for the agriculture and FDA programs that are in both bills, the 302(b) allocations are nearly identical. Earmarks Under new earmark disclosure rules adopted by both the House and Senate in 2007, the explanatory statement for the FY2008 Consolidated Appropriations Act includes a "Disclosure of Earmarks and Congressional Directed Spending Items." The list is self-identified by Congress and includes the agency name, project title, name of the Member(s) sponsoring the earmark, and the amount. The act says that the explanatory statement should be considered like a conference committee report with respect to the allocation of funds. However, earmarks specified in a conference report generally are not considered to have the same force of law as if they were in the text of the law itself. In the past, executive branch agencies usually have followed such directives since they regularly testify before Congress as part of the appropriations cycle and do not wish to explain to appropriators why congressional directives were not followed. For the FY2008 agriculture appropriations law, the explanatory statement identifies 623 earmarks totaling $400 million, as summarized in Table 4 . Many of the earmarks represent the restoration of funding for congressionally designated research grants and construction projects that were suspended in FY2007 under the terms of the FY2007 long-term continuing resolution ( P.L. 110-5 ). Of the 623 earmarks, only three are in the text of the consolidated act. For FY2009 and future appropriations, President Bush issued Executive Order 13457 on January 29, 2008, instructing agencies not to follow earmark directives in non-statutory sources. That is, future earmarks are not to be honored unless they are in the text of the law. USDA Agencies and Programs The appropriations bill for agriculture and related agencies covers all of USDA except for the Forest Service. This amounts to about 94% of USDA's total appropriation. The Forest Service is funded through the Interior appropriations bill. Farm Service Agency USDA's Farm Service Agency (FSA) is probably best known for its role in administering the farm commodity income support and disaster assistance programs. In addition, FSA also administers USDA's direct and guaranteed farm loan programs, certain mandatory conservation programs (in cooperation with the Natural Resources Conservation Service), and certain international food assistance and export credit programs (in cooperation with the Foreign Agriculture Service). FSA Salaries and Expenses This account funds expenses for program administration and other functions assigned to the FSA. Transfers are received for administration of CCC export credit guarantees, P.L. 480 loans, and the farm loan programs. All administrative funds used by FSA are consolidated into one account. For FY2008, the enacted appropriation after rescission is $1.430 billion, $93 million (+7.0%) more than in FY2007, but $118 million less than the Administration's request. The House-passed bill provide $1.440 billion and the Senate-reported bill $1.478 billion. The explanatory statement for the enacted appropriation prohibits USDA from closing (or developing a plan to close) any FSA county office before a new farm bill is enacted. This is slightly less restrictive than the House-passed bill, which would have continued statutory language inserted in the FY2006 appropriations law that restricted the ability of USDA to close any county office without public hearings and notification to Congress, or closing county offices until six months after a new farm bill is enacted. The Senate-reported bill did not address county office closure. This restriction on county office closure reflects language in stand-alone bills such as H.R. 1648 , H.R. 1649 , and S. 944 that would limit the ability of USDA to close county offices. FSA Farm Loan Programs Through FSA farm loan programs, USDA serves as a lender of last resort for family farmers unable to obtain credit from a commercial lender. USDA provides direct farm loans and 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 subsidized 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 FY2008, the enacted appropriation follows the Senate bill and provides $148.6 million to subsidize the cost of making an estimated $3.427 billion in direct and guaranteed FSA loans. This represents an 8.6% decrease in loan authority from FY2007, but is not as low as the Administration requested ( Table 5 ). Direct loan authority decreases 5.6% from FY2007 (all accounted for by a decrease in direct operating loans, even though direct farm ownership loans increase). Guaranteed loan authority decreases 9.7% (with nearly equal decreases in guaranteed ownership and unsubsidized operating loans). Over the past decade, Congress and the Administration generally have devoted more resources towards the guaranteed loan program, so the increase in direct farm ownership loans is contrary to this trend. No new funds or authority are provided for emergency loans. In recent years, Congress has not appropriated any money for emergency loans, citing sufficient carryover of funds made available in previous supplementals. For more information about agricultural credit in general, see CRS Report RS21977, Agricultural Credit: Institutions and Issues , by [author name scrubbed]. Commodity Credit Corporation Although the Farm Service Agency administers the farm income support and disaster assistance programs, the Commodity Credit Corporation (CCC) is the funding mechanism for payments to farmers. Most spending for USDA's mandatory agriculture and conservation programs was authorized by the 2002 farm bill ( P.L. 107-171 ), and those provisions are up for reauthorization this year. For more information, see CRS Report RL34696, The 2008 Farm Bill: Major Provisions and Legislative Action , coordinated by [author name scrubbed] (pdf). 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. These borrowed funds finance spending for programs such as farm commodity price and income subsidies and various conservation, trade, and rural development programs. Emergency supplemental spending also has been paid from the CCC over the years, particularly for ad hoc farm disaster payments, for direct market loss payments to growers of various commodities in response to low farm commodity prices, and for animal and plant disease eradication efforts. The CCC eventually must repay the funds it borrows from the Treasury. Because the CCC never earns more than it spends, its losses must be replenished periodically through a congressional appropriation so that its $30 billion borrowing authority (debt limit) is not depleted. Congress generally provides this infusion through the annual USDA appropriation law. Because most of this spending rises or falls automatically on economic or weather conditions, funding needs are sometimes difficult to estimate. In recent years, the CCC has received a "current indefinite appropriation," which provides "such sums as are necessary" during the fiscal year. The estimated CCC appropriation is not a reflection of expected outlays, which can be different because of the cushion of credit available through the Treasury line of credit. Outlays (e.g., payments to farmers) in FY2008 will be funded initially through the borrowing authority of the CCC and reimbursed to the Treasury through a separate (possibly future) appropriation. For FY2008, USDA projects that CCC net expenditures will be $10.7 billion, down from an estimated $11.4 billion in FY2007 and an actual $20.1 billion in FY2006 ( Table 6 ). This decrease is due to less need for price-triggered farm commodity subsidies since market prices are high. For FY2008, the enacted appropriation concurs with the Administration request for an indefinite appropriation ("such sums as necessary") for CCC, which is estimated to be $12.983 billion. Crop Insurance 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. Policies are sold and completely serviced through approved private insurance companies that have their program losses reinsured by USDA. The annual agriculture appropriations bill traditionally makes two separate appropriations for the federal crop insurance program. It provides discretionary funding for the salaries and expenses of the RMA. It also provides "such sums as are necessary" for the Federal Crop Insurance Fund, which pays all other expenses of the program, including premium subsidies, indemnity payments, and reimbursements to the private insurance companies. For the salaries and expenses of the RMA, the FY2008 omnibus appropriations act provides $76.12 million (after the 0.7% rescission), which is slightly below the FY2007 appropriation of $76.66 million and about 3.5% below the House, Senate, and Administration proposed FY2008 levels. Most of the requested increase was to cover RMA pay increases and increase its staffing. Although the regular annual appropriation for FY2008 is below FY2007, RMA funding is bolstered by a general provision that allows RMA to use up to $11.166 million in mandatory funds to strengthen its ability to reduce waste, fraud, and abuse within the crop insurance program. From FY2001 through FY2005, RMA had the authority to tap mandatory funds for these activities. When the authority expired, appropriators included $3.6 million in each of the regular FY2006 and FY2007 RMA appropriations for data mining and related activities. The House-passed version of the pending farm bill ( H.R. 2419 ) would permanently fund these activities with mandatory funding of $11 million in FY2008, and $7 million in FY2009 and subsequent years. Separately, appropriators concurred with the Administration estimate of an FY2008 appropriation of $4.818 billion for the Federal Crop Insurance Fund, although the amount actually required to cover program losses and other subsidies is subject to change based on actual crop losses and farmer participation rates in the program. For more information on crop insurance provisions in the pending farm bill, see CRS Report RL34207, Crop Insurance and Disaster Assistance in the 2008 Farm Bill , by [author name scrubbed] and [author name scrubbed] . Disaster Assistance In May 2007, Congress completed action on the FY2007 Iraq war supplemental appropriations act ( P.L. 110-28 ) which included a Congressional Budget Office (CBO)-estimated $2.8 billion in emergency agricultural disaster assistance, primarily for crop and livestock losses in any one of the last three years—2005, 2006, or early 2007. The Consolidated Appropriations Act, 2008 ( P.L. 110-161 ), contains authority (Division A, Section 743) for USDA to make crop and livestock assistance available for all 2007 losses. P.L. 110-28 had originally limited eligible 2007 losses to crops planted before February 28, 2007, and livestock losses occurring before that date. However, P.L. 110-161 extends the eligibility date for both to December 31, 2007. Producers are still required to choose payments for one of the last three years' losses. CBO estimates that the extension of disaster assistance to all 2007 crop and livestock losses increases the cost of 2005-2007 assistance by $602 million ($592 million for crops and $10 million for livestock) for total estimated assistance of $3.4 billion, including $2.14 billion for crop loss assistance and $1.24 billion for livestock feed and mortality losses. Since Congress provided "such sums as necessary" to fund the disaster payment formulas in the enacted measure, additional funds are available if the estimates are short. All assistance is considered emergency spending and is not subject to budgetary offsets. For more information, see CRS Report RS21212, Agricultural Disaster Assistance , by [author name scrubbed]. Agricultural Research, Extension, and Economics Four agencies carry out USDA's research, education, and economics (REE) function. The Department's intramural science agency is the Agricultural Research Service (ARS), which conducts long-term, high-risk, basic and applied research on subjects of national and regional importance. The Cooperative State Research, Education, and Extension Service (CSREES) distributes federal funds to the land grant Colleges of Agriculture to provide partial support for state-level research, education, and extension programs. The Economic Research Service (ERS) provides economic analysis of agriculture issues using its databases as well as data collected by the National Agricultural Statistics Service (NASS). The USDA research, education, and extension budget, when adjusted for inflation, remained essentially flat in the period from FY1972 through FY1991. From FY1992 through FY2000, the mission area experienced a 25% increase (in deflated dollars) over the previous two decades, as a federal budget surplus allowed greater spending for all non-defense research and development. From FY2001 through FY2003, supplemental funds appropriated specifically for anti-terrorism activities, not basic programs, accounted for most of the increases in USDA research budget. Funding levels since have trended downward to historic levels. Although the states are required to provide 100% matching funds for federal funds for research and extension, most states have regularly appropriated two to three times that amount. Fluctuations in state-level appropriations can have significant effects on state program levels, even when federal funding remains stable. Cuts at either the state or federal level can result in program cuts down to the county level. In 1998 and 2002 legislation authorizing agricultural research programs, the House and Senate Agriculture Committees tapped sources of available funds from the mandatory side of USDA's budget and elsewhere (e.g., the U.S. Treasury) to find new money to boost the availability of competitive grants in the REE mission area. In FY1999 and every year since FY2002, however, annual agriculture appropriations acts have prohibited the use of those mandatory funds for the purposes the Agriculture Committees intended. On the other hand, in many years during the FY1999-FY2006 period, appropriations conferees provided more funding for ongoing REE programs than was contained in either the House- or Senate-passed versions of the bills. Nonetheless, once adjusted for inflation, these increases are not viewed by some as significant growth in spending for agricultural research. Agricultural scientists, stakeholders, and partners express concern for funding over the long term. The enacted FY2008 appropriations bill represents a compromise between House and Senate funding levels, and provides a total of $2.59 billion for USDA's research, extension, and economics mission area. This amount represents a $57 million increase (+2.2%) from the FY2007 funding level of $2.53 billion. The increase, in turn, largely represents the restoration of funding for congressionally designated research grants and construction projects that were suspended in FY2007 under the terms of the FY2007 long-term continuing resolution ( P.L. 110-5 ). Agricultural Research Service The enacted bill provides a total of $1.17 billion for USDA's in-house science agency, the Agricultural Research Service (ARS had $1.13 billion in FY2007). Of the total, the bill allocates $1.12 billion to support ARS research projects and $46.7 million for the construction and renovation of buildings and facilities. Under P.L. 110-5 , no funding was provided for ARS construction projects in FY2007. Amended bill report language calls for the reinstatement of approximately 150 research projects that were redirected or terminated in FY2007 as the result of P.L. 110-5 , but concurs with the President's request to direct savings from certain project terminations to higher priority research in the areas of food safety, renewable energy, and honey bee colony collapse disorder, among other things. Cooperative State Research, Education, and Extension Service The enacted bill provides a total of $1.184 billion for the Cooperative State Research, Education, and Extension Service (CSREES) in FY2008, about $1 million (+0.1%) more than than FY2007. CSREES is the agency that sends federal funds to land grant Colleges of Agriculture. For the extramural research and education programs component of CSREES, the enacted bill provides essentially level funding of $668.3 million ($671.4 million in FY2007). In addition, the bill provides $453 million for the educational outreach programs of Cooperative Extension ($450 million in FY2007); $55.9 million for integrated research and extension projects ($55.2 million in FY2007); $11.8 million for the endowment fund for the 1994 tribal land grant colleges ($12 million in FY2007); and $6.4 million for the outreach program for socially disadvantaged farmers ($5.9 million in FY2007). Appropriators did not concur with the Administration's annual request to cut funding for Special Research grants and Federal Administration research and extension grants that are not awarded through a peer-reviewed, competitive process. The final bill provides roughly $130 million for such grants for FY2008. In FY2007, P.L. 110-5 prevented appropriated funds from being spent on Special and Federal Administration grants and redirected them to state research and extension programs under the Hatch and Smith-Lever Acts (i.e., the formula-funded programs) and to competitive research. Under P.L. 110-5 , the National Research Initiative (NRI) competitive grant program received $190.2 million in FY2007. The FY2008 bill provides $190.9 million. Economic Research and Agricultural Statistics The enacted FY2008 appropriations bill provides $77.4 million for USDA's Economic Research Service (ERS), a 3% increase from FY2007 ($75.2 million). For the National Agricultural Statistics Service (NASS), the bill includes $162.2 million ($147.3 million in FY2007), and directs the agency to use up to $52.4 million of that amount for ongoing work on the Census of Agriculture. Meat and Poultry Inspection USDA's Food Safety and Inspection Service (FSIS) conducts mandatory inspection of meat, poultry, and processed egg products to ensure their safety and proper labeling. The enacted bill provides $930.1 million for FSIS in FY2008, the level in the House-passed bill and approximately $500,000 less than in the Senate-reported bill. FSIS inspection programs were among the few discretionary accounts in the enacted bill that are explicitly exempted from across-the-board reductions. The congressional appropriation is to be supplemented in FY2008 by an estimated $135 million in existing user fees. As in past years, the final measure does not assume the adoption of new user fees; this year, the Administration was seeking another $96 million in such fees, although not beginning until FY2009. The earlier, accompanying House report states that an increase of $6.5 million is to fill inspector vacancies; the Senate report notes that its funding level will enable FSIS to hire 78 additional inspectors and 13 additional investigative staff in FY2008. The House report makes note of $5 million provided for enforcement of humane slaughter rules, and the Senate report recommends funding to provide 83 full-time positions for this purpose. Both reports note the provision (in the legislation itself) of $3 million to continue the related tracking system for humane slaughter. Section 736 of the enacted bill prohibits FSIS from beginning to implement a risk-based inspection system (RBIS), which was to start with 30 processing establishments this year. Under RBIS, inspection resources are to be allocated based upon the relative risk of the product type and upon the safety record of the individual plant. The prohibition is to remain in effect until the data used to support the plan are thoroughly reviewed by the USDA Office of Inspector General (OIG), its findings provided to the appropriations committees, and any OIG issues fully addressed by FSIS. The enacted bill (in Section 733) includes language that first appeared in the House version that prohibits the use of funds to implement rules to permit some poultry product imports from China. A final FSIS rule, published in the April 24, 2006, Federal Register , permits China to ship processed poultry if the meat comes from third country plants already eligible to export to the United States. Opponents of the rule contend that Chinese imports would be risky due to outbreaks of highly pathogenic avian flu among birds in that country. A series of recent incidents have raised further safety concerns about the many foods, medicines, and other products now coming from China, which the House report cites in delaying the poultry rule. (See also CRS Report RL34080, Food and Agricultural Imports from China , by [author name scrubbed].) Horse Slaughter Amendment The enacted bill (in Section 741) would continue a prohibition against using appropriated funds to inspect horses prior to slaughter for human food. Furthermore, companies could not continue inspection by paying fees to USDA for the service. The House bill but not the Senate-reported version had this ban. Section 741 also prohibits USDA from inspecting horses being transported for slaughter. USDA's FY2006 appropriation ( P.L. 109-97 ) also prohibited appropriated funds for antemortem inspection costs. By barring funds for inspection, supporters of the language had anticipated that the meat could not enter commerce under the Federal Meat Inspection Act, and thereby such slaughter would cease. However, the three foreign-owned plants that then were slaughtering horses for food applied for, and received, USDA permission to be inspected on a fee-for-service basis. The enacted FY2008 appropriation seeks to close this funding source as well. (By the end of 2007, all three plants had closed due to actions within their respective states; see CRS Report RS21842, Horse Slaughter Prevention Bills and Issues , by [author name scrubbed].) Marketing and Regulatory Programs Animal and Plant Health Inspection Service (APHIS) The largest appropriation for USDA marketing and regulatory programs goes to APHIS, the agency 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. APHIS has key responsibilities for dealing with such prominent concerns as avian influenza (AI), bovine spongiform encephalopathy (BSE or "mad cow disease"), a growing number of invasive plant pests, and for establishment of a national animal identification (ID) program for animal disease tracking and control (see below). The enacted bill provides $867.6 million for APHIS salaries and expenses (after rescission), which is less than that proposed by both the House ($874.6 million) and Senate ($911.7 million), and also less the President's FY2008 budget request ($945.6 million). Compared to FY2007, however, the FY2008 appropriation for APHIS is about $16 million higher. The enacted bill also provides no funding for buildings and facilities, instead of $4.9 million proposed by the House and Senate. Within the APHIS appropriation, the enacted bill provides $156.1 million for foreign pest and disease exclusion programs (before rescission), which is less than both the House ($159.4 million) and Senate ($162.8 million) proposals, as well as the Administration's request ($182 million). Also within the total APHIS appropriation, the enacted bill provides $236.9 million for plant and animal health monitoring and surveillance activities, which is also less than the House ($237.0 million) and Senate proposals ($250.1 million), and the Administration's request ($296.3 million). Total APHIS appropriations for pest and disease management is provided at $367.2 million, which is lower than the Senate proposal ($379.6 million) but higher than the House proposal ($359.0 million) and the Administration's request ($333 million). The enacted bill provides an additional $113.6 million for animal care, scientific and technical services, and management. The budget includes collection of more than $200 million in existing user fees and trust funds in FY2008 in addition to the appropriated monies. The Administration had again proposed new user fees of $9 million, to pay for some of the agency's animal welfare activities, but not beginning until FY2009. The enacted bill does not allow these new fees. The committees further specify that no funds be used to issue a final rule in furtherance of, or to otherwise implement, the USDA proposed rule on cost-sharing for APHIS's animal and plant health emergency programs (68 Federal Register , 40541, July 8, 2003). Emerging Plant Pests The enacted bill provides $127.9 million for the emerging plant pests (EPP) account within the pest and disease management spending area, well above the FY2007 level of $98.5 million. The EPP budget is allocated as follows: $20.0 million for Asian long-horned beetle (including $353,000 for Illinois); $35.6 million for citrus health; $23.2 million for glassy-winged sharpshooter; $9.6 million for potato cyst nematode; $30.7 million for emerald ash borer (including $1,500,000 for Illinois); $5.3 million for sudden oak death; $1.5 million for Karnal bunt; $371,000 for hydrilla control in Virginia (including $333,900 for a cooperative agreement with the Lake Gaston Weed Control Council and $37,100 for a cooperative agreement with the Tri-County (Smith Mountain) Lake Administrative Commission); $234,000 for olive fruit fly (CA); $1.0 million for light brown apple moth; and $423,000 for miscellaneous pests. Total EPP appropriations for FY2008 are somewhat more than the Senate proposal ($126.5 million) but less than the House proposal ($131.2 million) and the Administration request ($132.3 million). The committees encourage APHIS to ensure that adequate funding is made available for Asian long-horned beetle activities in New York, and also to help states with new emerald ash borer outbreaks, citing concerns in Maryland and Wisconsin. The committees also encourage APHIS to direct funding for sudden oak death (Phytopthora ramorum) in the areas of research, development, and testing of new systems of nursery pest and disease management and programs of inspection and regulation; for surveying; and for diagnostic tools. Finally, the committees request a report, within 120 days of the enactment of the Consolidated Appropriations Act, that "examines the effectiveness of current regulatory and inspection efforts; delivers an assessment of the potential risk from infected plant material; and the risk posed by the importation into the United States of P. ramorum host and associated host plants and the interstate movement of such plant material." Avian Influenza The enacted bill provides $67.4 million (total) for avian flu activities in APHIS, which is higher than the Senate proposal ($61.3 million) but lower than the House proposal ($73.8 million). Of this, $51.7 million is for the highly pathogenic avian influenza (HPAI) program, which is higher than the Administration's request of $47.5 million and is an increase of $4.5 million over FY2007 for domestic surveillance and preparedness under the HPAI program. The House committee report noted that $118.7 million has been provided for HPAI since 2006, and the committee requested a report on how these funds have been spent. The enacted bill also provides $15.7 million for low pathogen avian influenza (LPAI). Of this amount, $750,000 is for avian influenza preparedness activities in Connecticut. (For more on avian flu, see CRS Report RL33795, Avian Influenza in Poultry and Wild Birds , by [author name scrubbed] and [author name scrubbed].) Animal ID Both the House and Senate committee reports question USDA's progress and direction in implementing a national animal identification system (NAIS). Over several years through FY2007, about $117.8 million has gone into the program's development, which is aimed at enabling officials to quickly find the sources, and contain the spread, of animal diseases like brucellosis, foot and mouth disease, and BSE. Despite this effort, "the direction of this system remains unclear," notes the report on the Senate appropriations bill. The House committee report notes that its version provides no new funding and requests that USDA provide "a complete and detailed strategic plan for the program, including tangible outcomes, measurable goals, specific milestones, and necessary resources for the entire program." The enacted bill provides $9.8 million to continue implementation of NAIS, which is well below the Administration's requested appropriation of $33.2 million for NAIS for FY2008. The conference report cites concerns about "the lack of information provided on full costs and concerns about the use of funds to date," including information on how APHIS would reach its 48-hour traceback goal, and information on how the funds for the program have been used to date. The report states the committees' concern that more than 50% of the obligations to date in NAIS have been for "cooperative agreements that, until very recently, did not require that cooperators or grantees agree to specific performance goals." The committees are also concerned that 25% of the funding has gone for program management. A July 2008 report by the Government Accountability Office ( National Animal Identification System: USDA Needs to Resolve Several Key Implementation Issues to Achieve Rapid and Effective Disease Traceback , GAO-07-592) concludes that a number of problems have hindered effective implementation of animal ID, such as no prioritization of the animal species to be covered to focus on those of greatest disease concern; no plan to integrate NAIS into existing USDA and state animal ID requirements; and no requirement that some types of critical data be provided to the databases, such as species or age. (Also see CRS Report RS22653, Animal Identification: Overview and Issues , by [author name scrubbed].) Grain Inspection, Packers, and Stockyards Administration (GIPSA) One branch of this agency establishes the official U.S. standards for inspection and grading of grain and other commodities. Another branch is charged with ensuring competition and fair-trading practices in livestock and meat markets. The enacted bill provides $38.5 million for GIPSA salaries and expenses, which is lower than the amounts proposed by both the House ($41.1 million) and Senate ($39.1 million), and the Administration's FY2008 request ($44.4 million). The $730 million increase (+1.9%) compared to FY2007 is intended for increased enforcement for of the Packers and Stockyards Act (P&S) Act in FY2008. The House report had proposed an increase of $2 million in FY2008 for increased enforcement of the P&S Act. The House report also requested a detailed spending plan from GIPSA on how it will spend the increase. The Administration proposed to offset some grain inspection and P&S activities with $22 million in user fees, beginning in FY2009, but neither the House nor Senate report endorses this proposal. The House committee report also makes note of what it says are deficiencies in the agency's oversight of the companies it is charged with regulating. Early in 2006, GIPSA was sharply criticized by USDA's OIG and by a number of Senators for shortcomings in its enforcement of the act and other federal competition laws. A long-awaited consultant's report on livestock marketing practices, funded by a $4.5 million congressional appropriation in FY2003, was released by the agency in February 2007. Also, some Members of the Senate Agriculture Committee have expressed interest in addressing competition concerns in the livestock industry, including GIPSA's regulatory responsibilities, during debate on a new omnibus farm bill (see also CRS Report RL33958, Animal Agriculture: 2008 Farm Bill Issues , by [author name scrubbed] and [author name scrubbed]). Agricultural Marketing Service (AMS) AMS is responsible for promoting the marketing and distribution of U.S. agricultural products in domestic and international markets. User fees and reimbursements rather than appropriated funds account for a substantial portion of spending by the agency. Such fees, which now cover AMS activities like process verification programs, commodity grading, and Perishable Agricultural Commodities Act licensing, were expected to total well above $100 million in FY2008. The enacted bill provides $114.7 million more in federal funds, either directly appropriated or transferred to AMS from the Section 32 account (see below). The level reflects the across-the-board reduction in most USDA discretionary programs of 0.7%. The final enacted level appears to be approximately $2 million above the FY2007 enacted level. Within this total, $8.4 million is to be used for specialty crop block grants under the AMS account. These grants are authorized by the Specialty Crops Competitiveness Act of 2004 ( P.L. 108-465 ), which seeks to promote the consumption and competitiveness of specialty crops (fruits, vegetables, tree nuts, and nursery crops). The act authorizes up to $54 million annually through FY2009. For the AMS-administered Federal-State Marketing Improvement Program, the FY2008 enacted amount is $3.8 million. The enacted bill designates $1.86 million of this amount as a marketing grant to Wisconsin. Elsewhere within the AMS total, $9.9 million is to be used for continuing work on the Web-based supply chain management system. Section 32 Rescission Section 32 funding comes from a permanent appropriation equivalent to 30% of annual U.S. Customs receipts. AMS uses these additional Section 32 monies (not reflected in the above totals) to pay for a variety of programs and activities, notably child nutrition, and government purchases of surplus farm commodities not supported by ongoing farm price support programs. (For a detailed explanation of this account, see CRS Report RL34081, Farm and Food Support Under USDA ' s Section 32 Program , by [author name scrubbed] (pdf).) USDA-AMS historically has maintained a Section 32 contingency reserve, which consists of otherwise unprogrammed and/or unused (i.e., carryover) funds from the prior year. (Up to $500 million in unused funds can be carried from one fiscal year into the next.) Over the course of a fiscal year, USDA taps this contingency reserve to fund so-called emergency surplus removals of various fruits, vegetables, meats, poultry, and other food commodities. These removals are aimed at providing price support during periods of adverse market conditions. In some years, portions of this contingency reserve may be tapped for other purposes as well, such as farm disaster assistance. USDA has wide latitude in determining how to use the money in this reserve. Commodities removed from the market generally are then distributed to domestic food assistance programs, as a "bonus" over and above any federal support (cash and commodity) to which they are entitled under other authorities. The value of AMS purchases of these commodities can vary widely from year to year, from $56 million in FY1996 to nearly $227 million in FY2004, for example. Nonetheless, both the agricultural community and domestic food providers have become accustomed to some level of support through this contingency fund. The enacted bill for FY2008 appears to be an effort to rein in AMS's discretionary use of Section 32 monies. It rescinds a total of $684 million—$184 million that otherwise was projected to be available in FY2008 for surplus purchases (called "Estimated Future Needs" in AMS budget parlance), plus $500 million in prior unobligated balances. The committees note that even with this rescission, $297 million will still be provided for estimated future needs (i.e., the contingency fund) in FY2008. Country-of-Origin Labeling (COOL) The 2002 farm bill (§10816 of P.L. 107-171 ) required COOL for fresh produce, red meats, peanuts, and seafood by September 30, 2004. Congress has twice postponed implementation for all but seafood (which is now in place); COOL now must be implemented by September 30, 2008. The House committee report on the FY2008 appropriation provides an increase of $2 million for AMS to implement COOL and also lays out a time line for rulemaking to ensure the current implementation date is met. Language accompanying the enacted bill reaffirms the House committee requirements. Meanwhile, provisions modifying the COOL law is in both farm bills ( H.R. 2419 ) passed in July 2007 by the House and in December 2007 by the Senate. The farm bill provisions essentially would maintain the current implementation deadline of September 30, 2008, extend coverage to several additional commodities, and ease some compliance requirements. (For more information see CRS Report RL34696, The 2008 Farm Bill: Major Provisions and Legislative Action , coordinated by [author name scrubbed] (pdf), and CRS Report RS22955, Country-of-Origin Labeling for Foods , by [author name scrubbed].) Conservation The enacted bill provides increased funding for discretionary Natural Resource Conservation Service (NRCS) programs, rejecting some of the Administration's proposed reductions. The enacted bill makes few changes to mandatory programs. Discretionary Programs The enacted bill provides $937.5 million for total FY2008 discretionary NRCS programs. This is $85 million (+10%) more than that provided in FY2007 ($852.6 million), but less than that in both the House ($980.2 million) and Senate ($972.9 million) proposals. All the discretionary conservation programs are administered by NRCS. For Conservation Operations, the largest of these programs, the enacted bill $834.4 million for FY2008, which is below both the House ($851.9 million) and Senate ($863.0 million) proposals but well above the Administration's request ($801.8 million) and the FY2007 estimate ($763.4 million). The enacted bill recognizes the Administration's request for an overall $20 million reduction within total Conservation Operations spending for activities previously funded through the Common Computer Environment account, such as conversion to wide area networks and migration of NRCS' core business applications, among other related activities. The committees specify that more than $250,000 be available for alterations and improvements to buildings and other public improvements, among other provisions related to buildings and structures and also technical assistance. Among other programs, the enacted bill provides no funding for the Watersheds Surveys and Planning, consistent with the Senate proposal and the Administration's request; the House proposed $6.6 million for FY2008. The Administration also requested no funding for Watershed and Flood Prevention Operations, as it did for FY2007; but instead the enacted bill provides $29.8 million for the program and identifies numerous earmarks. This is less than the amount proposed by both the House ($37.0 million) and the Senate ($33.5 million). The committees further specify that more than $15.5 million of funding for the Watershed and Flood Prevention Operations be available for technical assistance. The enacted bill provides $19.9 million for the Watershed Rehabilitation Program, consistent with the Senate proposal but differing widely from the House proposal ($31.6 million) and the Administration's request ($5.8 million). The enacted bill provides $50.7 million for Resource and Conservation Development, which is roughly comparable to that proposed by the House and the Senate, as well as FY2007 levels, but well above the Administration's request to reduce funding to $14.7 million. The committees further specify that more than $3.1 million of funding for Resource and Conservation Development be available for national headquarters activities. The enacted bill provides $2 million for the Healthy Forests Reserve Program, consistent with the Senate proposal and the Administration's request; the House bill provides no funding. Mandatory Programs Mandatory conservation programs are funded and administered by two agencies. Programs of the NRCS would increase by $195 million in FY2008 to $2 billion. The Conservation Reserve Program (CRP) in the Farm Service Agency (FSA) would increase by $26 million, to $2.0 billion. The enacted bill places a limit on Environmental Quality Incentives Program (EQIP) spending, such that no more than $1 billion be spent on salaries and expenses to administer the EQIP program. The program is authorized $1.27 billion of mandatory funds for FY2008 in P.L. 109-171 . For a more detailed funding information on individual mandatory programs, see CRS Report RS22621, The FY2008 Budget Request for the U.S. Department of Agriculture , by [author name scrubbed], and CRS Report RS22243, Mandatory Funding for Agriculture Conservation Programs , by [author name scrubbed]. As part of a temporary farm bill extension, the Consolidated Appropriations Act extends three conservation programs at specified annual funding levels through March 15, 2008. These include the Farmland Protection Program ($97 million); the Ground and Surface Water Conservation program ($60 million); and the Wildlife Habitat Incentives Program ($85 million). Rural Development 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 the rural portion of the Empowerment Zones and Enterprise Communities Initiative, Rural Economic Area Partnerships, and the National Rural Development Partnership. The Consolidated Appropriations Act of 2008 ( P.L. 110-161 ) authorizes $2.33 billion in discretionary budget authority to support $16.5 billion in USDA rural development loan and grant programs. These figures, and ones reported below, reflect the amendment authorizing an across-the-board 0.7% rescission. The 2008 authorization for USDA Rural Development programs is about $166 million less in budget authority than FY2007 (-6.6%). However, the 2008 bill provides approximately $2.2 billion more in loan authority than enacted for FY2007 (+15%). Rural Community Advancement Program (RCAP) Authorized by the 1996 farm bill ( P.L. 104-127 ), RCAP consolidated funding for 12 rural development loan and grant programs into three funding streams: a Rural Community Facilities Account administered by RHS; a Rural Business Program Account administered by RBS, and a Rural Water and Waste Disposal Account administered by RUS. In previous years, the RCAP account and its various programs have been reported separately from the individual agency accounts. The FY2008 Consolidated bill adopts the Administration's request to report the RCAP accounts under the RHS, RBS, and RUS program accounts. The total for the three accounts for FY2008 is $714.2 million, down from about $737 million in FY2007. By comparison, the Senate measure recommended a total of $704.1 million; the House bill retained the separate budget line for RCAP and recommended $728.8 million in combined budget authority. The individual program accounts are discussed below under their associated agencies. Rural Housing Service (RHS) The consolidated bill authorizes $1.33 billion in budget authority for RHS loans and grants, including $68.5 million for the Rural Community Facilities account noted above. Budget authority for FY2008 is approximately 12% less (-$189 million) than for FY2007. Authorized loan authority for FY2008 is $6.1 billion, about $525 million more than FY2007 (+9.4%). The FY2008 Rural Community Facilities account has approximately 30% less in budget authority than FY2007 ($97.7million) and $3.5 million less in loan authorization. The FY2008 Rural Community Facilities budget includes $20.4 in grants. The Administration had requested that the grants portion of the Rural Community Facility program be terminated. In addition, the Rural Community Facilities program provides $8.2 million for the Rural Community Development Initiative and $13.9 million for Economic Impact Initiative grants. Single-family loans (Section 502 direct and guaranteed loans) constitute the largest RHS loan account and represent 87% of the loan authority under RHS. The consolidated bill authorizes $5.31 billion in loan authorization for direct and guaranteed loans under the single-family housing program, an increase of $538 million over FY2007. Loan guarantees represent the larger portion of the authorization level ($3.64 billion). Budget authority to support Section 502 loans is authorized at $155.9 million, $789,000 less than FY2007. The consolidated bill authorizes $34.4 in loan authority for housing repair loans (Section 504), the same as enacted for FY2007 (minus the 0.7% rescission) and $9.7 million in loan subsidies. For multi-family loan guarantees (Section 538), the bill authorizes loan levels of $129.1 million ($30.1 million more than FY2007) and $69.5 million for Section 515 rental housing loans ($29.5 million less than FY2007). The Administration had requested zero funding for Section 515 rental housing loans. For the rental assistance program (Section 521), the consolidated bill authorizes $472.7 million in budget authority, $135.3 million less than enacted for FY2007. For mutual and self-help housing grants and rural housing assistance grants, the bill authorizes $38.7 million for each program. For the farm labor account (Section 514/516), the consolidated bill authorizes $21.8 million for loan subsides and grants, about $10 million less than enacted for FY2007. For the rural housing voucher program, the bill authorizes $5.0 million, nearly $11 million less than FY2007. Rural Business-Cooperative Service The consolidated bill authorizes $177.9 million in budget authority for RBS for FY2008. Including the Rural Business Program account, this is about $8.0 million less than enacted for FY2007. For all rural business loan programs, P.L. 110-161 authorizes $1.27 billion in loan authorization, $116 million (+10%) more than FY2007 ( Table 8 ). For the Rural Business Program account, $87.1 million in budget authority is authorized. This figure includes appropriations of $38.7 million for Rural Business Enterprise grants, $2.5 million for Rural Business Opportunity grants, $43 million in loan subsides for Business and Industry loan guarantees ($993.0 million in loan authorization), and $3.0 million for the Delta Regional Authority. Total budget authority for the Rural Business Program account is $2.7 million more than FY2007, mostly accounted for by increases in loan subsidies for the Business and Industry loan program. The bill also authorizes $8.1 million for the rural Empowerment Zone/Enterprise Communities (EZ/EC) grants programs and $35.7 million for loan subsidies and grants under the Renewable Energy Program (Section 9006 of the 2002 farm bill). Funding for the Renewable Energy Program is almost $13 million more than for FY2007. The Administration had requested zero funding for the EZ/EC program. The consolidated bill authorizes $4.4 million in Rural Cooperative Development Grants, about the same as enacted for FY2007. Budget authority of $14.4 million to support loans under the Rural Development Loan Fund account was also approved. The RBS appropriation further provides $1.5 million for grants to assist minority producers. Rural Utilities Service (RUS) For FY2008, the consolidated bill authorizes budget authority of $655.3 million ($8 million more than FY2007) and $9.18 billion in loan authorization. The loan authorization level for FY2008 is $1.54 billion (+20%) more than for FY2007. The FY2008 authorization of $97.4 million in budget authority will support $7.78 billion in electric and telecommunication loans, $1.7 billion more than FY2007. Authorized budget authority to support this level of electric and telecommunication loans is $3.7 million. The Rural Water and Waste Disposal Program account represents the largest share of spending among the three RCAP programs (approximately 78% of the total). For the Water/Waste Water loan and grants program, the Solid Waste Management program, Individual Well Water grants, the Water and Waste Water revolving fund, Emergency Water Assistance grants, and the High Energy Cost grant in RUS, the bill authorizes $555.0 million in budget authority, up $3.6 million over FY2007. This budget authority would support somewhat more than $1 billion in direct and guaranteed loans, about $32.8 million more than FY2007. Under the Distance Learning/Telemedicine program, the consolidated bill authorizes approximately $34.7 million in grant support, $5 million more than in FY2007. The bill also recommends $297.0 million in loan authority for broadband loans, $197 million less than enacted for FY2007. To support these broadband programs, the bill authorizes $6.4 million in loan subsidies and $13.4 million in grants. The grant portion of the program is up by $5 million over FY2007, and the loan subsides are down by $4.2 million. The Administration requested no funding for the broadband grant program for FY2008. For more information on USDA rural development programs, see CRS Report RL31837, An Overview of USDA Rural Development Programs , by [author name scrubbed]. Domestic Food Assistance Funding for domestic food assistance represents over half of the USDA's budget. These programs are, for the most part, mandatory entitlements: that is, funding depends on program participation and indexing of benefit payments. These mandatory programs include child nutrition and the food stamp programs. The three main discretionary budget items are the Special Supplemental Nutrition Program for Women, Infants, and Children (the WIC program), the Commodity Supplemental Food Program (the CSFP), and federal nutrition program administration. For FY2007, Congress provided appropriations (new budget authority) totaling $57 billion for domestic food assistance. However, spending (new obligations) for these programs and activities—those under the auspices of the Food Stamp Act, child nutrition programs, the WIC program, commodity assistance programs like the CSFP, and federal nutrition program administrative costs—is, when FY2007 figures are made available, likely to be less, $54.1 billion. The difference between appropriation and spending amounts is accounted for by unused contingency appropriations (e.g., $3 billion for food stamps), lower costs than were anticipated when the appropriations were proposed or made, and expected carryovers into FY2008, offset by spending financed from money available from prior years and other USDA budget accounts (e.g., permanent appropriations used for commodity purchases for school meal programs). The enacted appropriation for FY2008 would provide a total of $60 billion for domestic food assistance, about $700 million more than the $59.3 billion requested. The enacted law total differs from the Administration's request primarily because of added money for the WIC program and the CSFP. It exceeds the amounts in the House and Senate bills largely because of new funding for the WIC program. For FY2008, the House and Senate bills would have appropriated a total of $59.7 billion for domestic food assistance, about $400 million more than requested. As with the enacted law, the House and Senate differed with the Administration over WIC and CSFP funding. The Administration proposed domestic food assistance appropriations totaling $59.3 billion for FY2008, a $2.3 billion increase from FY2007. With major exceptions for the CSFP (proposed from termination) and the WIC program (with recommended limits on participation and administrative costs), the appropriation request proposed essentially "full funding" for domestic food assistance based on the Administration's projects of likely participation and food costs. As with the House and Senate measures, the enacted appropriations law also includes some food stamp and child nutrition program changes and expands funding for the program operating free fresh fruits and vegetables in schools—see the discussion of " Special Program Initiatives " at the end of this section. However, it does not adopt most of the Administration's proposed changes in program rules or its recommendation to terminate the CSFP. Programs under the Food Stamp Act Appropriations under the Food Stamp Act fund (1) the regular Food Stamp program; (2) a Nutrition Assistance Block Grant for Puerto Rico and small nutrition assistance grants in American Samoa and the Northern Marianas (in lieu of food stamps), (3) the cost of commodities and administration under the Food Distribution Program on Indian Reservations (FDPIR); (4) the cost of commodities (not distribution or administrative expenses, which are covered under the Commodity Assistance Programs budget account) for The Emergency Food Assistance Program (TEFAP); and (5) Community Food Projects and grants to improve access to the Food Stamp program. For the above-noted programs covered by the Food Stamp Act, the enacted appropriation for FY2008 provides a total of $39.8 billion, up from $38.2 billion in FY2007—in both cases, including a $3 billion contingency reserve for food stamps in case current cost projections turn out to be too low. With only two small, but significant, differences for food stamps and the FDPIR (noted below), the FY2008 enacted appropriation measure essentially matches the Administration's budget request for programs covered under the Food Stamp Act—as was the case in the House and Senate appropriations bills. Under the enacted appropriation, actual FY2008 estimated spending for Food Stamp Act programs is estimated to be less than appropriated (unless the $3 billion reserve is used), between $36.8 and $36.9 billion. As to individual programs: On the basis of projected participation and the value of indexed benefit amounts, the Administration asked for a $37.978 billion appropriation for the regular Food Stamp program , including a $3 billion contingency reserve and $60-$70 million to cover new food stamp costs attendant on termination of the CSFP (see later discussions of " Commodity Assistance Programs " and " Special Program Initiatives "). This represented an increase of about $1.6 billion over FY2007. The enacted appropriation essentially adopts the Administration's request (including the reserve fund), with one exception. It rejects the proposal to end the CSFP and thus slightly reduces its food stamp appropriation (when compared to the Administration's request) to $37.916. The House and Senate also lowered their appropriations (although by different amounts) for this reason. For Puerto Rico, American Samoa, and the Northern Marianas , the Administration's FY2008 request included nutrition assistance grants of $1.615 billion for Puerto Rico, $6.5 million for American Samoa, and $9.4 million for the Northern Marianas. The amounts for Puerto Rico and American Samoa represent small increases from FY2007; the figure for the Northern Marianas is the same as in FY2007. The enacted appropriation agrees with the Administration's figures, as did the House and Senate bills. The Administration's FY2008 budget for the FDPIR asked for $79.6 million, a $2 million rise from FY2007. The enacted appropriation adds some $6 million to this amount for administrative and distribution expenses of program operators (generally, Indian tribal organizations), bringing the total to approximately $88 million; the House and Senate bills included a similar amount. As with the Administration's budget proposal and the House and Senate bills, the enacted appropriation includes $140 million for the acquisition of commodities for TEFAP , as required by law. This represents no increase from FY2007. As with the Administration's proposal and the House and Senate measures, the enacted appropriation includes funding for Community Food Projects and food stamp access grants —at $5 million each (no change from FY2007). Child Nutrition Programs Appropriations under the Child Nutrition budget account fund a number of programs and activities covered by the Richard B. Russell National School Lunch Act and the Child Nutrition Act. These include the School Lunch and Breakfast programs, the Child and Adult Care Food Program (CACFP), the Summer Food Service program, the Special Milk program, assistance for related state administrative expenses, procurement of commodities for child nutrition programs, 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 technical assistance to CACFP operators. Funding for a program offering free fresh fruits and vegetables in some 400 schools in 14 states and on 3 Indian reservations is discussed later in the section on " Special Program Initiatives ." On the basis of projections of participation and the indexed value of child nutrition subsidies, the Administration proposed an FY2008 appropriation of $13.897 billion for all child nutrition programs, an increase of some $550 million over the amount available for FY20007. As to individual program areas, the Administration proposed the following for FY2008, all figures (except the last four, which are not dependent on program participation and subsidy levels) up noticeably from FY2007: School Lunch program: $8.181 billion. School Breakfast program: $2.390 billion. CACFP: $2.289 billion. Summer Food Service program: $311 million. State administrative expenses: $176 million. Commodity procurement: $518 million. Special Milk program: $15 million. Coordinated Reviews: $5.5 million. Team Nutrition and food safety initiatives: $11 million. CACFP technical assistance: $2 million. The enacted appropriation provides a total of $13.901 billion for FY2008, $4 million more than requested; the added funding is for Team Nutrition and food safety activities. While the Senate bill proposed an appropriation matching the Administration's request, the House included $6 million more for Team Nutrition and food safety. The WIC Program The enacted appropriation provides $6.020 billion for the WIC program, $816 million above the amount made available for FY2007, $633 million more than the Administration's request, $400 million higher than the House bill, and $300 million above the Senate's measure. The higher amount primarily reflects the most current estimates of program needs and seeks to assure that there are sufficient funds to serve all those eligible who wish to participate and that food cost and participation estimates available since the Administration presented its budget (and the House and Senate acted) are taken into account. While the WIC program appropriation is discretionary, it is not subject to the enacted appropriations law's 0.7% rescission of USDA discretionary appropriations. In addition, the enacted appropriation (1) rejects two Administration proposals that would have reduced the need for appropriations: limiting WIC eligibility and capping grants for nutrition services and administration (see the later section on " Special Program Initiatives "), (2) sets aside up to $30 million for improving state WIC agencies' management and information systems (if the money is not needed to support WIC caseload and the contingency fund has not been tapped), and (3) turns down an Administration provision to increase the size of the contingency fund above $150 million. These actions also were taken in both the House and Senate measures. Commodity Assistance Programs The Commodity Assistance Program budget account supports several discretionary programs and activities: (1) the Commodity Supplemental Food Program (CSFP); (2) funding for administrative and distribution costs under The Emergency Food Assistance Program (TEFAP); (3) the WIC Farmers' Market Nutrition program; (4) commodity assistance for certain nuclear-affected zones in the Marshall Islands; and (5) commodity assistance in the case of natural disasters. For FY2008, the Administration proposed a major change affecting this budget account; it recommended terminating the CSFP (which was appropriated $107 million in FY2007). As a result, its appropriations request for Commodity Assistance programs was $70 million, $107 million less than the FY2007 figure of $177 million. The budget request for the remaining program areas asked for FY2008 funding at essentially the FY2007 level: $49.5 million for TEFAP administrative and distribution expenses, $19.8 million for the WIC farmers' market initiative, and a total of some $1 million for nuclear-affected zones and commodity disaster assistance. The enacted appropriation rejects the proposal to terminate the CSFP and appropriates a total of $212 million for Commodity Assistance programs, over $30 million above the FY2007 amount and $142 million more than the Administration's budget request. Money for the CSFP is increased greatly, from $107 million (FY2007) to $141 million, while funds for TEFAP, WIC farmers' markets, and nuclear-affected zones (and disasters) are set at levels very close to the Administration's request ($50 million, $20 million, and $1 million respectively). The House and Senate bills differed only in how much to increase the appropriation for the CSFP, with the House raising it to $150 million and the Senate upping it to $128 million. It is anticipated that the enacted appropriation amount will allow for maintenance of current CSFP participation levels and entry of some additional CSFP projects. The Commodity Assistance Program appropriation is discretionary. As such, it is subject to the enacted law's 0.7% rescission of USDA discretionary appropriations, which lowers the total to $210 million, removing $1 million from the CSFP amount, and reducing each of the remaining programs slightly (effectively, to levels asked for by the Administration). Nutrition Program Administration This budget account covers spending on federal costs for administering all the domestic food assistance programs noted above, special projects for improving the integrity and quality of nutrition programs, and the Center for Nutrition Policy and Promotion (CNPP). Discretionary funding for the Congressional Hunger Center (and its hunger fellowships) also has typically been provided through this account. For FY2008, the enacted appropriation provides $143 million for nutrition program administration, including $2.5 million for the Congressional Hunger Center. This budget account is discretionary, and, as such, is subject to the law's 0.7% rescission of USDA discretionary appropriations (lowering the total to $142 million). In FY2007, $140 million was appropriated, but no money was provided for the Hunger Center. The Administration asked for a significant increase to $149 million (including money for salary increases and new initiatives dietary standards related and food stamp modernization projects), but incorporated no funding for the Congressional Hunger Center. The House bill increased funding to a total level approximating the Administration's $149 million request (but included funding for the Hunger Center), while the Senate measure lifted the appropriation to $147 million (including money for the Hunger Center). Special Program Initiatives In addition to regular appropriations, the enacted appropriations measure includes (or rejects) changes in program rules, new or expanded initiatives, and other provisions affecting domestic food program—as did the Administration's request and the House and Senate bills. Programs under the Food Stamp Act The enacted appropriations law continues a requirement to disregard combat-related military pay as income to military families applying for or participating in the Food Stamp program (typically included in appropriations laws). The Administration did not propose this as part of its appropriations request, but did support it as part of its omnibus 2007 farm bill package. On the other hand, the House bill included it, while the Senate bill did not. The Administration proposed money to fund special transitional food stamp benefits for, and outreach effort to, those losing benefits from CSFP (see below). The enacted appropriations law rejects this, as did the House and Senate bills. As a result, food stamp funding provided in the law is slightly less than requested. Child Nutrition Programs Title VII (General Provisions) of the enacted appropriations law includes two changes affecting child nutrition programs. It makes simplified Summer Food Service program rules applicable in all states. These rules (allowed to be used in 26 states and Puerto Rico) are intended to encourage expansion of the summer program by freeing program sponsors from a requirement that they provide detailed documentation of their expenses in order to receive standard program per-meal subsidy rates; this matches rules for the regular school meal programs. This was included in the House bill, but not the Senate measure. It provides $9.9 million (in addition to the mandatory $9 million a year provided in child nutrition law and unspent funding from previous years) to allow for the limited expansion of the program offering free fresh fruits and vegetables in schools to selected schools in all states, including the 14 currently participating states. All money would be available through FY2009, and up to 5% of the new funding could be set aside for related federal administrative expenses. The House bill provided an extra $21 million; the Senate bill would have allowed currently participating states to continue temporarily by using available unspent funding. The House bill included one additional initiative that was not adopted in the final law—adding one state (West Virginia) to the seven states in which federal subsidies are given for suppers served in after-school programs . The WIC Program The Administration proposed two important changes in the WIC program; both are rejected in the enacted appropriations law, as they were in the House and Senate bills. One recommendation would have denied automatic WIC eligibility to Medicaid participants with income above 250% of the federal poverty income guidelines. The second would have placed a cap on the amount of the per-person grant states get to administer the WIC program and provide nutrition education and other services; the cap would have been set noticeably below the FY2007 average grant level. Commodity Assistance Programs The Administration proposed to terminate the CSFP. It contended that the program duplicates benefits provided under the Food Stamp and WIC programs and provided for special food stamp benefits and outreach efforts for the elderly population that makes up almost all of the CSFP caseload. The enacted appropriation rejects this recommendation and substantially increases funding for the CSFP (as did the House and Senate bills). Agricultural Trade and Food Aid The enacted consolidated appropriations bill includes discretionary appropriations for USDA's international activities which are also subject to the 0.7% across the board recision included in the measure. P.L. 110-161 provides, after applying the recision, a total of $1.476 billion for P.L. 480 Title II food aid and other international programs. The House-passed FY2008 agriculture appropriations measure ( H.R. 2206 ) would have provided discretionary appropriations of $1.487 billion, while the Senate committee-reported bill would have provided discretionary appropriations of $1.495 billion for international activities. The Administration's budget request indicates that an additional $3.3 billion would be allocated to CCC-funded (mandatory) programs during FY2008. Since the enacted appropriations measure imposes no restrictions on mandatory export program spending, program levels for these activities (export subsidies, market promotion, export credits, and some food aid) will be at farm bill authorized levels. Included in the enacted bill is $158.4 million for the Foreign Agricultural Service (FAS) to administer USDA's international programs. The Senate-reported bill proposed $167.4 million for FAS, while the House bill's allowance for FAS was $159.1 million. For P.L. 480 foreign food assistance, the enacted amount is $1.214 billion. Both the House-passed and Senate-reported versions of FY2008 agriculture appropriations recommended $1.222 billion (including transfers to the Farm Service Agency for salaries and expenses in connection with the P.L. 480 operations). Both bills concur with the President's requests for no funds for P.L. 480 Title I loans or for P.L. 480 Title III grants. Thus, all of the P.L. 480 appropriations in the enacted bill would go for USAID-administered Title II commodity donations. Two USDA-administered food aid programs, Food for Progress (FFP) and Section 416(b) donations, receive mandatory funding. The President's budget assumes $163 million of CCC funds for FFP, which provides food aid to emerging democracies. P.L. 480 Title I funds can be allocated to FFP, but in the absence of an appropriation for Title I, that source would be unavailable in FY2008. Similarly, USDA anticipates that no CCC commodity inventories would be available for distribution as food aid under Section 416(b), a program that makes surplus agricultural commodities available overseas. The enacted 2008 appropriations measure provides $99.3 million for the McGovern-Dole International Food for Education and Child Nutrition Program, an increase of $300,000 from the FY2007 enacted amount. Both chambers' appropriations bills and the President's budget request called for $100 million for McGovern-Dole. Separate from the appropriations act, the House-passed farm bill ( H.R. 2419 ) proposes to change the funding basis for the McGovern-Dole Program from discretionary to mandatory and to increase its annual authorized funding to $300 million by FY2011. The Senate-passed version of the farm bill does not include a similar provision. The President's budget proposed to allow the Administrator of USAID to use up to 25% of P.L. 480 Title II funds for local or regional purchases of commodities to address international food crises. This change in policy was not included in the enacted measure, nor was it included in either chamber's appropriation bill. In commenting on the proposal, the Senate Committee report stressed its expectation that Title II would be used primarily for development, not emergency, assistance. In the event of additional emergency needs, the Senate Appropriations Committee "reminds the Department of the availability of the Bill Emerson Humanitarian Trust." In contrast, the House Appropriations Committee report indicates that, although it did not include the Administration's proposal in its version of the bill, it will consider the proposal as part of an overall examination of food aid programs. Separate from the appropriations act, the Senate version of the farm bill, but not the House version, contains a provision authorizing $25 million annually for a pilot project to assess local/regional purchases of food aid for emergency relief. The enacted bill includes an appropriation of $5.3 million for administrative expenses of CCC export credit programs which the President's budget estimated would finance U.S. agricultural exports in FY2008 of $2.444 billion. P.L. 110-161 does not include legislative language proposed by the Administration to bring CCC export credit guarantee programs into compliance with a WTO dispute panel decision that found such programs to be prohibited export subsidies. However, House and Senate-passed farm bills do make these WTO compliance changes. The President's budget proposes that $200 million would be allocated to the Market Access Program (MAP). The Foreign Market Development Program would be allocated $34.5 million according to the President's budget. For export subsidy programs, the budget requests no funds for the Export Enhancement Program (EEP) and just $3 million for the Dairy Export Incentive Program ($3 million in FY2007). EEP funding is authorized at $478 million annually under the 2002 farm bill, but no CCC funds have been allocated to the program during FY2002-FY2007. Authorized funding levels for these CCC-funded programs could be altered by the pending farm bill as the Senate-passed farm bill repeals legislative authority for EEP while the House-passed bill re-authorizes spending at levels provided in the 2002 farm bill. Both farm bills also authorize additional mandatory funding for export promotion programs as well. For additional information on USDA's international activities, see CRS Report RL33553, Agricultural Export and Food Aid Programs , by [author name scrubbed]. Food and Drug Administration (FDA)19 The Food and Drug Administration (FDA) regulates the safety of foods and the safety and effectiveness of drugs, biologics (e.g., vaccines), and medical devices. Now part of the Department of Health and Human Services (HHS), FDA was originally housed in the Department of Agriculture. The agriculture appropriation subcommittees still keep jurisdiction over the FDA budget. FDA's budget has two components: direct appropriations and user fees. For FY2008, the Consolidated Appropriations Act, 2008 ( P.L. 110-161 ) provides a direct appropriation of $1.72 billion to FDA, $142.5 million (9.1%) more than the FY2007 enacted appropriation and $76 million (4.6%) more than the President's request. For the entire FDA budget (direct appropriations and user fees), Consolidated Appropriations Act, 2008 ( P.L. 110-161 ) provides FDA $2.27 billion, compared with $2.07 billion in the President's request and $2.01 billion in the FY2007 appropriation. Table 7 displays, by program area, the budget authority (direct appropriations), user fees, and total program levels enacted for FY2007, requested in the President's FY2008 budget, and enacted for FY2008. Food Food Safety The enacted bill directs an increase of $56 million above the FY2007 level in food safety funding. In the explanatory statement, the committees specify funding levels for several food safety activities. Of the increase provided for food safety, no less than $18.3 million is to be available immediately to hire additional domestic and import food inspectors, including $8 million for the deployment of inspectors with rapid response capabilities. An additional $1 million is provided for the review of cosmetics. Furthermore, $1.5 million is to fund the creation of a Western Region FDA Center of Excellence at the University of California at Davis, and $3 million is to fund the National Research Initiative (NRI). In addition to specifying how food safety money should be spent, the committees mandate several new reports. The first is on the conclusions of an NRI-facilitating agreement between the FDA Commissioner and the HHS Secretary, identifying research priorities and associated research grants. Second, FDA is to contract with the National Academy of Sciences for a study of the gaps in public health protection provided by the food safety system in this country. The study should address the recommendations of the FDA Food Protection Plan released in November 2007. Third, concurrent with the FY2009 budget justification, the FDA is to provide a plan that describes a method to improve the national food safety system, including clear, measurable benchmarks for concrete improvements in the performance of its food safety mission. Fourth, FDA is directed to submit a plan to the committees that fully addresses the weaknesses in the food safety system that led Government Accountability Office (GAO) to list food safety on its January 2007 high-risk list. Nutrition The enacted bill includes $1.7 million for research on dietary supplements at the National Center for Natural Products Research in Oxford, Mississippi. Due to concerns that the FDA may have exceeded its statutory authority when the agency decided to allow qualified health claims for conventional foods, the committees request a report from the GAO. The committees also urge the FDA not to use funds provided in this bill to review requests for qualified health claims for conventional foods or to issue letters permitting such claims through exercises of enforcement discretion until the independent analysis is completed. Human Drugs Specified Funding Increases The enacted bill includes an increase of $21.2 million for drug safety, of which not less than $10 million is for the Office of Surveillance and Epidemiology. It also includes an increase of $7.5 million for the Critical Path Initiative, of which $2.5 million is to be available, on a competitive basis, for contracts or grants to universities and non-profit organizations to support individual critical path projects. Finally, the bill includes $6 million for generic drug review and $4 million for the review of direct-to-consumer advertising. Issues Highlighted The committees support FDA's review of a means by which drugs marketed outside the present approval process, which have been in clinical use for the past 25 years and are prescribed by doctors, may be more efficiently vetted by the agency. FDA is encouraged to work toward the development of a system to review this unique class of drugs. The committees encourage FDA to ensure that the MedGuide program is assisting patients in understanding the risks associated with certain medications to the greatest degree possible. The committees encourage FDA to work with patient groups, manufacturers and national pharmacy groups to address improvements in the program, and request a report on the progress FDA is making toward MedGuide improvements, to be completed within one year of enactment of the act. Animal Drugs and Feeds The committees note that on December 28, 2006, the Center for Veterinary Medicine issued a draft risk assessment on animal cloning which concluded that food products from cloned animals are safe to enter the food supply. The committees strongly encourage FDA to continue the voluntary moratorium on introducing food products from cloned animals into commerce until the agency completes a review and analysis of comments it has received on the draft, and evaluates the need for additional studies recommended during the public comment period. The committees also direct the FDA to enter into an agreement with the Economic Research Service at USDA to study the domestic agricultural and international trade economic implications of permitting commercialization of milk and meat from cloned animals and their progeny into the food supply. Cross-Cutting Topics Specified Funding Increases The enacted bill provides the following increases above FY2007: $28.7 million for cost of living expenses; $4 million for pandemic influenza preparedness; $1 million for the Office of Women's Health; $13.3 million for FDA's consolidation at the White Oak campus; and $14.5 million for GSA rent and other rent and rent-related activities. The bill also includes $2.5 million for buildings and facilities. Issues Highlighted In the explanatory statement, the committees express their increasing concern about FDA's use of a fund known as the central account, managed by the Office of the Commissioner. The central account consists of funds appropriated for use by FDA's centers and field operations that the agency moves into the account in order to pay for various FDA activities. Noting that the central account has grown unchecked over the past three years, increasing by approximately 32% from FY2003 to FY2006, the Committee directs FDA to include in its annual budget request—beginning with FY2009—previous year, estimated current year, and estimated budget year central account charges by FDA program area, and center/field split for each charge applied. The committees remind FDA that the Food and Drug Administration Amendments Act of 2007 limits the number of financial conflict of interest waivers for advisory committee members it can issue annually, and strongly encourage FDA to continue its efforts to limit the use of financial conflicts of interest waivers to the greatest extent possible. The committees direct FDA to ensure that all changes it makes to the format of its explanatory notes reflect the comments made by the Congress. In its FY2009 budget submission, FDA is directed to provide the same level of budget justification for its research activities in the FY2007 budget as it does other activities. FDA is directed to provide all reports and studies requested by the committees in H.Rept. 110-258 or S.Rept. 110-134 or in the explanatory statement within 60 days after enactment, unless another deadline is specified. Restrictions on Use of Appropriated Funds The enacted bill includes several restrictions. It prohibits the use of appropriated funds to terminate or consolidate FDA field laboratories or inspection and compliance functions of district offices, or to close the FDA laboratory in St. Louis, Missouri. In addition, the explanatory statement contains a proviso prohibiting the transfer of funds to the Reagan-Udall foundation under section 770(n) of the Federal Food, Drug and Cosmetic Act. Commodity Futures Trading Commission (CFTC) 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, registration and supervision of futures industry personnel, prevention of fraud and price manipulation, and investor protection. Although most futures trading is now related to financial variables (interest rates, currency prices, and stock indexes), congressional oversight remains vested in the agricultural committees because of the market's historical origins as an adjunct to agricultural trade. For FY2008, the Administration has requested $116.0 million for the CFTC, an increase of 18.4% over FY2007's appropriation under the continuing resolution of $98 million. The Administration's budget also proposes that a fee be imposed on users of the futures markets to pay for the cost of federal regulation. To fund the CFTC at the $116 million level, a fee of about 5¢ per transaction on the futures exchanges would be required. Every administration since Ronald Reagan's has proposed a similar fee, but Congress has never enacted one. (For more information on the futures transaction fee, see CRS Report RS22415, Proposed Transaction Fee on Futures Contracts , by [author name scrubbed].) The enacted appropriation for FY2008 is $111.266 million (after rescission), which is $13 million (+13.6%) more than the appropriation in FY2007. The increase provides for an additional 17 FTEs for more oversight of futures markets, and for information technology costs, both of which were in the Administration's request. It does not adopt the proposed user fees on futures transactions. The enacted amount is between the amounts for CFTC in the House and Senate bills. The House bill provided $102.6 million for the CFTC as an appropriation from the general fund. The Senate amount was $116 million and was in H.R. 2829 , the Financial Services and General Government Appropriations Act, 2008.

The agriculture appropriations bill includes all of the U.S. Department of Agriculture (USDA), except the Forest Service, plus the Food and Drug Administration. Jurisdiction for the Commodity Futures Trading Commission (CFTC) remains with the House agriculture appropriations subcommittee, but was moved to the Senate financial services subcommittee in FY2008. The FY2008 agriculture appropriations bill was combined with 10 other appropriations bills into the Consolidated Appropriations Act, 2008 (P.L. 110-161). The consolidated bill passed the House on December 17, 2007, passed the Senate on December 18, 2007, and was signed by the President on December 26, 2007. The act provides $90.8 billion in total funds for agriculture and related agencies, including $18.1 billion in official discretionary appropriations, and $72.7 billion in mandatory funds. The discretionary amount is 1.6% greater than the amount in FY2007 (+$281 million), although "gross" discretionary appropriations actually available to agencies grew 5.3% to $19.5 billion. Mandatory spending decreased about $7 billion overall from FY2007. Mandatory transfers for the farm commodity programs decreased $10 billion because of less need for price-triggered income support, while food stamp benefits rose about $2.2 billion (+4.2%). The enacted appropriation for FY2008 provides notable increases above FY2007 for conservation (+$85 million, +10%), meat and poultry inspection (+$38 million, +4.3%), agricultural research (+$38 million, +3.4%), animal and plant health programs (+$16.5 million, +1.9%), agricultural statistics (+$15 million, +10%), and the Food and Drug Administration (+$143 million, +9.1%). Rural development funding decreased $166 million (-6.6%) from FY2007, but remained higher than the Administration's request. The law removes the delay on implementation of country-of-origin labeling for meat, and requires labeling to begin by September 2008. The act contains disaster assistance to cover certain crop and livestock losses for all of 2007 by extending the eligibility date for crop and livestock losses to December 31, 2007. (The Iraq War supplemental enacted in May 2007 covered losses through February 2007.) CBO estimates that the additional disaster authority will cost $602 million ($592 million for crops and $10 million for livestock), which is included in the cost of the bill. The act also extends most provisions of the 2002 farm bill until March 15, 2008. The extension is expected to be sufficient for conference negotiations to resolve differences between the House- and Senate-passed farm bills. The farm bill extension states that, unless otherwise excepted, 2002 farm bill provisions in effect in September 2007 shall continue until March 15, 2008. Important among the relatively short list of programs that are not extended are the farm commodity programs for the 2008 crop year.

Introduction Juvenile offenders of federal criminal law are primarily the responsibility of state juvenile court authorities. The Federal Juvenile Delinquency Act permits federal delinquency proceedings when state courts cannot or will not accept jurisdiction or in the case of a limited number of crimes when there is a substantial federal interest. In the more serious of these cases, the juvenile offender may be transferred for trial as an adult. The rise in serious juvenile crime, the contraction of state juvenile court jurisdiction, and the expansion of federal criminal law have all contributed to the increased prevalence of the federal delinquency proceedings described here. History of Federal Delinquency Law In early America, the law held that a child, until the age of 7, lacked the maturity necessary to be held criminally responsible. Thereafter, the law rebuttably presumed incapacity until the child reached the age of 14, by which time acquisition of the intellectual capability to entertain criminal intent was assumed. As an early nineteenth century commentator explained, Under the age of seven years, indeed, it seems that no circumstances of mischievous discretion can be admitted to overthrow the strong presumption of innocence which is raised by an age so tender. During the interval between seven and fourteen, the infant is prima facie supposed to be destitute of criminal design; but this presumption diminishes as the age increases, and even during this interval of youth, may be repelled by positive evidence of vicious intention. For a tenderness of years will not excuse a maturity in crime; . . . since the power of contracting guilt is measured rather by the strength of the delinquent's understanding, than by days and years. Thus, children of thirteen, eight, and ten years of age, have been executed for capital offenses, because they respectively manifested a consciousness of guilt, and a mischievous discretion or cunning. After the age of fourteen, an infant is on the same footing with those of the mature years. A child found capable of the requisite intent was subject to trial and punishment as an adult; other children were set free. In the early twentieth century, the states established juvenile court systems so that children accused of conduct that would be criminal in an adult might be processed apart from the criminal justice system in an environment more closely attuned to their rehabilitative needs. By 1930, the Wickersham Commission reported that only the federal government continued to uniformly treat children, charged with a crime, as adults. The states had instead adopted various juvenile court systems in which the "child offender [was] generally dealt with on a noncriminal basis and . . . protected from prosecution and conviction for crime . . . [They undertook] to safeguard, train, and educate rather than to punish him. [They] substituted social for penal methods; the concept of juvenile delinquency for that of crime." Attorney General Wickersham also pointed out that (1) most of the cases involved interstate joyriding, an offense for which juvenile court treatment was thought particularly appropriate; (2) "[t]here [were] not enough juveniles brought into the Federal courts to justify the establishment of juvenile courts by act of Congress"; and (3) "federal penal institutions are not adequately equipped to deal with this class of juvenile delinquency." He recommended, and Congress agreed, that the disparity should be adjusted by authorizing the Department of Justice to return juveniles charged with violating federal law to the juvenile authorities of their home state. This solution suffered two unfortunate limitations. It did not account for juveniles charged with capital crimes. State law ordinarily excluded capital offenses from the jurisdiction of its juvenile courts. Second, state juvenile courts had no jurisdiction over juveniles who lived, and whose misconduct occurred upon, Indian reservations or military installations over which the state had no legislative jurisdiction. Congress addressed these shortcomings with the Federal Juvenile Delinquency Act of 1938. State juvenile proceedings remained the preferred alternative, but the Attorney General might instead elect to proceed against a juvenile as an adult, and federal juvenile proceedings became possible should both parties agree. Although supplemented in 1950 by the Federal Youth Corrections Act, which afforded federal juvenile offenders tried as adults the prospect of special rehabilitative opportunities, the Act remained essentially unchanged for over thirty-five years. In 1974, Congress substantially revised the Act in order "to provide basic procedural rights to juveniles who come under federal jurisdiction and to bring federal procedures up to the standards set by various model acts, many state codes and court decisions." Crimes punishable by death or life imprisonment (primarily murder, kidnapping, and rape) were made subject to the federal juvenile treatment for the first time. At the time, the Supreme Court decision in Furman v. Georgia had recently declared unconstitutional the procedure under which the vast majority of state and federal capital punishment statutes operated. It was not until two years thereafter that Woodson v. North Carolina and Gregg v. Georgia gave some clue as to what procedures would pass constitutional muster. When Congress established the requisite procedures to restore capital punishment as a federal sentencing option, it exempted juveniles. In the 1974 revision of federal juvenile law, the Attorney General lost the unbridled discretion to determine whether children, accused of federal crimes, should be tried as adults in federal criminal proceedings. The Attorney General was authorized, however, to petition the federal juvenile court to transfer, for trial as an adult, any 16- or 17-year-old accused of a crime which carried a maximum penalty of death, life imprisonment, or imprisonment for ten years or more. Congress made the final major adjustments ten years later with changes that emphasized that at least some of the juveniles who commit serious crimes merited punishment as adults. The Sentencing Reform Act of 1984 repealed the Federal Youth Corrections Act and eliminated juvenile parole provisions. The Sentencing Reform Act also lowered the age at which a juvenile may be transferred for trial as an adult and expanded the list of crimes that justify such a transfer. Thus far at least, the courts have declined to read into this history a congressional intent to repudiate rehabilitation as a sentencing consideration in federal juvenile proceedings. Overview of Existing Federal Law21 The continuing basic premise of federal juvenile law is that juvenile matters, even those arising under federal law, should be handled by state authorities whenever possible. The remote second preference of federal law is treatment of the juvenile under the federal delinquency provisions. Because a majority of the federal cases have historically arisen in areas beyond state jurisdiction, i.e. , primarily Indian country, the majority of federal delinquency proceedings have historically involved Native Americans. In a limited, but growing, number of instances involving drugs or violence, federal law permits the trial of juveniles as adults in federal court. For purposes of the Federal Juvenile Delinquency Act in its present form, a juvenile is an individual, under 21 years of age when the information is filed, alleged to have violated federal criminal law before reaching the age of 18. The Act reaches neither individuals after they turn 21 nor conduct committed after they turn 18. Federal authorities, however, may prosecute as an adult any individual whose active participation in a conspiracy or racketeering enterprise bridges his or her eighteenth birthday. Once the federal courts have found a juvenile delinquent, however, a court that revokes a juvenile's delinquent supervised release may order the juvenile held until age 26. Federal Juvenile Offenders in State Proceedings Criminal investigation and prosecution is first and foremost the domain of state and local officials, and conduct which violates federal criminal law is usually contrary to state law as well. For example, the federal Controlled Substances Act has a state equivalent in every jurisdiction, and robbery of a federal insured bank, or murder of a federal employee or law enforcement officer, will almost always be contrary to the state robbery and murder statutes in the state in which the offenses occur. Moreover, while state crimes are the most common basis for state juvenile court jurisdiction, many state juvenile courts enjoy delinquency jurisdiction based upon a violation of federal law. Thus, an individual under 18 who violates federal criminal law can move through the state juvenile delinquency system without ever coming into contact with federal authorities. Contractions in state juvenile court jurisdiction, however, make this less likely than was once the case. Many states now define juvenile court jurisdiction more narrowly than federal law either in terms of age or crime or both. Some also permit the adult criminal trial of a juvenile either through the exercise of concurrent jurisdiction or a waiver or transfer of jurisdiction under circumstances the federal courts could not. Arrest and Arraignment A juvenile taken into federal custody for violation of federal law must be advised of his or her legal rights immediately and the juvenile's parents or guardian must be notified immediately. The courts have held that since federal custody activates the statute's requirements, the obligations only begin after a juvenile, initially detained by state, local, or tribal officials, is turned over to federal authorities, and may be excused when the juvenile frustrates reasonable but unsuccessful notification efforts. Much of the case law relating to the federal advice and notification provisions comes from the U.S. Court of Appeals for the Ninth Circuit, which has held that the word "immediate" means the same for both advice and notifications purposes; advice given 4 hours after arrest and notification given 3½ hours after arrest has not been given "immediately"; notice given within close to an hour after arrests had been given immediately; parental notification must include advice as to the juvenile's rights; parental notification may be accomplished through the good offices of the surrogate or appropriate foreign consulate when the juvenile's parents reside outside of the United States; convictions or delinquency determinations must be overturned if they are tainted by violations of section 5033 so egregious as to violate due process; and less egregious but prejudicial violations of section 5033 may require that any resulting incriminating statements be suppressed. The juvenile must also be brought before a magistrate for arraignment "forthwith." At night, on weekends, or at other times when a magistrate is not immediately available, arraignment may be within a time reasonable under the circumstances. On the other hand, when a magistrate is available, arraignment may not be delayed simply because the government is proceeding with an abundance of caution or because the associated paperwork is tedious. Once before the magistrate, the juvenile is entitled to the assistance of counsel and to have counsel appointed in the case of indigence. The magistrate may also appoint a guardian ad litem, and, after a hearing before counsel, order the juvenile detained to guarantee subsequent court appearances or for the safety of the juvenile or anyone else. A juvenile under federal detention is entitled to a delinquency hearing within 30 days or to have the information charging his or her delinquency dismissed with prejudice unless he or she has contributed or consented to the delay or unless dismissal with prejudice would be contrary to the interests of justice. This speedy trial requirement runs from the time the juvenile was taken into federal custody pending judicial proceedings, but does not attach to any period of state detention; to any period during which the juvenile was being held for purposes other than the pendency of delinquency proceedings; to any time when the juvenile is not being detained; to delays attributable to the juvenile's deception; to the period between admission or guilty plea and sentencing; or to the period for which a continuance has been granted at the juvenile's behest. Time spent on the government's appeal is excludable in the interest of justice, as is time spent litigating the government's transfer motions, but not when the juvenile was being unlawfully detained at the time of the government's motion. Initial Stages of Federal Adjudication Federal law permits federal proceedings against a federal juvenile offender when there is no realistic state alternative or when the juvenile is accused of a serious federal crime. The government must certify that it has elected a federal forum. The certificate must assert that either (1) the state courts are unwilling or unable to proceed against the juvenile for the misconduct in question; or (2) the juvenile programs of the state are unavailable or inadequate; or (3) the offense is a drug dealing or drug smuggling violation, possession of an undetectable firearm, or felony and crime of violence and that a substantial federal interest exists warranting the exercise of federal jurisdiction. "Because certification requirements are disjunctive, a single basis for certification establishes jurisdiction." Although the statute calls for certification by the Attorney General, the authority has been redelegated to the various United States Attorneys. A facially adequate certification is generally thought to be beyond judicial review in the absence of evidence of bad faith. Certification is jurisdictional, however, so that certification by an Assistant United States Attorney without evidence of the United States Attorney's approval is insufficient. The government need not certify the want of, or unwillingness to exercise, tribal as well as state jurisdiction. "The Attorney General's certification of a 'substantial federal interest' is an act of prosecutorial discretion that is shielded from judicial review." Because there is no statutory definition of the term "crime of violence" for certification purposes, courts in the past have relied on the definitions in 18 U.S.C. § 16 ("The term 'crime of violence' means – (a) an offense that has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or (b) any other offense that is a felony and that, by its nature, involves substantial risk that physical force against the person or property of another may be used in the course of committing the offense "); or 18 U.S.C. § 924(c)(3) ("the term 'crime of violence' means an offense that is a felony and – (A) has as an element the use, attempted use, or threatened use of physical force against the person or property of another, or (B) that by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense"); or simply "an offense that 'by its very nature involves a substantial risk' that physical force against another may be used in committing the offense." On April 17, 2018, however, the Supreme Court declared unconstitutionally vague the language of 18 U.S.C. § 16(b) (in italics above), incorporated by cross-reference into the Immigration and Nationality Act. The Court's decision may require future lower federal courts, tasked to discern the meaning of the term "crime of violence" for certification purposes, to apply 18 U.S.C. §§ 16(a) or 924(c)(3)(A) or to formulate a new definition. If the government decides against federal proceedings, the juvenile must either be released or, under the appropriate conditions, turned over to state authorities. Otherwise, the government begins the proceedings by filing an information and a statement of the juvenile's past record with the district court. Most courts appear to believe that they have no jurisdiction to proceed against a juvenile until they receive evidence of the juvenile's prior record. The government may proceed against a juvenile as an adult only if the child insists, or pursuant to a juvenile court transfer. Transfers There are two types of transfers, mandatory and discretionary. A transfer is mandatory in the case of a violent felony, drug trafficking, drug smuggling, or arson, allegedly committed by a juvenile 16 years of age or older who has previously been found to have committed comparable misconduct. As the language suggests, the prior felony "conviction" may be either a conviction as an adult or a finding of delinquency based on conduct that would be felonious if committed by an adult. Charges that would support a mandatory transfer if brought against a 16-year-old recidivist may be used to trigger a discretionary transfer if the juvenile is 15 or older regardless of his or her prior record; discretionary transfers are also possible for juveniles 13 or older in some cases of assault, homicide, or robbery. As in the case of certification, the vagaries associated with the term "crime of violence" impact transfers involving in two of the three classes. The predicate offense list found in section 5032 for the mandatory transfer of recidivists aged 16 or older uses language virtually identical to the language of 18 U.S.C. §§ 16(a) and 16 (b): "[a]a felony offense that has as an element thereof the use, attempted use, or threatened use of physical force against the person of another, or [b] that, by its very nature, involves a substantial risk that physical force against the person of another may be used in committing the offense ." The Supreme Court's determination in Dimaya , that the language of section 16(b) is unconstitutionally vague, presumably applies with equal force to the comparable mandatory transfer language (italicized above). The discretionary transfer provision for juveniles 15 years of age or older has a similar problem. It lists "crimes of violence" as predicates. Here by operation of the Dimaya decision, the lower courts are left with the task of applying section 16(a) or some other definition that avoids the uncertainty of section 16(b). The discretionary transfer provision for juveniles 13 and older presents no such challenge, because section 5032 enumerates specific predicate offenses there. In any event, the courts will look to the elements of the prior felony, rather than the particulars of the actual misconduct involved, to determine whether the prior offense should be considered violent for transfer purposes. At least one federal appellate court has rejected contentions that mandatory transfers constitute an unconstitutional denial of either due process or equal protection and aside from a denial of the ineffective assistance of counsel, questions of the constitutionality of the underlying prior conviction or determination may not be raised at the transfer hearing. When the transfer is discretionary, juvenile adjudication is presumed appropriate, unless the government can establish its case for a transfer by a preponderance of the evidence. Section 5032 lays out the factors for the court's consideration when it is asked to exercise its discretion to transfer a juvenile in the interest of justice for trial as an adult. "In making its determination, the court must consider six factors: (1) the age and social background of the juvenile; (2) the nature of the alleged offense; (3) the extent and nature of the juvenile's prior delinquency record; (4) the juvenile's present intellectual development and psychological maturity; (5) the nature of past treatment efforts and the juvenile's response to them; and (6) the availability of programs designed to treat the juvenile's behavioral problems." The purpose of the exercise is to determine whether the prospects for the juvenile's rehabilitation are outweighed by the risk of harm that he poses if not tried as an adult. A court need not give the factors equal weight as long as the court documents its consideration of each. The age factor compels the court to consider a juvenile's age both at the time of the misconduct and at the time of the transfer hearing. "The older a juvenile delinquent is both at the time of the alleged offense and at the time of transfer hearing, the more the juvenile defendant's age weighs in favor of transfer." In considering the child's social background, the courts cite the child's family life, both positive and negative, and other social interactions. The second factor calls for an assessment of both the seriousness of the misconduct alleged and the juvenile's role in the transgression. The allegations are taken as true for purposes of the assessment, and allegations of serious offenses argue strongly for transfer. The third factor requires the court to take into account "the extent and nature of the juvenile's prior delinquency record." This may include the juvenile's arrest record in some instances. A clean record, however, is no bar to a transfer. The fourth factor, the juvenile's "intellectual development and psychological maturity," is essentially a matter of whether the juvenile has the mind of a child at the time of the transfer petition, indicating a receptivity to rehabilitation. The factor may argue strongly for the transfer of a juvenile wise beyond his years. Moreover, with age, the weight the courts give to average intellectual development and maturity begins to slip away. In the case of older juveniles, the courts may find evidence of reduced, or even greatly reduced, development and maturity insufficient to overcome the counterweight of a serious offense. The fourth factor attempts to predict whether the juvenile will be receptive to rehabilitative efforts. The fifth factor evaluates whether the juvenile has been receptive to past rehabilitative efforts. Obviously, the factor carries no weight if there have been no past efforts. The final factor is the availability of treatment programs for the individual either as a juvenile or an adult. The juvenile's age or offense may make him ineligible for state programs in some instances. Transfer hearings are considered akin to preliminary hearings and consequently, other than the rules of privilege, the Federal Rules of Evidence include those governing hearsay do not apply. A juvenile's statements "prior to or during a transfer hearing" may not be admitted in subsequent criminal proceedings. Consequently, a juvenile may be required to submit to a psychiatric examination in connection with the hearing, and the court may base its transfer determinations on the results without intruding upon the juvenile's Fifth Amendment privilege against self-incrimination. The court's determination of whether transfer is appropriate is immediately appealable under an abuse of discretion standard. The Supreme Court's decision in Miller v. Alabama , barring imposition of a sentence of life imprisonment without parole for an offense committed while a juvenile, precludes a transfer relating to an offense punishable only by death or life imprisonment. It does not preclude a transfer with respect to an offense punishable alternatively by imprisonment for a term of years. Delinquency Hearings In the absence or failure of a government transfer motion and unless the juvenile insists on an adult trial, the district court, at its discretion, conducts a delinquency hearing "at any time and place within the district, in chambers or otherwise." Neither the right to grand jury indictment nor to a jury trial is constitutionally required. However, the Constitution demands many of the other features of an adult criminal trial, including notice of charges, right to counsel, privilege against self-incrimination, right to confrontation and cross examination, proof beyond a reasonable doubt, protection against double jeopardy, and application of the Fourth Amendment exclusionary rule. Disposition Upon a finding of delinquency, the court schedules either a sentencing hearing or a hearing in anticipation of a commitment for examination prior to sentencing. At sentencing, the court may dispose of a juvenile delinquency case by suspending sentence, by ordering restitution or probation, or by committing the juvenile to the custody of the Attorney General for detention. Unless the court suspends sentence, section 5037 establishes a series of time limits that restrict the court's authority when it orders detention, when it imposes or revokes probation, and when it imposes or revokes a period of juvenile delinquent supervision. Section 5037(c) provides different detention limitations depending upon whether the dispositional hearing occurs when the individual is under 18 years of age or is between 18 and 21 years of age. In the case of a juvenile under 18, the court may order a term of detention no longer than the shorter of (A) the date the juvenile will turn 21; (B) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult; or (C) the maximum term of imprisonment that would apply had the juvenile been an adult. The detention limits for juveniles between the ages of 18 and 21 depend on the seriousness of the misconduct that led to the delinquency determination. If the misconduct would have been punishable by imprisonment for a maximum of 12 years or more, the term of detention may be no longer than the sooner of (i) five years, or (ii) the top of the sentencing guideline range applicable to adults under comparable circumstances. If less serious misconduct led to the delinquency determination, the court may order detention for no longer than the sooner of (i) three years; (ii) the top of the sentencing guideline range; or (iii) the maximum term of imprisonment that an adult would have faced under the circumstances. The time limits for probation are comparable. The court may set the term of probation for a juvenile under 18 years of age at no longer than the sooner of (A) the date on which the juvenile will turn 21 years of age; or (B) five years (or one year if the misconduct in an adult would be punishable by imprisonment for not more than five days). For juveniles between the ages of 18 and 21, the limit is the shorter of (A) three years; or (B) one year (if the misconduct in an adult would be punishable by imprisonment for not more than five days). The adult mandatory and discretion condition statutes apply, including the requirement that any discretion conditions involve only such deprivations of liberty or property as are reasonably necessary to comply with statutory sentencing principles. The court may later revise or revoke a juvenile's probation and order the juvenile's detention for violation of his probation conditions. Detention authority following revocation mirrors the court's initial detention authority with two exceptions. First, regardless of the juvenile's age at the time of revocation, the court is initially governed by the time limits that apply to the detention of juveniles between the ages of 18 and 21. Second, an individual who is 21 years of age or older may not be detained beyond the age of 23, or beyond the age of 25 if the misconduct is punishable by imprisonment for 12 years or more. Subject to those restrictions, when the misconduct that resulted in the delinquency determination would be punishable by a maximum term of imprisonment of 12 years or more, the court may order a term of detention no longer than the shorter of (i) five years; or (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult. For less serious forms of misconduct, the limit is the shorter of (i) three years; (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult; or (iii) the maximum term of imprisonment that would apply had the juvenile been an adult. When a court orders juvenile detention, it may also impose a term of juvenile delinquent supervision to be served after the individual's release from detention. Juvenile delinquent supervision has its own time limits and its own set of conditions. The conditions are the same as those available when the court sentences a juvenile to probation. The initial term of juvenile delinquent supervision may not exceed the juvenile's 21st birthday if the individual is under the age of 18 when the detention order is issued. If the individual is between 18 and 21, the initial time limits are those that apply to detention, less the time served in detention. Thus, when the misconduct that resulted in the delinquency determination would be punishable by a maximum term of imprisonment of 12 years or more, the court may order a term of supervision no longer than the shorter of (i) five years; or (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult. For less serious forms of misconduct, the limit is the shorter of (i) three years; (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult; or (iii) the maximum term of imprisonment that would apply had the juvenile been an adult. Violation of the conditions of supervision may lead to further terms of detention and juvenile delinquent supervision. The maximum term of detention following revocation of a term of supervision is the same as the maximum term of detention following revocation of probation, less time served in detention. That is, when the misconduct that resulted in the delinquency determination would be punishable by a maximum term of imprisonment of 12 years or more, the court may order a term of supervision no longer than the shorter of (i) five years; (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult; or (iii) the time before which the individual turns 26 years of age. For less serious forms of misconduct, the limit is the shorter of (i) three years; (ii) the term at the top of the sentencing range under the sentencing guidelines that would apply had the juvenile been an adult; (iii) the maximum term of imprisonment that would apply had the juvenile been an adult; or (iv) the time before which the individual turns 24. Section 5037(d)(6) is somewhat cryptic about the term limits on the juvenile delinquent supervision imposed after revocation. It makes no mention of the limits in place when the individual is less than 18 years of age or between 18 and 21 years of age. As for individuals over 21 years of age, it declares that the term of juvenile delinquent supervision "shall be in accordance with the provisions of section 5037(d)(1)" with the exception of the usual bars on supervision over individuals once they reach either 24 or 26 years of age depending on the seriousness of their original misconduct. The difficulty stems in part from the fact that section 5037(d)(1) says nothing about time limits. It merely states that "[t]he court, in ordering a term of official detention, may include the requirement that the juvenile be placed on a term of juvenile delinquent supervision after official detention." One appellate court has held that "the maximum term of supervision that a court may impose under § 5037(d)(6) is determined by the requirements of in § 5037(d)(2), using the juvenile's age at the time of the revocation hearing." Juvenile Records and Conditions of Custody One of the hallmarks of the Federal Juvenile Delinquency Act is its effort to shield juveniles from some of the harsh consequences of exposure to the criminal justice system. Before and after being taken into custody, and before and after being found delinquent, it refuses to allow juveniles to be interspersed with adults who are awaiting trial for, or have been convicted of, criminal offenses. In the same spirit, ordinarily federal juvenile records are sealed for all purposes other than judicial inquiries, law enforcement needs, juvenile treatment requirements, employment in a position raising national security concerns, or disposition questions from victims. This does not render otherwise admissible evidence of juvenile proceedings inadmissible in criminal proceedings. Moreover, in response to media requests the court will balance the competing interests which weigh heavily in favor of confidentiality. Juveniles Tried as Adults Juveniles transferred for trial as adults in federal court are essentially treated as adults, with few distinctions afforded or required because of their age. At one time, even the Sentencing Guidelines instructed sentencing judges that an offender's youth was not ordinarily a permissible ground for reduction of the otherwise applicable Sentencing Guideline range. The Sentencing Commission has since amended the guideline to permit consideration of the defendant's age in atypical cases. In addition, the death penalty may not be imposed as punishment for a crime committed by a juvenile. Nor may an individual be sentenced to life imprisonment without the possibility of parole for a crime committed as a juvenile. Addendum 18 U.S.C. § 5032 (Text) A juvenile alleged to have committed an act of juvenile delinquency, other than a violation of law committed within the special maritime and territorial jurisdiction of the United States for which the maximum authorized term of imprisonment does not exceed six months, shall not be proceeded against in any court of the United States unless the Attorney General, after investigation, certifies to the appropriate district court of the United States that (1) the juvenile court or other appropriate court of a State does not have jurisdiction or refuses to assume jurisdiction over said juvenile with respect to such alleged act of juvenile delinquency, (2) the State does not have available programs and services adequate for the needs of juveniles, or (3) the offense charged is a crime of violence that is a felony or an offense described in section 401 of the Controlled Substances Act ( 21 U.S.C. 841 ), or section 1002(a), 1003, 1005, 1009, or 1010(b)(1), (2), or (3) of the Controlled Substances Import and Export Act ( 21 U.S.C. 952(a), 953, 955, 959, 960(b)(1), (2), (3) ), section 922(x) or section 924(b), (g), or (h) of this title , and that there is a substantial Federal interest in the case or the offense to warrant the exercise of Federal jurisdiction. If the Attorney General does not so certify, such juvenile shall be surrendered to the appropriate legal authorities of such State. For purposes of this section, the term "State" includes a State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States. If an alleged juvenile delinquent is not surrendered to the authorities of a State pursuant to this section, any proceedings against him shall be in an appropriate district court of the United States. For such purposes, the court may be convened at any time and place within the district, in chambers or otherwise. The Attorney General shall proceed by information or as authorized under section 3401(g) of this title , and no criminal prosecution shall be instituted for the alleged act of juvenile delinquency except as provided below. A juvenile who is alleged to have committed an act of juvenile delinquency and who is not surrendered to State authorities shall be proceeded against under this chapter unless he has requested in writing upon advice of counsel to be proceeded against as an adult, except that, with respect to a juvenile fifteen years and older alleged to have committed an act after his fifteenth birthday which if committed by an adult would be a felony that is a crime of violence or an offense described in section 401 of the Controlled Substances Act ( 21 U.S.C. 841 ), or section 1002(a), 1005, or 1009 of the Controlled Substances Import and Export Act ( 21 U.S.C. 952(a), 955, 959 ), or section 922(x) of this title , or in section 924(b), (g), or (h) of this title , criminal prosecution on the basis of the alleged act may be begun by motion to transfer of the Attorney General in the appropriate district court of the United States, if such court finds, after hearing, such transfer would be in the interest of justice. In the application of the preceding sentence, if the crime of violence is an offense under section 113(a), 113(b), 113(c), 1111, 1113, or, if the juvenile possessed a firearm during the offense, section 2111, 2113, 2241(a), or 2241(c), "thirteen" shall be substituted for "fifteen" and "thirteenth" shall be substituted for "fifteenth". Notwithstanding sections 1152 and 1153, no person subject to the criminal jurisdiction of an Indian tribal government shall be subject to the preceding sentence for any offense the Federal jurisdiction for which is predicated solely on Indian country (as defined in section 1151), and which has occurred within the boundaries of such Indian country, unless the governing body of the tribe has elected that the preceding sentence have effect over land and persons subject to its criminal jurisdiction. However, a juvenile who is alleged to have committed an act after his sixteenth birthday which if committed by an adult would be a felony offense that has as an element thereof the use, attempted use, or threatened use of physical force against the person of another, or that, by its very nature, involves a substantial risk that physical force against the person of another may be used in committing the offense, or would be an offense described in section 32, 81, 844(d), (e), (f), (h), (i) or 2275 of this title , subsection (b)(1)(A), (B), or (C), (d), or (e) of section 401 of the Controlled Substances Act, or section 1002(a), 1003, 1009, or 1010(b)(1), (2), or (3) of the Controlled Substances Import and Export Act ( 21 U.S.C. 952(a), 953, 959, 960(b)(1), (2), (3) ), and who has previously been found guilty of an act which if committed by an adult would have been one of the offenses set forth in this paragraph or an offense in violation of a State felony statute that would have been such an offense if a circumstance giving rise to Federal jurisdiction had existed, shall be transferred to the appropriate district court of the United States for criminal prosecution. Evidence of the following factors shall be considered, and findings with regard to each factor shall be made in the record, in assessing whether a transfer would be in the interest of justice: the age and social background of the juvenile; the nature of the alleged offense; the extent and nature of the juvenile's prior delinquency record; the juvenile's present intellectual development and psychological maturity; the nature of past treatment efforts and the juvenile's response to such efforts; the availability of programs designed to treat the juvenile's behavioral problems. In considering the nature of the offense, as required by this paragraph, the court shall consider the extent to which the juvenile played a leadership role in an organization, or otherwise influenced other persons to take part in criminal activities, involving the use or distribution of controlled substances or firearms. Such a factor, if found to exist, shall weigh in favor of a transfer to adult status, but the absence of this factor shall not preclude such a transfer. Reasonable notice of the transfer hearing shall be given to the juvenile, his parents, guardian, or custodian and to his counsel. The juvenile shall be assisted by counsel during the transfer hearing, and at every other critical stage of the proceedings. Once a juvenile has entered a plea of guilty or the proceeding has reached the stage that evidence has begun to be taken with respect to a crime or an alleged act of juvenile delinquency subsequent criminal prosecution or juvenile proceedings based upon such alleged act of delinquency shall be barred. Statements made by a juvenile prior to or during a transfer hearing under this section shall not be admissible at subsequent criminal prosecutions. Whenever a juvenile transferred to district court under this section is not convicted of the crime upon which the transfer was based or another crime which would have warranted transfer had the juvenile been initially charged with that crime, further proceedings concerning the juvenile shall be conducted pursuant to the provisions of this chapter. A juvenile shall not be transferred to adult prosecution nor shall a hearing be held under section 5037 (disposition after a finding of juvenile delinquency) until any prior juvenile court records of such juvenile have been received by the court, or the clerk of the juvenile court has certified in writing that the juvenile has no prior record, or that the juvenile's record is unavailable and why it is unavailable. Whenever a juvenile is adjudged delinquent pursuant to the provisions of this chapter, the specific acts which the juvenile has been found to have committed shall be described as part of the official record of the proceedings and part of the juvenile's official record.

Federal authorities have three options when a juvenile violates federal criminal law. First, they can refer the juvenile to state authorities. Second, they can initiate federal delinquency proceedings. Third, they can petition the federal court to transfer the juvenile for trial as an adult. The Federal Juvenile Delinquency Act generally favors referring juveniles to state authorities, but it permits federal delinquency proceedings where state courts cannot or will not accept jurisdiction. Because a majority of the federal juvenile delinquency cases have historically arisen in areas beyond state jurisdiction, i.e., primarily Indian country, the majority of federal delinquency proceedings involve Native Americans. In the more serious of these cases, the juvenile offender may be transferred for trial as an adult in federal court. The Act applies to those charged before the age of 21 with a breach of federal criminal law occurring before they reached the age of 18. Given the preference for state juvenile proceedings and the fact that a violation of federal law will ordinarily support the assertion of state juvenile court jurisdiction, most such offenders never come in contact with federal authorities. Many of those who do are returned to state officials to be processed through the state court system. The United States Attorney, however, may elect to initiate federal proceedings if the state courts are unwilling or unable to assume jurisdiction, or the state has no adequate treatment plans, or the juvenile is charged with a crime of violence or with drug trafficking. Federal juvenile delinquency proceedings require neither grand jury indictment, public trial, nor trial by jury. The constitutional rights available to juveniles at delinquency proceedings are otherwise much like those found in adult criminal trials. Juveniles found delinquent may be released under suspended sentence, placed on probation, ordered to pay restitution and/or sentenced to the custody of the U.S. Attorney General for detention. The period of detention, if any, may not exceed the term which might be imposed upon an adult offender for the same misconduct. The period of detention may be followed by a period of juvenile delinquent supervision, revocation of which in serious cases may result in detention until the individual is 26 years of age. The U.S. district court may, and in some cases must, transfer a juvenile for criminal trial as an adult. A juvenile may request a transfer to trial as an adult. Otherwise, a court must order a transfer when a juvenile, with a prior comparable conviction or juvenile adjudication, is charged with committing a violent offense or a drug trafficking offense at the age of 16 or older. Discretionary transfers come in two varieties. A court may transfer a juvenile, who when 13 years of age or older is alleged to have committed aggravated assault, murder, attempted murder, armed robbery, or armed rape. A court may also transfer a juvenile who when 15 years of age or older is alleged to have committed drug trafficking or a violent felony. The court orders or denies the transfer petition after considering the seriousness of the offense, the age and maturity of the juvenile, the juvenile's prior delinquency record, the results of past rehabilitative efforts, and the availability of existing rehabilitative programs.

Background Over the past decade, global health has become a priority in U.S. foreign policy, and U.S. appropriations for health-related efforts have more than tripled. Some observers expect the 112 th Congress to debate the appropriate funding level for ongoing global health programs, to consider ways to make U.S. global health initiatives more effective and efficient, and to encourage other players to become more engaged, particularly countries such as China and India that are receiving assistance from donors to address health challenges while their economies are undergoing considerable growth. Neglected tropical diseases (NTDs) have become an important part of U.S. global health assistance, particularly since 2006, when Congress made available $15 million to combat such diseases and President George W. Bush launched the NTD Program. NTDs comprise a group of 17 diseases found mostly among the poorest in 149 countries and territories, primarily in areas with unsafe water, inadequate sanitation, and limited health services. (See Appendix C for a description of NTDs, including their symptoms and prevalence; Appendix D displays their images). The list is not exhaustive of all illnesses found among this population, but it accounts for those being targeted by the World Health Organization (WHO) and its partners. Some diseases are transmitted by people; others are spread by vectors like snails, flies, or mosquitoes; and several others are found in contaminated sources (like infested soil or water). At the same time that NTDs afflict primarily the impoverished, some studies indicate that NTDs exacerbate poverty. People crippled by lymphatic filariasis (elephantiasis), for example, often cease to be employable or capable of engaging in income-producing activities. Children afflicted with soil-transmitted helminths (STH) have reduced cognitive functions, poorer health and nutrition, and lower school attendance rates. All of these factors reduce lifetime earning potential. In 2003, WHO convened a meeting to discuss challenges in addressing a host of tropical diseases that were widely viewed to be receiving inadequate attention and worsening poverty. Though efforts to address these diseases preceded the meeting, up until that point, national governments and global health groups had focused on each of the diseases separately. Following the meeting, WHO and other health experts dubbed a group of 17 infections "neglected tropical diseases" because data showed that people tended to be infected with more than one of these maladies at once. At least 100 countries face two endemic NTD disease burdens, for example, and 30 countries carry six or more NTD endemic disease burdens ( Figure 1 ). Though NTDs are a group of distinct diseases, they share three key characteristics. Specifically, NTDs are long-standing health problems that have afflicted human beings for centuries, have virtually disappeared in industrialized countries, and have continued to primarily affect the world's poorest populations; cause chronic conditions that have relatively low mortality rates but may bring long-lasting deformities, which are irreversible in some cases, and impair health, quality of life, and earning potential; and could benefit from greater research and development (R&D). Additional research could identify second-line treatments that could be used should the diseases become resistant against drugs. R&D could also identify treatments for incurable ailments like dengue fever and buruli ulcer. For other NTDs like sleeping sickness, innovative research could be used to develop medicines that could supplant commonly used drugs that are toxic, have complex treatment regimens, and carry significant side effects (including death). For all of the NTDs, R&D could be used to identify a vaccine and develop improved diagnostic tools that could be easily used in low-resource settings. Health experts reconvened in 2005 and developed a framework for implementing an integrative approach to controlling NTDs, which focused on three key strategies: Preventive Chemotherapy through mass drug administration (MDA)—administering treatments to an affected population irrespective of individual disease status. Vector control —limiting or eradicating disease-carrying insects to reduce transmission of NTDs. Disease surveillance and care —improving the monitoring of NTD cases and the care of those carrying the diseases. Prevalence The best available estimates indicate that some 2 billion people are at risk of contracting an NTD, of whom more than 1 billion people are afflicted with one or more NTD. Roughly 534,000 are killed by an NTD annually ( Table 1 ). Despite the common use of the estimates cited above, health experts do not know exactly how many people are infected with NTDs. Uncertainty regarding the number of people suffering from NTDs is rooted in several issues. The majority of people living with NTDs live in marginalized communities that lack sufficient health care, possibly obscuring a diagnosis. The full extent of the global NTD burden may also be hidden behind the symptoms that NTDs cause. Schistosomiasis, for example, can cause anemia and bladder cancer. Additionally, weak health systems may fail to document the true burden of NTDs. One study estimates that one NTD case is reported for every 40 occurrences. In addition, health information systems in many developing countries are in poor condition and are not equipped to provide precise data on disease prevalence. As such, disease assessments in developing countries, particularly in sub-Saharan Africa, are often based on projections extrapolated from household surveys rather than medical records establishing a diagnosis. Disease prevalence mapping for NTDs has reportedly been improving, however, as the international community boosts investments in addressing NTDs. According to the U.S. Agency for International Development (USAID), by the end of 2009, the NTD burden of the seven most common NTDs had been identified in most districts throughout the countries supported by the United States ( Figure 2 ). Of the 14 most common NTDs, roughly 80% are caused by STH—a group of three parasitic worms (roundworms, whipworms, and hookworms) that are contracted through contact with tainted soil or ingestion of eggs found on produce grown in tainted soil ( Figure 3 ). More than 1 billion people are afflicted with STH worldwide, of whom children are the most vulnerable and tend to carry more than one type of worm at a time. NTDs independently cause high levels of illness and worsen the health of those plagued with other diseases like HIV/AIDS, malaria, and tuberculosis (TB). For example, some research indicates that HIV/AIDS and schistosomiasis co-infection is associated with higher HIV viral loads; people infected with schistosomiasis are more susceptible to HIV; and HIV-positive pregnant women who are co-infected with schistosomiasis have higher HIV-transmission rates than their counterparts without schistosomiasis; malaria and STH co-infection lead to higher incidence of anemia (a key cause of maternal and child mortality), and people with STH are more susceptible to malaria; and TB and STH co-infection is linked to higher rates of the conversion of latent TB into active TB, and TB vaccines are less effective in people co-infected with STH. Of all global regions, sub-Saharan Africa is most affected by NTDs and by co-infection with HIV/AIDS, TB, and malaria co-infection ( Appendix E ). Control and Treatment Strategies The international community has long sought to raise awareness about and support for tackling NTDs. In 1949, for example, world health leaders met to discuss schistosomiasis and noted the disease's harmful effects, especially its degenerative effect on economic development and food production. Through ratification of several World Health Assembly resolutions through WHO and implementation of numerous public-private partnerships, the international community has agreed to prioritize combating, eliminating, and eradicating NTDs. Well over 100 groups are engaged in fighting NTDs, including academia, the private sector, global development and health organizations, non-governmental organizations (NGOs), foundations, and national governments ( Table 2 ). Some initiatives focus on one NTD, while others tackle a group of NTDs ( Appendix F ). Among the 17 NTDs, 7 account for roughly 90% of the global NTD burden. These are the three soil-transmitted helminthes, schistosomiasis, lymphatic filiariasis, trachoma, and onchocerciasis. Drugs used to treat these seven diseases are donated by pharmaceutical companies or sold at subsidized prices ranging between $0.02 and $1.02, and are taken once or twice annually (depending on the concentration of the disease). At such prices, some 500 million people can be treated for these seven afflictions at roughly $400 million annually. When correctly used, these drugs can be used to control and, in some cases, eliminate some of the NTDs. Historically, countries attempted to address each of these diseases in distinct programs. Within the past decade, WHO and other health experts found that national responses to these seven diseases could be integrated to improve the efficacy and reduce costs. Specifically, health experts found that medicines used to treat each of the seven NTDs could be safely administered to people co-infected with other NTDs (in most cases); one drug could treat more than one disease; individual diagnosis would not be necessary and entire communities could be safely treated, usually once per year, irrespective of each person's disease status; non-health workers, including teachers and community volunteers, could dispense the treatments in non-clinical settings (like schools) rather than in health facilities (which are often poorly resourced and in limited supply in remote areas); and the integration of drug delivery enabled resources to be pooled. By integrating drug delivery for these seven diseases, countries and their partners have reduced some of the costs related to treating the diseases separately. After integrating mass drug administration (MDA) campaigns, USAID documented cost-efficiencies up to 41% and a 30% reduction in training costs. USAID attributed these savings to streamlining program management, social mobilization, drug supply chains, and trainings. The remaining 10 NTDs must be treated individually and can be more difficult and costly to manage. No cures exist for some of the NTDs in this group and for others available treatments can carry significant side effects. Additionally, access to diagnostic tools for some of these diseases may be limited, and treatment tends to be more costly because the medicines often need to be administered by trained health practitioners in health settings for prolonged periods. For some of these diseases, namely Chagas disease, dengue, human African trypanosomiasis, and leishmaniasis, early detection and treatment are vital to avoid irreversible disability or death. Global NTD Plan The global response to NTDs comprises complex mechanisms. Countries develop national NTD plans, primarily through the ministries of health and education, and receive financial support from donors to help carry out the national MDA plans. WHO and donors such as USAID review drug donation applications and support country-level planning, training, and monitoring, and evaluation. Pharmaceutical companies provide treatments used for national NTD plans, either for free or at highly discounted rates. NGOs and faith-based organizations partner with national ministries to implement the NTD plans. Academic groups, public-private partnerships, and pharmaceutical companies research and develop innovative treatments and control mechanisms. In combating NTDs, countries and their supporters adhere to WHO protocols that outline best practices for addressing NTDs. In 2007, WHO released the Global Plan to Combat Neglected Tropical Diseases , which outlined several goals and targets for global control, elimination, and eradication of NTDs by 2015; strategic areas for action; and the policy framework for NTD implementation, monitoring, and evaluation. Three key goals included in the plan were to eliminate or eradicate NTDs targeted in resolutions of the World Health Assembly and regional committees; reduce the burden of NTDs that can be treated with MDA; and ensure that interventions using novel approaches are available, promoted, and accessible for NTDs that are costly and difficult to treat. As of October 2010, the WHO estimates that it would cost $1.7 billion to purchase enough drugs to treat all those at risk of contracting the seven most common NTDs. As of January 2010, donors had committed to provide all but one-third of the funds ($552 million) needed to fund the Global NTD Plan ( Table 3 ). WHO estimates that it would cost an additional $1.2 billion to distribute the drugs. Advances in Tackling NTDs In November 2010, WHO released its first report on NTDs. The report highlighted positive outcomes of long-standing efforts to tackle NTDs. The near eradication of dracunculiasis (guinea worm disease) is one of the most profound cases. Global incidence of guinea worm disease has declined 99% since 1986, when some 3.5 million people in Africa and Asia were infected. By 2009, only 3,190 cases were reported, and as of September 2010, WHO counted 1,613 cases ( Figure 4 ). Today, guinea worm disease is endemic in only four countries: Ethiopia, Ghana, Mali, and Sudan (accounting for about 90% of all cases). Prolonged conflict in Sudan has slowed efforts to eradicate guinea worm disease, though health experts remain optimistic about prospects that the illness could be the first infectious diseases to be eradicated since smallpox in 1979. Epidemiologists also celebrate advances in eliminating other NTDs. The Pan American Health Organization (PAHO), for example, reports that lymphatic filiariasis is no longer transmitted in three of seven Latin American countries where the disease was endemic. Likewise, aggressive MDA campaigns have interrupted the transmission of onchocerciasis (river blindness) in one-third of areas where the disease was endemic and eliminated the disease from Colombia. As such, people in 6 of the 13 previously endemic countries are no longer treated for the disease, and no new cases of onchocerciasis-related blindness have been reported in the region since 2007. U.S. Government Responses to NTDs The United States has long supported efforts to control NTDs, and U.S.-based institutions, including the federal government, pharmaceutical companies, and philanthropic organizations, continue to lead global investments for and participation in fighting NTDs. Key U.S. government (USG) players include USAID, U.S. Centers for Disease Control and Prevention (CDC), National Institutes of Health (NIH), and Department of Defense (DOD). Non-profit and private sector participants include the Carter Center, the Bill & Melinda Gates Foundation, and several private companies, including Merck, Johnson & Johnson, and Pfizer. While each of these play a key role in combating NTDs, this report focuses on efforts conducted and supported by the U.S. government. In 2006, the U.S. government launched the Neglected Tropical Disease Control Program, its first effort to address a group of NTDs. The program was created in response to language in the FY2006 Foreign Operations Appropriations Act, which made available up to $15 million "to support an integrated response to the control of neglected diseases including intestinal parasites, schistosomiasis, lymphatic filariasis, onchocerciasis, trachoma and leprosy." The language signaled congressional support for calls to integrate and expand access to treatments against the seven most common NTDs. Until that time, most countries and their implementing partners focused on a single disease rather than targeting NTD co-infection. The NTD Program sought to document the feasibility of integrated NTD control and facilitate the advancement of this approach. At the outset, the NTD program aimed to support the provision of 160 million NTD treatments to 40 million people through integrated programs in 15 countries. President George W. Bush reaffirmed his commitment to the program in 2008 and proposed spending $350 million from FY2008 through FY2013 on expanding the fighting against the seven NTDs to 30 countries. The NTD Program continues to be an important part of U.S. global health assistance under the Obama Administration. In May 2009, President Barack Obama announced the Global Health Initiative (GHI), which aims to streamline U.S. global health efforts. The President indicated that a key part of the initiative is to bolster support for U.S. efforts to combat NTDs and to integrate such efforts into other U.S. global health programs. The 2009-2014 Lantos-Hyde United States Government Malaria Strategy, for example, identifies plans to integrate malaria and NTD activities with other U.S. global health programs. The Administration also intends to expand the provision of drugs that expel intestinal worms from children through USAID-supported education programs. According to the Obama Administration, the NTD Program is part of a complete package of services the United States provides to improve the health of women, newborns, and children worldwide. Through GHI, the Obama Administration set ambitious NTD targets in which the U.S. government would contribute to the administration of 1 billion NTD treatments; a 50% decrease in the prevalence of seven NTDs in 30 countries by 2013 that account for 70% of the global disease burden of the targeted diseases; the elimination of onchocerciasis in Latin America by 2016; the elimination of leprosy in all endemic countries by 2016; and the elimination of lymphatic filariasis globally by 2017. As of September 30, 2010, the NTD Program had supported the provision of over 385 million treatments ( Figure 5 ). As of October 2010, USAID had identified 21 focus countries: Bangladesh, Burkina Faso, Cameroon, the Democratic Republic of Congo (DRC), Ethiopia, Ghana, Guinea, Haiti, Indonesia, Mali, Mozambique, Nepal, Niger, the Philippines, Uganda, Senegal, Sierra Leone, Sudan (southern region), Tanzania, Togo, and Vietnam. U.S. Agency for International Development USAID leads the NTD Program. In carrying out the program, USAID partners with foreign governments and other groups to bolster health systems, improve the capacity of the recipient countries to carry out NTD programs, coordinate donors' NTD efforts, and build political commitment to expand and sustain NTD programs. Key functions of the NTD Program include the following: Supporting national strategic planning— USAID works with governments to develop and/or strengthen their national five-year NTD strategic plans. These efforts involve facilitating the coordination of ongoing donor efforts and bolstering country commitment to and ownership of programs. Supporting implementation of NTD programs— USAID provides technical and financial support to help countries achieve national coverage of integrated NTD programs. Related activities include disease mapping, securing drug donations, procuring non-donated NTD drugs (about 20% of NTD Program budget), training health workers and community volunteers, strengthening supply chains and logistics management, and social marketing. Monitoring and evaluation —USAID supports efforts to measure the impact of NTD programs and develops models for integrating NTD projects into other global health efforts. The models focus on mapping disease prevalence, monitoring mass drug administration (MDA) campaigns to measure effectiveness and detect adverse effects, forecasting drug supplies, and tracking progress in meeting U.S. and global goals for disease elimination. To facilitate sharing of best practices, USAID publishes these findings and serves on several working groups with WHO and other partners. Contributing to global guidelines and policies for NTD control— USAID partners with WHO to share and refine tools, best practices, and lessons learned that have contributed to the refinement of global and regional standards for treating the seven most common NTDs. Some of the tools developed by USAID are now endorsed by WHO and are packaged as a standard "NTD Rollout Package" that countries use to establish or expand integrated NTD control. Leveraging related USG programs —where applicable, USAID leverages resources for programs related to malaria, education, water and sanitation, maternal and child health, and agriculture to NTD programs (e.g., offering deworming tablets in USAID-supported education programs). U.S. Centers for Disease Control and Prevention CDC focuses on the control and elimination of lymphatic filariais, onchocerciasis (river blindness), trachoma, schistosomiasis, and STH. Through technical assistance to global partners and countries, CDC trains health workers, including ministry officials; conducts research for the development of tools to diagnose and combat NTDs, and to improve the integration of national NTD plans with other health interventions; supports mass drug administration for NTDs; supports monitoring and evaluation of MDA campaigns; develops global policy and guidelines for NTD programs; and studies NTDs not covered under the NTD Program to identify and develop tools and approaches to control and eliminate them. National Institutes of Health Several institutes within NIH research tools to treat and eradicate NTDs. In FY2009, Congress provided $24 million to establish the Therapeutics for Rare and Neglected Diseases (TRND) program. The program applies expertise found across several institutes to develop new candidate drugs for neglected diseases. Additionally, the National Institute of Allergy and Infectious Diseases (NIAID) incorporates basic research on NTDs into several of its ongoing research efforts, including studies underway in the NIAID Laboratory on Parasitic Diseases and the Vector Biology Research Program, the Filariasis Research Reagent Repository Center, and the Schistosomiasis Resource Center. NIAID also participates in several public-private partnerships to develop new prevention and treatment options for NTDs. Department of Defense The Department of Defense (DOD) has long recognized the detrimental effects of tropical diseases, especially in relationship to force protection. Through collaborative agreements with the private sector and academia, for example, U.S. military infectious diseases programs played a significant role in the development of widely used vaccines, including those for yellow fever, mumps, measles, and polio. DOD also contributed to identifying the current dosing regimen for cutaneous leishmaniasisis and the vaccine for Japanese encephalitis. Ongoing efforts related to NTDs, such as research for the development of a vaccine against dengue fever, are carried out in several DOD facilities, including eight infectious disease laboratories located around the world, animal laboratories, biosafety containment laboratories, a pilot vaccine facility, and clinical trials units. Related DOD activities center on developing vaccines to prevent and drugs to treat infectious diseases; creating techniques to identify and diagnose infections rapidly; collecting and analyzing data to optimize infectious disease control strategies; and evaluating vector control methods. Congressional Actions to Address NTDs Since the November 2010 congressional elections, observers have speculated whether a change in House leadership and greater minority influence in the Senate might lead to reduced spending on foreign aid in general and global health in particular. However, bipartisan support for global health programs has remained strong in recent years, and interest in addressing NTDs has grown under both Republican and Democratic leadership. In 2008, Representative Donald Payne (D-NJ) and former U.S. Representative John Boozman (R-AR) launched the Congressional Malaria Caucus to raise congressional awareness about U.S. efforts to address malaria worldwide. In 2009, the caucus added NTD control and prevention to its mission and became the Malaria and Neglected Tropical Diseases Caucus. U.S. Representatives Payne and Jeff Fortenberry (R-NE) will co-chair the caucus in the 112 th Congress. Congress has also demonstrated its support of controlling NTDs through steady increases in appropriations for addressing the diseases. From FY2006 through FY2010, Congress made available $135 million for NTD programs ( Table 4 ). In each fiscal year between FY2006 and FY2008, Congress provided about $15 million to USAID for NTD programs. In FY2009, Congress made available $25 million for NTDs, some 67% higher than FY2008-enacted levels. Congress more than doubled appropriations for NTDs in FY2010, making available $65 million. The President requested $155 million for the NTD Program in FY2011. Congress has not yet enacted the FY2011 foreign operations appropriations, though the Senate Appropriations Committee reported out $100 million for NTD efforts ( S. 3676 ). Congress did enact the Continuing Appropriations and Surface Transportation Extensions Act, FY2011 ( P.L. 111-322 ), which maintained funding for NTD programs at FY2010 levels through March 4, 2011. Key Issues Related to NTD Control The term "neglected tropical diseases" describes a group of diseases with distinct characteristics. Some are easily treatable; others are not. Drugs can interrupt the transmission cycle of some NTDs, but treatments cannot eliminate others. The use of this term has helped to raise awareness about these long-standing health challenges, but it risks simplifying a complicated health challenge. Since all of these diseases are mostly rooted in poverty and the poor infrastructure that is usually found in destitute areas, the enduring solution to these illnesses is economic development. Industrialized countries, including the United States, have eliminated these diseases in their territories by combining drug treatment with the construction and use of latrines, modernization of agricultural practices, and utilization of improved water systems. Certainly, increased investments in NTD treatments have ameliorated the suffering of millions. More than 80% of NTDs, however, cannot be eliminated by drug delivery alone. As such, countries and their partners will need to indefinitely support the treatment of schistosomiasis and soil-transmitted helminths if complementary disease control methods are not applied. In times of fiscal austerity, countries are re-evaluating their foreign assistance programs and seeking the most cost-efficient and effective approach to supporting international development. On January 19, 2011, USAID Administrator Rajiv Shah discussed the future of USAID and indicated that USAID would will increasingly consider the unit cost of impact when deciding which programs to fund or continue funding. NTD control, through treatment alone, is one of the least expensive health interventions that the United States supports. It costs less than $2 annually to treat each person who needs to be treated for the seven most common NTDs that account for roughly 90% of all illnesses in this group. In contrast, the annual cost of first-line antiretroviral therapy for HIV/AIDS in sub-Saharan Africa averages about $95 per capita. When antiretroviral treatments become less effective, the second-line treatments are considerably more expensive. These are not equally comparable, however, because HIV is always fatal if not treated, and only some NTDs are lethal when untreated. Also, HIV treatments must be taken daily, while treatments for the seven most common NTDs are usually taken once or twice annually. Nonetheless, both illnesses affect affected populations' capacity to live a productive life. In FY2010, global HIV/AIDS programs and U.S. contributions to the Global Fund accounted for roughly 70% of all U.S. global health spending. In that fiscal year, U.S. support for NTDs amounted to less than 1% of the total global health budget. The section below explores key debates related to NTD control and includes a discussion on how Congress might address each of these arguments, which include the following: Defining NTDs. There is not yet a consensus on which diseases should be considered NTDs. WHO classifies 17 diseases, excluding HIV/AIDS, TB, and malaria, as NTDs. Yet some groups consider these three diseases to be neglected as well. With no agreement on which diseases constitute NTDs, investments in and analysis on this topic can be skewed and disjointed. Evaluating reliance on MDA. Although MDA campaigns have reduced disease prevalence and interrupted transmission, several limitations to MDA remain. For example, countries must have plans for continuing treatment after foreign aid ends, mismanagement and wider use of NTD treatments can result in disease resistance, and MDA does not interrupt transmission cycles of all NTDs. Integrating development and health efforts and strengthening health information systems. Depending on how development projects are implemented, they can exacerbate or decrease NTD infection rates. For instance, irrigation schemes could provide breeding grounds for vectors that spread NTDs, new transport infrastructure could facilitate the spread of parasites and vectors, and population resettlement may introduce parasite carriers to new areas. Funding research and development (R&D). Observers debate whether ongoing R&D efforts meet demands for NTD-related vaccines, treatments, and diagnostic tools. Specific concerns revolve around the toxicity and complicated regimens of some treatments, the absence of field-ready diagnostic tools for some NTDs, a lack of vaccines to prevent disease transmission, and vulnerability to drug resistance. Defining "NTDs" While experts agree that NTDs are long-standing health problems, cause chronic conditions, and have a high disease burden with low mortality, they do not agree on which diseases should be included in this list. Some health experts advocate an expansive list of diseases, while others promote concentrating resources on the seven most common and easily treated NTDs. In the 111 th Congress, members of the Malaria and NTD Caucus urged USAID Administrator Rajiv Shah to develop a funding strategy for research and development of tools to treat, control, and eliminate leishmaniasis, Human African trypanosomiasis, and Chagas disease, which can be fatal if left untreated. Supporters of expanding the definition also point to the threat some of these diseases could pose to the United States, particularly Chagas disease and dengue. Arguments against expanding the U.S. approach vary. Some fear that an overly expansive definition might diminish the gains made in raising support for countering these afflictions. Advocates of a concentrated approach, particularly on the seven most common NTDs, argue that these diseases should be eliminated or eradicated first to build momentum in sustained global health efforts. Additionally, when considering the full spectrum of NTDs, the seven most common NTDs are the least expensive to treat, increasing the likelihood that countries might sustain treatment campaigns, where necessary. Defining NTDs: Issues for Congress USAID leads U.S. efforts to combat NTDs, though other agencies and departments play a role in addressing the diseases (see " U.S. Government Responses to NTDs "). With the exception of language included in the FY2006 State, Foreign Operations appropriations, Congress has not specified which neglected diseases the United States ought to address. Should Congress decide to do so, it could provide language defining NTDs through legislation similar to the Lantos-Hyde Act ( P.L. 110-293 ), which outlines and authorizes the U.S. strategy to combating HIV/AIDS, TB, and malaria internationally. Alternatively, it could include such language in annual appropriations legislation. Evaluating Reliance on Mass Drug Administration Mass drug administration is at the heart of many NTD programs, including the U.S. NTD Program. In some cases, treating an entire population in an endemic area, irrespective of their disease status, has broken the transmission cycle of infection. In Latin America, for example, aggressive MDA campaigns have significantly reduced the disease burden of lymphatic filariasis. The Pan American Health Organization (PAHO) believes that transmission of the disease has been interrupted in three of seven endemic countries in the region. Likewise, Merck, Inc., reports that onchocerciasis (river blindness) has been interrupted in one-third of areas formerly afflicted by the disease and that the disease has been eliminated from Colombia. There is debate, however, on the extent to which the United States should rely on this approach. A number of health analysts assert greater reliance on MDA might divert investments from strategies that could eliminate the diseases through more lasting measures, such as water and sanitation projects. Observers are also concerned that prolonged use of MDA campaigns for diseases that cannot be eliminated with available medicines (such as soil-transmitted helminths and schistosomiasis that account for more than 80% of all NTDs) could hasten drug resistance. Scientists have already detected evidence of some disease resistance against treatments for hookworm, a soil-transmitted helminth. Other health experts counter that these issues should not inhibit application of life-saving and health-enhancing measures that have led to the elimination of some NTDs. Additional issues at the heart of this debate include the capacity of countries to sustain MDA; the inability of MDA to break the transmission cycle of diseases such as STH; and application of preventive measures and disease surveillance. Capacity to Sustain MDA MDA has been used to advance efforts to eliminate some NTDs. Such progress, however, can be compromised if there is no effective long-term plan in place, particularly for NTDs like schistosomiasis and STH, which dwell in water and soil and have complicated life cycles that cannot be interrupted with MDA alone. In such cases, MDA campaigns must be sustained until the parasites are eliminated from the water or soil. At present, the U.S. NTD Program does not support vector management or other strategies that would interrupt the transmission of these diseases (such as latrine construction and improved water supply). In Mali, for example, WHO and its partners launched a 10-year MDA campaign, which significantly reduced the prevalence of schistosomiasis. In 1992, the Malian government assumed full financial control of the program. The government was not able, however, to consistently procure drugs, maintain drug delivery, or reduce exposure of people to contaminated water. Evaluators felt the treatment campaign that focused exclusively on schistosomiasis burdened the health system and diverted resources from routine health care. After a decade of inconsistent MDA, prevalence rates had rebounded and reflected those seen before the campaign was initiated. In 2004, donors returned and supported the launch of another MDA campaign. This time, however, Mali and its partners launched an integrated treatment campaign that focused on more than one NTD and consolidated health management resources (see " Control and Treatment Strategies "). In addition to raising questions about the sustainability of some MDA programs, the Mali case also raises a long-standing debate about the extent to which donors should invest directly in health systems. Some development organizations encourage the United States and other donors to reduce their reliance on contractors and channel more health assistance through local governments and organizations. One official from the Ugandan Ministry of Health urges USAID to fully fund its NTD Program through the national health ministry rather than RTI International (an organization contracted to administer the U.S. NTD Program). He is concerned that the ministry will not have the capacity to sustain the program once the financial support ceases since Ugandan stakeholders are not included in all aspects of project management and coordination. One study evaluating the first three years of the U.S. NTD Program, written in part by USAID officials, appears to contradict the assertion of the Ugandan official, indicating health system strengthening is an integral part of U.S. support. Specifically, the article highlights how resources provided through the NTD program were used to train more than 220,000 people, primarily community-based health workers and drug distributors, during the first three years of the program. The authors assert, "[t]raining is designed to empower these communities to treat NTDs within their own populations." Capacity to Sustain MDA: Issues for Congress Several actions by the Obama Administration indicate an effort to enhance country ownership of global health programs. For example, country ownership has been highlighted as a key goal of the Global Health Initiative, USAID Administrator Rajiv Shah has made public statements endorsing country ownership, and the Office of the Global AIDS Coordinator (OGAC) advocates applying a "Partnership Framework" to HIV/AIDS programs funded through the President's Emergency Plan for AIDS Relief (PEPFAR). The Partnership Framework outlines the role of the United States and recipient governments and describes how country ownership will ultimately assume full control of the programs. In Nigeria, for example, the government commits to funding half of the PEPFAR program by 2015. According to one USAID official, key components of the NTD Program are to measure and document recipient country contributions to NTD responses; develop clear funding plans that outline the role of the donors and recipient country; and require commitments from participating countries to sustain and/or expand national financing of NTD control, including ensuring duty-free import of NTD drugs and dedicating at least one staff person to manage the NTD programs. Although USAID reportedly requires NTD focus countries to demonstrate political commitment to sustaining NTD plans, Congress might encourage or require the President to apply the Partnership Framework or similar approaches more broadly across all U.S. global health programs, including those aimed at NTDs and implemented in non-GHI or -NTD focus countries. Though it is too early to evaluate the Partnership Framework, the plan appears to include some of the processes that the Mali NTD program lacked: a clear strategy for preparing countries to assume full ownership of health projects, an outline of roles and responsibilities, alignment with national health plans, and investment in the national health system. Several health and development experts argue that health systems of recipient countries must be strengthened if NTD programs supported by donors are to be sustained. One consortium of aid organizations recommends that donors allocate 15% of their budgets aimed at specific diseases to health system strengthening. Should the 112 th Congress support this idea, it could encourage or require that a portion of funds for the NTD Program (or other U.S. health programs like PEPFAR) be used on health system strengthening. The 112 th Congress might also consider legislation similar to the Global HEALTH Act ( H.R. 4933 ), which was introduced in the 111 th Congress. The bill called for addressing some of the issues related to broad-based health training, and directed the President to develop a five-year global health strategy that emphasizes country ownership, integrated and coordinated U.S. global health assistance, and funding based on performance. Other groups argue that concerns about the capacity of recipient countries to sustain NTD programs are unfounded for several reasons. First, donors are supporting plans developed largely by endemic countries. As such, countries receiving support have already prioritized and allocated some of their own resources to combating the diseases. Second, NTD treatment programs aimed at the seven most common NTDs pose little burden to health systems, as they can be administered by non-health workers (like teachers) outside of clinical settings. This community-based approach, some argue, bolsters weak health systems because it reaches people living in remote areas that usually have little access to health services, and increases demand for health services and awareness of health conditions in marginalized regions. Finally, budgets for treating the seven most common NTDs can be decreased as the diseases are eliminated. MDA cannot be independently applied to eliminate STH, however, which accounts for 80% of the NTD disease burden. Eggs from these parasites persist for years in soil, and the parasites can continue to thrive in other hosts, such as cattle. Health Information Systems and Preventive Measures NTDs are diseases of poverty. Strategies used to alleviate poverty can also help to prevent, eliminate, or eradicate these diseases. For example, development activities related to agricultural irrigation, dam construction, and forest clearance can facilitate the interruption of disease transmission. At the same time, if such projects are implemented without identifying disease prevalence through health impact assessments and integrating certain health measures, they can offer breeding grounds to several disease-carrying vectors, such as mosquitoes, and accelerate disease transmission. Examples abound of development projects facilitating the spread of vector-born diseases. In Tanzania, for example, abandoned and poorly maintained sanitation projects have been identified as breeding grounds for mosquitoes carrying malaria or lymphatic filariasis. Dam projects have led to the increase or introduction of schistosomiasis in Cameroon, Cote d'Ivoire, Ghana, Mali, Namibia, Senegal, and Sudan. Development experts need access to reliable data, however, to know where these diseases exist. Available data in most poor countries, however, are often outdated and based on small household surveys (see " Prevalence "). If managers of large-scale development programs worked with health practitioners to ensure that disease prevalence surveys are conducted, then the inadvertent spread of disease during development projects could be avoided. At the same time, health practitioners could gain a better understanding of disease prevalence, which could help in the planning, implementation, and monitoring of health initiatives. The process of combating diseases through an approach that combines responses by practitioners across sectors, particularly those related to health, agriculture, water, construction, and waste disposal, is known as integrated vector management (IVM). WHO calls for an intersectoral approach to controlling NTDs that is based on five areas: MDA; intensified case-management; vector control; safe water, sanitation, and hygiene; and veterinary public health (that is, applying veterinary sciences to ensure the health and well-being of humans). Most countries, including the United States, that have successfully eliminated NTDs have utilized an IVM approach, particularly in the areas of water and sanitation. Experts at the CDC assert that water and sanitation improvement should be a central component of any effective and sustainable approach to controlling NTDs. One estimate indicates that improved sanitation and water safety can reduce the prevalence rates of schistosomiasis by 75% and blinding trachoma by 25%. Water and sanitation improvement are particularly important when addressing pathogens that cannot be eliminated by drugs alone, such as STH and schistosomiasis. A comprehensive approach to NTD control might look like one that China is reportedly preparing to launch in sub-Saharan Africa. China is reportedly modeling the program after its own schistosomiasis control methods, which have led to interrupted transmission cycles in several regions across the country. The Chinese are reportedly planning to support the construction of latrines, the conversion of human and animal excrement into biofuel, and the procurement of tractors (to minimize contact with snail-infested water while farming). Other examples of successful intersectoral approaches have included collaboration among the health and agricultural sectors in rice-growing regions of Asia to control malaria and Japanese encephalitis; collaboration among the health and agricultural sectors to reduce the prevalence of soil-transmitted helminths in Korea; and collaboration among the health and housing sectors to eliminate Chagas in Argentina. Health Information Systems and NTD Prevention: Issues for Congress While arguments for improving health information systems often focus on determining when mass drug administration campaigns can be stopped and detecting disease resurgence, USAID also identified cost-efficiencies in improving these mechanisms. During the first two years of implementing the NTD Program, USAID purchased treatments for schistosomiasis according to country requested levels. USAID found, however, that countries did not always use prevalence data to estimate drug quantities or follow WHO treatment guidelines. This led to inefficiencies, including drug overstocks in some areas and shortages in others. In the third year, USAID developed a new procurement system that improved drug management and forecasting processes. After improving the drug management system, USAID found that fewer drugs needed to be procured. Observers maintain cost-efficiencies can also be found by better integrating NTD programs with other health programs. Proponents assert the community networks that provide NTD drugs could also distribute insecticide-treated bednets and treatments against HIV/AIDS, TB, and malaria. Conversely, bednets used in malaria programs could also help to prevent people from contracting lymphatic filariasis. The Lantos-Hyde United States Government Malaria Strategy identifies plans to integrate malaria and NTD activities but does not specify how this will occur. Improved integration of NTD activities into projects funded through the Senator Paul Simon Water for the Poor Act ( P.L. 109-121 ) may present another opportunity to intensify NTD control. The act authorized the President to develop an integrated strategy for improving water and sanitation worldwide. According to a 2010 report to Congress, the Administration has developed strategies for 34 countries, which include all NTD focus countries. The United States might also consider sharing resources provided through the Millennium Challenge Corporation (MCC) for water and sanitation programs. Although MCC water programs tend to emphasize reducing diarrheal-related deaths, populations suffering from diarrhea are often afflicted with other water-borne diseases like schistosomiasis (though the diseases may not be detected). Observers have cited instances in which U.S. aid agencies operating in the same country have used different implementing partners, consulted with different stakeholders when planning the projects, and partnered with different government officials, even when focusing on the same health challenge. While acknowledging duplication in some areas of U.S. health aid, Secretary of State Hillary Clinton contended GHI aims to address this challenge. Nonetheless, with little available documentation on GHI, not much is known on the extent to which the initiative is curbing such practices. USAID also maintained these criticisms do not apply to U.S.-supported NTD programs because they support national NTD plans. Where possible, ambassadors in recipient countries could ensure that USG agencies implementing health and development projects operate from joint working agreements and align their activities (including training, reporting, funding, and target populations), especially in non-GHI focus countries. The 2010 Quadrennial Diplomacy and Development Review appears to endorse this idea. Funding Research and Development of Innovative Tools Widespread use of the term NTD belies the complexity of the health challenge. The existence, efficacy, and availability of tools to diagnose, cure, and control each disease vary. Progress in controlling, eliminating, and eradicating NTDs also varies among the geographical locations. The seven most common NTDs that account for 90% of all NTD cases can be treated with relatively inexpensive drugs that are effective in low-resource settings. Through massive treatment programs, two of these seven diseases, onchocerciasis and lymphatic filariasis, have been nearly eliminated in some settings. People living in areas endemic with two other NTDs (schistosomiasis and STH) that account for 80% of all NTD cases, however, must be treated indefinitely if other public health measures are not taken (e.g., building and using latrines and ensuring proper use of purified water). Other NTDs, like dengue and buruli ulcer, have no known cure. Another NTD, human African trypanosomiasis (sleeping sickness), is always fatal if not treated; another, leishmaniasis, is treated with drugs that are extremely toxic and difficult to administer. To address these challenges, several health advocates call for greater investments in R&D in four key areas: Drug and vaccine development —While donor funding has led to an unprecedented capacity to treat NTDs, some analysts are concerned about drug resistance and urge prudence in drug administration, particularly for diseases that cannot be eliminated through MDA. Others argue that these concerns should not hinder the provision of drugs that alleviate human suffering and save lives. Several experts also call for researchers to develop vaccines that can prevent people from contracting NTDs and to create innovative treatments for diseases with no cure, or for which available drugs are toxic or carry complicated regimens (both in terms of the complexity of administering the medicine and the duration of treatment). Vector Control— For most NTDs, there are no vaccines to prevent infection and MDA programs cannot independently eradicate the pathogen. In such circumstances, vector control often plays a vital role. However, several peer-reviewed articles highlight challenges related to vector control, including growing pesticide resistance caused in part by improper application or overuse. Diagnostic Tools— Disease monitoring and surveillance are critical for detecting drug resistance and treatment-related complications, identifying interruptions in disease transmission, determining when MDA can be ceased, and identifying disease resurgence (especially after a disease has been eliminated). However, available diagnostic tools may not be useful in low-resource settings that lack sufficient quantities of laboratory equipment and trained health practitioners. As such, some epidemiologists are concerned that poorer countries may not be able to assume full control of disease surveillance tasks. Operational Research —Some health experts encourage further consideration of factors that might affect drug efficacy or safety, such as co-application of traditional remedies and treatments for HIV/AIDS, TB, and malaria. Some evidence indicates, for example, that the vaccine against TB is less effective among people infected with schistosomiasis. More research could also be useful to study the impact of NTD treatments on those infected with other NTDs. Researchers found, for example, that people co-infected with onchocerciasis and loaisis should not be treated with a drug (ivermectin) commonly used to cure onchocerciasis, as they could experience serious side effects or death. Observers also call greater attention to factors related to NTDs that are more complicated to treat, such as maintaining drug efficacy without refrigeration. These issues buttress calls for bolstering research and development in developing countries, particularly in sub-Saharan Africa. The weak medicine regulatory authorities (MRAs) in several developing countries also warrant consideration. In order to ensure the safety and efficacy of a proposed drug, MRAs need access to fully functioning laboratories and well-trained technicians capable of testing samples and determining whether medicines meet quality criteria. In a 2007 WHO study, almost all high-income countries reported having a quality management system in place to monitor adverse drug reactions (ADRs), while only 50% of low-income countries reportedly evaluated medicines to detect ADRs. Without the resources to evaluate properly the safety, efficacy, and quality of new medicines, one team of experts found that MRAs in most low-income countries, particularly in Africa, rely heavily on MRAs in high-income countries. For NTD treatments, however, regulatory authorities in high-income countries may not have sufficient safety and efficacy data on which to conduct comprehensive risk-benefit assessments when approving drugs intended for poorer countries and may not consider complications that are pervasive in poorer areas. Funding Research and Development: Issues for Congress According to a study conducted by the George Institute for International Health, the United States is the world's largest funder of research and development for the treatment and control of NTDs ( Table 5 ). In FY2008, the USG accounted for roughly 41% of all funding for NTD-related R&D and about 48% of all spending by the top 12 donors. If contributions by the Bill & Melinda Gates Foundation are added, total U.S. support for R&D for NTDs accounted for 62% of all spending and 71% of outlays by the top 12 donors. Nonetheless, NTD activists call for greater investments in NTD research, particularly since HIV/AIDS, TB, and malaria accounted for 72% of these funds in 2008 ( Table 6 ). Some analysts believe that investments in these diseases outpace spending on other NTDs, because high-income countries are also susceptible to and affected by HIV/AIDS and TB. The U.S. government has demonstrated support for higher spending on R&D for global health overall and for NTDs in particular. In a March 2010 letter to USAID Administrator Shah, several members of Congress called on USAID to determine an appropriate funding strategy that considers R&D funding for NTDs. The Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, Fiscal Year 2010 directed the FDA to establish internal review groups to address rare and neglected diseases, to report to Congress one year after establishing the review groups and to issue guidance relating to rare and neglected diseases. In March 2010, the Food and Drug Administration (FDA) established two new expert working groups, the Rare Disease Review Group and the Neglected Disease Review Group. In September 2010, the neglected diseases group hosted a public hearing to share ideas with stakeholders on how FDA should tackle neglected diseases. The Neglected Disease Review Group is expected to submit a report to Congress that includes recommendations on how FDA should address NTDs. Ahead of the findings, the FDA has already indicated that it needs additional resources to provide training and hire additional staff with expertise in NTDs. Congress has also authorized market incentives to encourage R&D on NTDs. The Orphan Drug Act of 1983 ( P.L. 97-414 ) and the Rare Diseases Orphan Product Development Act (ODA) of 2002 ( P.L. 107-281 ), for example, offer tax credits, market exclusivity, and priority review vouchers. Despite these actions, relatively few innovative NTD products have been developed. One study indicated that between 1983 and 2008, the FDA approved 325 orphan drug products, two of which were for NTDs. One expert at the Center for Global Development contended that all of the NTD products that were developed "had limited or no value because their formulation and pricing were inappropriate for developing country settings." Some health analysts have contended that major pharmaceutical companies have produced a limited number of NTD products because the low profit margins (if any) of NTD products leave little incentive to invest in R&D. In response to relatively low spending levels on NTD R&D by larger pharmaceutical companies, some advocates call for enhancing R&D capacity in developing countries and supporting public-private partnerships that include specialists from poorer countries. Innovative partnerships with experts hailing from endemic areas have reportedly developed tools that were cheaper and better adapted for field use. Some proponents call for boosting U.S. funding for consortiums such as the Special Program for Research and Training in Tropical Diseases (TDR) and the Drugs for Neglected Diseases initiative (DND i ), which have played a critical role in identifying innovative NTD tools. The $4.8 million the United States donated to TDR during the 2008-2009 budget period amounted to about 6% of all contributions. The $1.4 million the United States contributed to DND i accounted for 0.9% of all donations. In addition to calls for greater U.S. support for NTD-related R&D, supporters urge the 112 th Congress to consider enacting legislation similar to a bill introduced in the 111 th Congress called the 21 st Century Global Health Technology Act (111 th Congress, H.R. 3560 / S. 1591 ), which would have authorized $5 million in each fiscal year from 2010 through 2014 to improve laboratory capabilities in developing countries. Other recommendations for encouraging companies to develop drugs for the poor and strengthening medicine regulatory capacity in low-income countries include aligning U.S. regulatory guidelines with those of the WHO; encouraging pharmaceutical companies to use and develop patent pools; including regulators from endemic areas when conducting regulatory reviews of novel NTD products; and applying U.S. regulatory expertise to the review of novel NTD products produced outside the United States. Final Discussion As noted, neglected tropical diseases are diseases that primarily plague the poorest people in the poorest parts of the world. Changes in the environment and population flows, however, make industrialized countries, including the United States, vulnerable to some NTDs as well. In May 2009, CDC reported that 28 people who lived in or had visited Key West, FL, had contracted dengue. With the exception of a few dengue cases that occurred along the Texas-Mexico border in the 1990s, the Florida Keys cases were the first dengue cases reported in the continental United States since 1946. Some observers are concerned that mosquitoes capable of spreading dengue fever are gradually spreading across the United States, particularly since there is no vaccine or treatment against this disease. Without the care of trained physicians, about 20% of those infected with dengue haemorrhagic fever (DHF) die. Access to health practitioners who are trained to identify DHF and treat its effects can reduce that rate to about 1%. Mosquitoes capable of spreading dengue are now found across the southeastern United States, along the eastern seaboard up to southern New England, and around areas bordering the Mississippi River and its watershed up to Chicago. Scientists expect the mosquitoes to broaden their range. In recent years, cases of Chagas have also emerged within the continental United States (thought by some to have been brought by migrants from Latin America). While blood centers are now required to test for Chagas, some health experts surmise that several cases remain undiagnosed in the United States and that Chagas stands as an undetected cause of heart disease and stroke. In addition, travelers from industrialized countries are increasingly contracting NTDs like schistosomiasis while engaged in eco-tourism and other travel "off the beaten track." These cases are usually identified once tourists develop severe, acute infection or other unusual problems. Concerns about domestic vulnerability to NTDs bolster the view that improving global health and countering NTDs is mutually beneficial for recipient and donor countries. While poor countries could benefit from U.S. research and development of innovative tools to treat and detect NTDs, for example, the United States could be better protected by an improved capacity to detect and respond to emergent cases of tropical diseases within its borders. The 112 th Congress might consider introducing a bill similar to one that the House passed in the 111 th Congress that calls for the Secretary of the Department of Health and Human Services to report to Congress on "the epidemiology of, impact of, and appropriate funding required to address neglected diseases of poverty." Included among the diseases specified in the bill are Chagas and soil-transmitted helminths. The United States offers more resources to tackle NTDs than any other country. The U.S. approach to addressing this problem, however, faces several complicating factors. These include the following: Conflict —When conflict erupts, treatment programs are frequently interrupted, which provides the disease an opportunity to resurge. Additionally, NTDs can easily spread in the crowded and sometimes unsanitary conditions of refugee camps. Global urbanization —Trends indicate that by 2050, 75% of the world's populations will live in urban areas. Much of this growth is expected to occur in poor countries already struggling to meet the basic needs of their populations. Unfettered population shifts from rural to urban areas coupled with poor urban planning could lead to increased NTD outbreaks in urban areas. People carrying soil-transmitted helminths, for example, could move to urban areas and spread the disease, particularly in slums where access to clean water, sanitation, and health services is limited. Other donor support —Efforts by philanthropy groups and pharmaceutical companies aside, few donors have pledged to provide sufficient resources to fund NTD-related resolutions (though they may be engaged in bilateral efforts). At the 2008 G8 summit, members committed to support global NTD efforts and to reach at least 75% of people infected with NTDs. Following the summit, Britain pledged to spend £50 million (about $92 million in 2008) over five years to combat NTDs, and the United States announced its plan to spend $350 million on NTDs over five years (see " U.S. Government Responses to NTDs "). Additionally, in May 2010, the Netherlands pledged to provide up to €70 million (about $87 million) over four years for the development of medicines and vaccines against several diseases, including NTDs. Some groups call for countries like Brazil, China, and India to contribute more to the global fight against NTDs, especially since they have received financial assistance to address NTDs and their economies have demonstrated strong growth. One study indicates that the global disease burden for soil-transmitted helminths, lymphatic filariaisis, and trachoma could be reduced by 20% if Brazil, China, India, and Russia assumed full control over their own NTD control and elimination efforts. This assertion is particularly provocative, as one report discusses the emergent role of Brazil, China, India, Russia, and South Africa in addressing global health challenges worldwide. Similarly, one expert calls on the Organization of Islamic Conference to contribute to the Global NTD Plan, particularly since member countries including Bangladesh, Chad, Mali, Niger, Nigeria, Indonesia, Somalia, Sudan, and Yemen all have NTDs. Veterinary Capacity —WHO and other experts express concern about limited expertise in addressing NTDs in some countries and declining knowledge in others, particularly in the areas of vector control, case-management, pesticide management and veterinary health. Since some NTDs are zoonotic infections—human infections originating in animals—monitoring and controlling the diseases in animals are critical and often overlooked parts of NTD control. WHO recommends a five-pronged approach to tackling NTDs, which includes strengthening veterinary capacity. At a January 2011 speech, USAID Administrator Shah indicated the agency would increasingly make tough decisions while considering which health and development efforts to fund. Specifically, the unit cost of impact would be the key determinant. Measuring the cost effectiveness of health programs could be a complicated endeavor. For example, what factors should be weighed more heavily: mortality rates, disease prevalence, or contagiousness? How might the United States address diseases that countries might not prioritize, but could be easily spread? Should countries receive assistance based on their ability to fund a national response or based on their portion of the global disease burden? For NTDs in particular, several other questions might arise. How might countries graduate from U.S. health assistance if NTDs that cause more than 80% of the NTD disease burden cannot be eliminated by treatment alone and affected countries have several other health challenges to consider? If the United States reduces support for a more expensive health issue, like HIV/AIDS, would countries maintain less expensive programs that carry a lower mortality rate like NTDs? While there appears to be consensus on the need to reevaluate U.S. foreign assistance programs, experts do not yet agree on the best approach to this challenging exercise. Appendix A. Acronyms Appendix B. Glossary Anemia —abnormally low hemoglobin concentration in the blood. Hookworm, for example, can cause iron deficiency anemia or loss of iron in the blood. Chemotherapy —the use of chemicals or antibiotics to treat an infection, a malignancy, or other condition with the aim of curing it or preventing its further progress. Coverage —the proportion of people in a target population or group who have taken a drug or drug combination. Disability-adjusted life years —a measure of overall disease burden, expressed as the number of years lost due to ill-health, disability, or early death. Disease burden —the amount of ill health from a given cause (disease, injury, cause of disease, or risk factor) in a population of interest. Disease mapping —a method for displaying spatial distribution of cases of disease. Elimination —the control of a previously prevalent communicable disease by reducing case transmission to a predetermined low level, although not necessarily to zero. The aim is to achieve a situation where the infecting agent cannot sustain itself in the population until the disease no longer presents a major public health problem. Endemic —the constant presence in a population of a condition such as a communicable disease. Eradication —ending all transmission of an infectious disease agent by bringing about the extermination of the disease agent. Diseases such as guinea worm, measles, and polio have been eradicated regionally. Smallpox, however, is the only disease to have been eradicated globally. Incidence —the occurrence of new disease events or cases. Incidence rate —the rate at which new events occur in a population. Infectious disease —an illness due to a specific agent or its toxic products that arises through transmission of that agent or its products from an infected person, animal, or reservoir to a susceptible host, either directly or indirectly through an intermediate plant or animal host, vector, or the inanimate environment. Integrated Vector Management —a decision-making process for the management of vector populations, so as to reduce or interrupt transmission of vector-borne diseases. An integrated vector management approach takes into account the available health infrastructure and resources and integrates all available and effective measures across all sectors. Mass drug administration —delivery of a preventive or therapeutic regimen to the entire population or to selected portions of it. Morbidity —sickness, the state or condition of being unwell. Morbidity rate measures the proportion of people who have become sickened by a particular disease over a given time period (usually measured annually). Also, incidence rate. Mortality —death. Mortality rate —measures the proportion of people who have died from a given cause within a certain time (usually measured annually). Pathogen —an organism that causes disease. Prevalence —the total number of designated conditions, such as cases of a disease or patterns of behavior, that are present in a population at a point in time, regardless of the duration of time for which the condition or disease has been experienced by individuals in the population. Reservoir —a receptacle for storage. Reservoir of infection , for example, refers to human or animal hosts of infectious pathogens. Second-line treatment —offered to patients when initial therapy (first-line treatment) fails. Vector —a living creature, usually an insect, that carries an infectious pathogen to a susceptible human host. Appendix C. NTDs: Prevalence, Characteristics, and Regional Distribution Appendix D. Images of Neglected Tropical Diseases Soil-trasmitted helminths Appendix E. Geographic Representation of NTD Co-Infection with HIV/AIDS, TB, and Malaria Appendix F. Key Initiatives to Fight NTDs Appendix G. Other NTD Programs Over the past two decades, several groups have sought to increase the availability and access to treatment for NTDs in high-burdened countries. These outfits are diverse in their mission; some were established to provide treatment for a specific NTD, such as onchocerciasis, while others are regional elimination efforts. A majority of these partnerships focus on the procurement and supply of drugs, while some incorporate advocacy functions and others focus on R&D for new drugs. Below are prominent examples of groups that offer NTD programs. This list is not exhaustive. Bill & Melinda Gates Foundation The Gates Foundation targets a specific set of NTDs, including cysticercosis, dengue, guinea-worm disease, soil-transmitted helminths, Human African trypanosomiasis, Human papillomavirus, Japanese encephalitis, lymphatic filariasis, onchocerciasis, schistosomiasis, trachoma, and lesishmaniasis. Between 1998 and 2009, the Gates Foundation provided more than $717 million for 163 NTD projects and contributions to international organizations and public-private partnerships, including WHO, the Guinea Worm Eradication Program and the Global Network for Neglected Tropical Diseases. Carter Center The Carter Center the Center focuses on six diseases: dracunculiasis (guinea worm), onchocerciasis (river blindness), trachoma, schistosomiasis, lymphatic filariasis, and malaria. The Carter Center is possible best known for its leading role in eliminating guinea worm. Efforts launched in 1986 by the Carter Center have contributed to a 99% reduction in global incidence of guinea worm. In 1997, the Carter Center expanded its focus on diseases to include health system strengthening. Children Without Worms Children Without Worms is a partnership between Johnson & Johnson and The Task Force for Global Health (formerly the Task Force for Child Survival and Development) working to reduce the burden of soil-transmitted helminth infections in children from eight countries in Latin America, Africa, and Asia. Children Without Worms uses annual donations of medendazole from Johnson & Johnson and targets its distribution based on the size and need of local populations. Drugs for Neglected Diseases Initiative (DNDi) In 2003, seven organizations launched DNDi to work in partnership with the pharmaceutical industry, academia and non-governmental organizations to develop new treatments for NTDs and strengthen research capacity in African and Asian countries. DNDi focuses on the development of new drugs for the most neglected diseases, such as Human African trypanosomiasis (sleeping sickness), visceral leishmaniasis, and Chagas disease. The primary objective of DNDi is the delivery of six to eight new treatments for leishmaniasis, Human African trypanosomiasis, Chagas disease, and malaria by 2014. Global Network for Neglected Tropical Diseases The Global Network for Neglected Tropical Disease is a partnership launched in September 2006 to advocate for controlling and reducing the burden of NTDs. This partnership seeks to raise the profile of NTDs as a global health issue through advocacy, resource mobilization and global coordination efforts. Communicating success stories is an important component of the Network's work, through sharing personal stories, highlighting disease-specific achievements, and communicating progress in the field. International Vaccine Institute The International Vaccine Initiative (IVI) is an international center of research, training, and technical assistance that aims to develop vaccines against diseases that plague developing countries. As of October 2010, 33 countries became signatories and an additional 16 countries were party to the initiative. The United States is not a signatory or party to the South Korean-based initiative, though WRAIR and CDC partners with IVI in various capacities (e.g., researching a vaccine against dengue) and the Bill & Melinda Gates Foundation serves as a key donor. IVI scientists have developed a vaccine against cholera and an IVI-developed vaccine against typhoid fever was 80% effective during a phase 4 trial. Infectious Diseases Research Institute The Infectious Diseases Research Institute (IDRI) is a Seattle-based non-profit research center aimed at applying innovative science to the research and development of products to prevent, detect and treat infectious diseases of poverty. IDRI is currently researching treatments against leishmaniasis, TB, malaria, leprosy, and Chagas. Institute for One World Health The Institute for One World Health is a non-profit organization aimed at developing safe, effective, and affordable new medicines to treat infectious diseases that are commonly found in poorer countries. The institute is currently focusing on developing new treatments against leishmaniasis, diarrheal diseases, malaria, Chagas, and soil-transmitted diseases. Pharmaceutical Industry Primarily through large donations of NTD treatments for little or no cost, the pharmaceutical industry plays an important role in global NTD initiatives. Key pharmaceutical companies include Bayer HealthCare, GlaxoSmithKline, Johnson & Johnson, MedPharm, Merck Inc., Merck KGaA, Novartis, Pfizer, and Sanofi-aventis. One example of the pharmaceutical industry's central role to the global response to NTDs is Merck's Mectizan Donation Program. Launched in 1987, the effort stands as the longest-running disease-specific drug donation program. Merck initiated the initiative with large quantities of free Mectizan to treat onchocerciasis and expanded the program in 1998 to target lymphatic filariasis. In a 2008 report, Merck indicated that it had donated more than 2.5 billion tablets of Mectizan that were used to treat 80 million people in Latin America, Africa, and the Middle East. Sabin Vaccine Institute The Sabine Vaccine Institute is a non-profit organization that advocates for and engages in R&D of innovative vaccines to prevent the spread of infectious and neglected tropical diseases. The institute is currently focusing on developing vaccines against hookworm, schistosomiasis, and malaria. The Sabin Institute also supports technology transfer to less developed countries, such as efforts with Brazil. Special Program for Research and Training in Tropical Diseases The Special Program for Research and Training in Tropical Diseases (TDR) was established in 1975 to support the development of new tools to fight tropical diseases and strengthen the research capacity of affected developing countries. The program is executed by WHO and co-sponsored by UNDP, the United Nations Children's Fund (UNICEF), and the World Bank. TDR anticipates facilitating the elimination of four NTDS globally: Chagas disease, leprosy, lymphatic filariasis, and onchocerciasis. It also aims to eliminate visceral leishmaniasis in Latin America. According to the TDR Business Plan for 2008-2013, none of the targeted diseases can be eradicated with current tools and investments, though regional elimination can be achieved. Donor contributions to TDR have increased over the past decade from $57 million in the 2000-2001 budget period to $77.5 million between 2008 and 2009. The United States is a key donor to TDR, though U.S. contributions have declined over the past decade. During 2000-2001, the U.S. contributed $9.2 million, or 16% of total contributions. Between 2008 and 2009 U.S. contributions totaled $4.8 million, amounting to roughly 6% of all contributions.

Over the past decade, global health has become a priority in U.S. foreign policy, and U.S. funding for related efforts has more than tripled. Neglected tropical diseases (NTDs), an important focus of U.S. global health assistance, may come under scrutiny as the 112th Congress debates spending levels for ongoing global health programs. NTDs are a group of 17 diseases that are found primarily among the poorest people in 149 countries and territories. Estimates indicate that some 2 billion people are at risk of contracting an NTD, of whom more than 1 billion people are afflicted with one or more. Roughly 534,000 people are believed to be killed by an NTD annually. Although these diseases are concentrated among the world's poor, population shifts and climate change increase the vulnerability of the United States to some of these diseases, particularly Chagas disease and dengue. While blood centers test for Chagas, some health experts believe that several cases remain undiagnosed in the United States and that Chagas stands as an undetected cause of heart disease and stroke. Some observers are concerned about scientists' expectations that mosquitoes capable of spreading dengue fever are gradually spreading across the United States, particularly because no vaccine or treatment exists for this disease. In addition, travelers from industrialized countries are increasingly contracting NTDs such as schistosomiasis while engaged in tourism. These cases are usually identified once tourists develop severe, acute infection or other unusual problems. Proponents support funding research on and treatment for NTDs because it is a cost-effective way of making a significant health impact. Roughly 90% of all NTDs are easy to treat with drugs that cost less than $2 per dose and need to be taken only once or twice annually. This means that all people at risk of contracting an NTD worldwide can be treated for less than $2 billion over the next five years. With consistent treatment and control, several NTDs are being eliminated in various parts of the world, especially in Latin America, and guinea worm disease is on the cusp of eradication, meaning there is no risk of contracting the disease. Some groups argue that the United States should increase funding for NTD programs to improve global health and advance domestic capacity to detect NTD cases that may arise, particularly for diseases like dengue and Chagas. Other groups maintain that countries like Brazil, China, and India that have received support for eliminating NTDs should play a greater role in addressing the health challenge, particularly as their own economies exhibit strong growth. The 112th Congress may debate funding much of the President's FY2011 budget, which includes $155 million for the NTD Program, as well as upcoming FY2012 budget levels. The 112th Congress will likely weigh calls for greater spending on NTDs with other challenges, such as streamlining foreign and global health assistance to make them more effective and efficient, particularly in light of efforts to reduce federal spending. This report will be updated as events warrant.

Overview1 As Congress exercises oversight and prepares to consider programs for Lebanon in the coming year, uncertainty about Syria's future is now raising questions about how unrest there may affect the security and stability of Lebanon. While many analysts posit that the government of Syrian President Bashar Al Asad will fall, specific outcomes and timelines remain subject to debate. Lebanese concerns center on the potential for conflict or regime change in Syria to disrupt Lebanon's security directly and to reshape the context in which Lebanon's fragile sectarian political balance has endured since the end of the Lebanese civil war in 1990. A complex relationship exists between Lebanon and Syria as a result of geography, history, and networks of political, economic, and social ties that bind the countries' populations. Over time, Lebanese leaders have sought to manage the influence of their larger and more powerful neighbor while maintaining domestic stability and preserving strong bilateral economic ties. Syrian leaders have sought to influence developments in Lebanon in order to prevent forces hostile to the Syrian government from consolidating a position of strength there. This approach has often led to direct Syrian intervention in Lebanese affairs. At present, Syria continues to exert a great deal of influence in Lebanon through its patronage relationships with Hezbollah and the Hezbollah-affiliated, pro-Syrian March 8 governing coalition. The outsized role that Syria plays in Lebanon's affairs and its role as a lifeline for Hezbollah further raises the stakes of the unrest for both Lebanon and Israel. Hezbollah and the Asad government have warned that third-party intervention in Syria's crisis could lead to regional conflagration, widely interpreted as a message for Israel. The unrest in Syria and the possibility for spillover into Lebanon affect the current policy priorities of the United States, which include preserving regional peace, strengthening Lebanon's weak democratic institutions, limiting Iranian and Syrian influence in Lebanon's political process, and countering transnational threats from Hezbollah and other militant groups. Since 2006, Congress has authorized and appropriated hundreds of millions of dollars for Lebanon, with parallel goals of supporting the implementation of United Nations Security Council resolutions; reducing sectarianism and unifying national institutions; providing military equipment and basic supplies to the Lebanese Armed Forces (LAF); and providing support to the Internal Security Forces (ISF) for training, equipment and vehicles, community policing assistance, and communications. These programs began in the wake of the withdrawal of Syrian military forces in 2005 and the Israel-Hezbollah war of July and August 2006. Over the last five years, U.S. programs have steadily improved the capabilities of nonsectarian security forces in Lebanon, while Lebanese politics have remained deadlocked by competition between rival camps defined in part by their differing perspectives toward the assertive Asad government and the future of its Hezbollah allies. The prospect of political change in Syria is now challenging core assumptions that have guided the decisions of leaders in Lebanon, Syria, the United States, Israel and other regional powers. This report reviews recent developments in light of those assumptions and analyzes issues of potential concern to Congress as Members exercise oversight and prepare to consider new appropriations and authorization requests from the Obama Administration. Lebanon: Context and Recent Developments Lebanon has largely escaped the protests and prolonged unrest that much of the region, including Syria, has faced since early 2011. Two primary factors distinguish Lebanon from other regional states and may explain this dynamic: the absence of a strong, repressive, and autocratic government and a long history of civil war ingrained in collective memory. At the same time, two main issues contributed to Syria-related domestic political wrangling in Lebanon in 2011: The collapse of the government on January 12, 2011, and the subsequent nomination of Prime Minister Najib Miqati, who was backed by Hezbollah and is widely viewed as pro-Syria; and, developments pertaining to the Special Tribunal for Lebanon. Government Collapse and New Pro-Syrian Cabinet Miqati's nomination in January 2011 shifted power away from the Sunni-led, anti-Syria Future Movement, angering many Sunnis. Miqati was unable to form a government for nearly five months, partially because of sectarian contention. Political uncertainty culminated in a public demonstration in March 2011 in Beirut in which protestors called for an end to the confessional system and reportedly echoed the popular regional chant, "the people want the fall of the regime!" Clashes in the northern Lebanese city of Tripoli in June 2011, chiefly between Sunnis and Alawites, also underscored the delicate sectarian balance. After a lengthy political impasse, Miqati announced a new cabinet on June 13, 2011. The pro-Syria, Hezbollah-led March 8 coalition dominated the cabinet, filling 18 of the 30 seats. Hezbollah continues to hold 2 of these 18 seats, in line with its cabinet representation prior to the shift from former Prime Minister Saad Hariri. Additional members from the March 8 coalition filled the remaining 16 of the allotted 18 seats. Independents filled the other 12; none of the seats were allotted to the predominantly Sunni, anti-Syria March 14 coalition. Walid Jumblatt, head of the Druze-led Progressive Socialist Party, switched his allegiance from the March 14 to the March 8 alliance, providing March 8 with crucial support to break the political stalemate. While domestic political infighting played a significant role in the governmental gridlock, many analysts believe that the instability in Syria factored into Miqati's inability to form a government. Some political players apparently wanted to wait and see how the Syrian uprising would affect Lebanon before forming a cabinet; others hoped to limit the influence that the unrest might have on Lebanon. Some Lebanese politicians suggest that Syria increased its interference in the hopes of engineering a cabinet dominated by its supporters. Special Tribunal for Lebanon, Hezbollah, and Syria On June 30, the Special Tribunal for Lebanon (STL) indicted four members of Hezbollah on charges of assassinating former Prime Minister Rafiq Hariri on February 14, 2005. Hezbollah, which had launched a public relations campaign to discredit the STL, disavowed the allegations and refused to turn over the named individuals. The group's leader, Sayyid Hassan Nasrallah, announced that, "[The STL] cannot find or arrest the accused in 30 days or 60 days, 30 years or 300 years." On February 1, the STL Trial Chamber announced its intention to try the four accused in absentia because of their disappearance and an inability to find them. The STL credited the Lebanese government's "multiple attempts …to find the accused at their last known residences, places of employment, family homes and other locations." Many observers had expressed concern that the STL could derail the already tenuous government of Prime Minister Miqati, particularly given Lebanon's financial responsibility to pay dues to the STL and Hezbollah's objection to contributing these funds. However, Miqati announced on November 30 that Lebanon would adhere to its financial obligations to the STL, and his subsequent payment of these dues did not lead to the government's collapse. Reportedly, Syrian President Bashar Al Asad instructed Hezbollah to allow Miqati to make the payment in order to maintain the continuity of the pro-Syria Lebanese government. The debate over the STL underscores the inherent sectarian divides in Lebanon. The Sunni community views the STL as integral to holding Hariri's killers accountable, while Hezbollah and the Shiite community decry the STL as part of a conspiracy to weaken Hezbollah and remove it as an obstacle to U.S. and Israeli policy in the Middle East. The Druze community vacillates between the two positions. The Christian community is split; some leaders support the STL while others deride its legitimacy, reflecting "deeper angst within the community as it struggles to contend with its waning power." As a result, many analysts were concerned that the STL would ignite sectarian tensions and foster domestic instability, particularly given the disagreements within March 8 over the payments. Concerns about the possible impact of the unrest in Syria on Lebanon may have tempered the effects. Syrian Unrest and Lebanese Political Dynamics The Lebanese government has stated that its official policy on the Syrian uprising is one of neutrality. Although Lebanon sat on the United Nations Security Council in 2011, Lebanon did not vote in favor of resolutions criticizing the Syrian regime. Lebanon abstained from voting on the October 2011 U.N. Security Council resolution condemning Syria's brutal crackdown. Nawaf Salam, Lebanon's Special Envoy to the U.N., stated that "Lebanon is committed to defend the sovereignty of (Syria) and the unity of its people...but in order to protect Lebanon's unity and stability, it abstains from voting." Similarly, Lebanon did not vote for Syria's suspension from the Arab League or opt to send delegates with the Arab League observer mission to Syria. Hezbollah and the March 8 Coalition Since the unrest started in Syria, March 8 has largely backed the Asad regime. Both Prime Minister Miqati and Parliament Speaker Nabih Berri, are pro-Syrian politicians, although President Michel Suleiman is largely viewed as neutral. Hezbollah has been particularly supportive of its patron, reiterating Asad's claims that foreign agents who aim to destabilize the country have caused the unrest. In a speech given in December 2011, Nasrallah claimed that, "[t]here are some who don't want civil peace or stability and want to destroy Syria. There are some who want to make up for their defeat and their inevitable loss in any change in the situation in Syria for the benefit of Israel." However, by wholly supporting Asad, Hezbollah has found itself in a difficult position. The organization has largely endorsed the other popular uprisings in the Arab world, qualifying them as resistance movements; thus, many in the Arab world, and particularly Sunnis, view Hezbollah's continued backing for Syria as contradictory. Prime Minister Miqati, who needs to maintain the support of March 8 while still working with other prominent political players, including those who are anti-Syria, is also in a political quandary. As a result, he has consistently reiterated his view that Lebanon should remain neutral with regard to the situation in Syria. Hezbollah's unwavering support for Syria has created some dissent within the March 8 coalition. Walid Jumblatt, head of the PSP, has notably and increasingly diverged from March 8's position. Jumblatt, often referred to as the weathervane of Lebanese politics for the frequency with which he shifts his political alliances toward whichever side seems to be gaining dominance, has grown progressively critical of the Asad regime since January 2011 and has called for political reforms in Syria. He has refrained from saying outright that Asad should step down. However, on January 3, 2012, he implored Russia and Iran to reassess their positions on Syria and convince Asad that "fundamental regime change is the only solution for the unrest." Jumblatt has also urged the Syrian Druze community not to join the attacks carried out by the Syrian army and police forces against the protesters. The March 14 Coalition In contrast, the Sunni-dominated, anti-Syria March 14 coalition is staunchly opposed to Asad. March 14 has expressed anger with Syria, accusing the Asad regime of violating Lebanese sovereignty by repeatedly launching incursions into Lebanese territory, and kidnapping Syrian and Lebanese nationals within Lebanon who are connected to the Syrian opposition. The coalition has also criticized the March 8 response to the uprising. March 14 members have been meeting with other regional powers, including Saudi Arabia, to prepare for expected changes in Syria should Asad fall. The unrest in Syria has potentially provided March 14 with an opportunity to rejuvenate its base, which had lost its cohesion and energy after achieving its primary goal of driving Syrian forces out of the country. Coalition leaders, who suffered significant political losses after losing control of the government in January 2011, have rallied the Sunni-based constituency by expressing solidarity with the largely Sunni opposition movement in Syria and voicing support for the protestors. They have also visited Syrian refugees and publically called for Asad to step down. The downside to this mobilization is its potential to increase sectarian and political tensions in Lebanon, particularly among Christians who may fear an expected regional Sunni Islamist ascendancy and among Hezbollah supporters fearful of losing an important life-line to Iran. Lebanese Christians and the Maronite Church For Christians in Lebanon, the uprising in Syria presents a tricky situation. While many in the Christian community do not support the actions of the Asad regime, others fear that Asad's fall may lead to a Sunni Islamist government that will discriminate against Christians and inspire the Lebanese Sunni community. The difficulties facing the Maronite Church exemplify this conundrum. Traditionally, the Maronite patriarch has aligned with the anti-Syria March 14 coalition. The current head, Archbishop Bechara Rai, is generally considered to have better relations with the Syrian regime and March 8 than his predecessor, Nasrallah Sfeir. In September 2011, Rai suggested that the Syrian government required more time to implement the reforms to which Asad had previously agreed. He later claimed these comments were taken out of context, noting that the patriarchate "cannot relinquish any party and does not want to eliminate or marginalize any party, because Lebanon needs all its citizens, parties, and sects." Rai has also reiterated his concern for the Christian population in Syria, many of whom publically support the Asad regime, intimating that the end of Asad's government could negatively affect the Syrian Christian population. Some states with close ties to Lebanon, including France, registered their dismay at Rai's comments. Many within the Lebanese Christian community also expressed concern at his remarks, demonstrating an internal split. The March 8 coalition supported Rai's comments, claiming that "a stable Syrian government is important for Lebanon." Though some Christians have joined the Syrian opposition, most Christian leaders in Syria continue to publicly support the Asad regime. This is partially because of Syrian Christians' prominent government-supported role in the business community, but it also reflects Syrian Christian fears that a Sunni-led and potentially Islamist-dominated government will replace Asad. Current Effects of the Syrian Unrest on Lebanon The Economy Pro-Syrian business interests are deeply influential within the Lebanese economy. The current unrest has significantly affected the Lebanese economy overall; the effects are particularly noticeable in trade relations, the banking industry, and tourism. Within Syria, the unrest has primarily impacted its oil and tourism industries. IMF estimates indicate that the Syrian economy may shrink up to 2% in 2012 as a result of the sanctions, a weakened currency, an expanding recession, and a significant decline in tourism. Some officials have speculated that a weak economy could cause Asad to fall within 6-18 months. With the continued unrest in Syria and increased efforts to impose international sanctions, the Lebanese economy has come under increasing scrutiny from the international community. It remains unclear whether Lebanon will participate in the sanctions levied by the Arab League, which the organization has no legal mechanism to enforce. Lebanon voted against the sanctions. However, Lebanon's Economy Minister, Nicolas Nahas, who is Greek Orthodox, has publically announced that the country will adhere to them. Lebanon's hesitation is unsurprising. Syria is Lebanon's only overland trade route and is integral to Lebanon's ability to export. In tandem, Lebanon provides Syria with an important trading partner. Bilateral trade between the two totals $560 million. Observers in Lebanon have already noted substantial price increases in many basic goods. Agreeing to impose the sanctions may significantly harm the Lebanese economy and subject it to Syrian reprisals. The Lebanese banking sector figures prominently in Syrian-Lebanese economic relations. One economist notes that the banking industry would feel the primary effects of the sanctions; Syrian operations comprise 10% of consolidated balance sheets in Lebanese banks and Lebanese banks have loaned more than $1 billion to Syrian individuals and corporations. However, the effects of the sanctions on the banking industry remain unclear. The governor of Lebanon's Central Bank, Riad Salameh, maintains that the Syrian government has not deposited any funds in the Bank and thus the Bank has not been impacted by the sanctions. Yet the annual report from at least one Lebanese bank, the Bank of Byblos, indicates that deposits have decreased by 20% over the past year. According to the Lebanese Ministry of Tourism, tourism in Lebanon decreased by 25% in the first seven months of 2011. Approximately 25% of all tourist arrivals in Lebanon travel via Syria. Tourist activity on the Lebanese-Syrian border has decreased between 75%-90%. Greater disruptions are reportedly visible in the northern border crossings than the eastern border. Border Control Border security remains a preeminent concern, particularly because the border between Syria and Lebanon is not demarcated in many places. Syria has historically disregarded Lebanese sovereignty, in violation of U.N. Security Resolutions 1559 and 1680. According to one U.S. State Department official, although Syrian officials agreed to participate in a committee to demarcate the border between the two countries in 2008, they have yet to appoint anyone to serve in an official capacity. The Syrian army has entered Lebanese territory numerous times since the beginning of the uprising. A number of individuals have been killed by gunfire that either came from the Syrian side of the border or by Syrian troops who had crossed over the border. Others have been kidnapped by Syrian troops. The U.S. State Department denounced these territorial violations, noting grave concern about Syria's disregard for Lebanese sovereignty and urging the Lebanese to adhere to their international obligations and protect the security and rights of all, including refugees. The Syrian government maintains that the incursions have been integral to neutralizing foreign agents who are entering Syria through Lebanon and inciting unrest within Syria. Syrian forces began laying antipersonnel landmines along several sections of the Lebanese border in October 2011. Many of these mines are near the Syrian city of Homs, which has witnessed large-scale protests and unrest; this area includes the portion of the Lebanese-Syrian border that is disputed. While Syrian officials have stated that mining the border is meant to decrease arms smuggling, some analysts posit that the forces have laid the mines to prevent refugees from fleeing into Lebanon and members of the opposition from launching attacks against Syria from within Lebanon. Arms Transfers, Hezbollah Arms, and Militants Arms transfers across the Lebanese-Syrian border present challenges for both the Asad regime and the Lebanese government. The porous nature of the border facilitates the easy transfer of arms in both directions. Some U.S. officials have noted that arms smuggling is extensive and unlikely to be curtailed in the near future, particularly given the political situation. The Syrian government has accused some Lebanese, particularly those in the March 14 coalition, of smuggling weapons across the border to aid the Syrian opposition in the uprising. March 14 has vociferously denied this claim. Simultaneously, Hezbollah reportedly has moved many of its long-range missiles from Syria to Lebanon, fearful that Asad's regime will collapse and the group will be unable to access its stockpile of arms. According to one observer, "there's so much stuff coming across the border…Hezbollah doesn't know where to put it." The effect of the Syrian uprising on Hezbollah's weapons cache may present Israel with particular concerns. One retired Israeli military official has speculated that if Asad falls, Hezbollah will acquire Syria's chemical weapons. Asad has claimed that al-Qaeda militants are entering Syria via the Syria-Lebanon border and inciting violence in Syria. The Lebanese Defense Minister, Fayez Ghosn, a Hezbollah ally and supporter of the Asad regime, backed these assertions when he announced in December 2011 that Al Qaeda militants were based in the Lebanese border town of Arsal under the pretext of being Syrian dissidents. Although President Michel Suleiman, Prime Minister Miqati, and the Lebanese Interior Minister, Marwan Charbel, have all rejected these claims, the statements have sparked a national political debate about the possibility of Al Qaeda's presence and what it means both for Syria and Lebanon. Population Movements Many Syrian dissidents are escaping to Lebanon to find safe haven. Parts of Lebanon, particularly in the north near Wadi Khaled, have experienced an influx of refugees fleeing the violence in Syria. Most recently, refugees have come from the cities of Homs and Tal Kalakh. The porous nature of the border, as well as the lack of demarcation, allows for significant movement. By the end of December, nearly 5,000 Syrian refugees had registered with the Office of the U.N. High Commission for Refugees (UNHCR). Most of these refugees are residing with host families. One U.S. State Department official noted that some wealthy Syrians have enrolled their children in Lebanese schools as a result of the unrest. However, reports indicate that dissidents are not necessarily safe in Lebanon; one advocacy group noted in March 2011 that Lebanon had detained some protestors and activists of Syrian origin and that their whereabouts remained unknown. Accounts persist that Syrian operatives have entered Lebanese territory and targeted protestors who have fled Syria. The head of internal security in Lebanon has accused the Syrians of kidnapping dissidents within Lebanon. Some organizations have accused the Lebanese forces of aiding the Asad regime both by detaining and refusing refugees. Human Rights Watch has called on Lebanon to provide detained refugees with temporary asylum. How Might Future Events in Syria Affect Lebanon? Many analysts argue that the Asad regime will fall within the next six to 18 months, and others express skepticism or decline to place an expected time frame on the potential collapse of the regime. Regardless of the time frame, the course of events in Syria and the responses of key actors will determine the broad effects on Lebanon and the region. In all future scenarios, Israel, Iran, and other regional and international actors, including the United States, serve as wildcards. Any could shape developments in both Syria and Lebanon through their interactions with various players. Possible Impact on Lebanon The responses of key actors and the potential for a political and security vacuum will largely determine the impact of unrest or change in Syria on Lebanon. Hezbollah and the Sunni communities will figure chiefly in these situations. If Hezbollah feels threatened and increases its militarization, the group may encourage sectarian strife within Lebanon. Conversely, if Hezbollah feels the need to further separate itself from Syria and preserve itself by acting in greater accordance with discrete Lebanese interests, this may stave off political infighting. If heightened sectarianism in Syria deepens the chasm between Amal, Hezbollah, Lebanese Christians, and the Sunni community, both the Lebanese government and society could become destabilized. If members of the Lebanese Sunni community feel emboldened by the rise of a Sunni-led government in Syria, they could overreach, upset the political balance, and prompt a military response from Hezbollah or Christian groups. While a full-scale civil war in Lebanon is unlikely, the outbreak of some civil conflict is a possibility. Key factors to monitor may include increased flow of refugees, the degree of mobilization and/or radicalization among Syrian and Lebanese Sunnis and Christians, cross-border flows of arms, and the incidence of sectarian clashes. Each of these factors has the potential to shape the responses of key actors and rupture Lebanon's delicate political balance. Hezbollah and Regional Implications Regardless of its dwindling legitimacy among Lebanese Sunnis, Hezbollah will likely remain the most powerful domestic political actor, due to its military capabilities and support among Shiites and some Christians. Nevertheless, as unrest in Syria continues, Hezbollah faces perhaps the most complex set of questions about the future, some of which could prove existential. Hezbollah's most significant struggle involves its domestic political legitimacy, now tarnished by its staunch support for the Asad regime's crackdown. That support in turn has been dictated by Hezbollah leaders' operational concerns about losing a major patron and facilitator and the effects that could have on the group's military capabilities and survival. Some analysts posit that if Asad falls, Hezbollah will have to shift the way in which it operates by either becoming bolder or narrowing its scope of operations. This may prove difficult, if, as some observers argue, the priorities of its leadership and rank-and-file supporters are divergent. For example, the International Crisis Group has argued that, "[f]or Hizbollah, the core issue remains the regional balance of power and the struggle against Israel; for its Shiite rank-and-file, sectarian anxiety looms large; should Sunnis dominate a new Syrian regime, they fear being caught between it and Lebanon's own Sunni community." Many analysts agree that regime change in Syria could shift the power dynamic that presently exists between Syria, Israel, and Lebanon, particularly given Hezbollah's role in the Lebanese government. If Asad feels threatened, he may encourage either Hezbollah or radical Palestinian jihadist elements located in southern Lebanon to attack Israel and deflect from his own domestic difficulties. Asad, who routinely claims that foreign agents have incited the unrest in Syria, may provoke Israel under the guise of seeking revenge. In this situation, Israel would likely respond by attacking or counterattacking Hezbollah, with the minimum goal of neutralizing its rocket threat to northern and central Israel. Hezbollah, cognizant of the damage that it incurred during the 2006 war, might try to avoid direct fighting with Israel. It is likely that the LAF and the ISF would have an easier time subduing an attack by the Palestinian militants than Hezbollah. Should Hezbollah or Israel react provocatively, conflict could ignite. Israel maintains a qualitative military edge and could likely defeat Hezbollah, yet the combination of the regional unrest and the war could destabilize Lebanon, increasing the overall danger to Israel. Additionally, such a conflict could significantly harm Lebanon and shift the power dynamics in the Levant. Asad's fall may usher in a Syrian government that is less inclined to align with Iran and Hezbollah, particularly if a Sunni-dominated government replaces the current Alawite regime. Burhan Ghalioun, the leader of one prominent Syrian opposition coalition, the Syrian National Council, has noted that a new Syrian government would shift away from Iran, and presumably Hezbollah, and align more closely with the Arab League and the GCC countries. It is not certain that a new Syrian government would take a more accommodating stance toward Israel, particularly in light of the long-standing Israeli-Syrian dispute over the Golan Heights and the Israeli-Palestinian conflict. The calculations and security imperatives that have driven Syrian influence over the affairs of its smaller neighbor Lebanon may also survive a change of regime in Damascus. Issues for Congress The unrest in Syria may affect the pursuit and implementation of current policy priorities for the United States, including strengthening Lebanon's weak democratic institutions, limiting the influence of Iran and Syria in Lebanon's political process, and countering transnational threats from Hezbollah and other militant groups in Lebanon. Given the current security and political situation in Syria, Members may consider the following questions as they discuss future U.S. security assistance to Lebanon: What are the rationales for key U.S. foreign assistance programs related to the security forces, border control, and combating terrorism? How might U.S. programs limit the potential for spillover from Syria into Lebanon? How will the Syrian uprising affect key U.S. foreign assistance programs in Lebanon? Will U.S. goals and modes of engagement change? To what extent should U.S. policymakers seek to impose further conditions on U.S. aid to Lebanon in light of events to curtail Hezbollah's political influence? Is Lebanon circumventing international sanctions on Syria? If a civil war begins in Syria, would it spill over into Lebanon? Would Hezbollah be party to the conflict? Is the Syrian uprising weakening Hezbollah within Lebanon? What are the potential ramifications of a Syrian or Hezbollah attack on Israel, and what are the possible U.S. responses to such an attack? Will the uprising in Syria negatively impact the religions sects/minorities in Lebanon, including the Christian community? U.S. Security Assistance to Lebanon61 Following Syrian withdrawal from Lebanon in 2005 and the war between Israel and Hezbollah in the summer of 2006, the George W. Bush Administration requested and Congress appropriated a significant increase in U.S. assistance to Lebanon. Since 2006, U.S. assistance to Lebanon has topped $1 billion, particularly with regard to: Supporting the implementation of United Nations Security Council resolutions; Reducing sectarianism and unifying national institutions; Providing military equipment and basic supplies to the Lebanese Armed Forces (LAF); Providing support to the Internal Security Forces (ISF) for training, equipment and vehicles, community policing assistance, corrections reform, and communications; and, Increasing economic opportunities for the impoverished in Lebanese society. Current U.S. assistance is based on a 5-year (2010-2014), $1.1 billion plan to modernize and equip the LAF. The Obama Administration and some Members of the 112th Congress have supported the continuation of this assistance. In the short term, some of the continued funding is intended to help secure Lebanon's borders, which are now an important factor in Syrian-Lebanese relations. Over the long term, U.S. officials hope that building the security apparatus of the Lebanese state will improve internal stability and public confidence in the LAF and ISF, creating political space for the Lebanese government to address more complex, politically sensitive issues ranging from political reform to developing a national defense strategy. U.S. State Department officials have praised the cooperation between the United States, the LAF, and the ISF. Some officials have suggested that U.S. assistance to strengthen the LAF and the ISF will prevent outside actors from destabilizing the internal political situation in Lebanon and minimize the possibility for domestic political upheaval. However, some State Department officials note that the unrest in Syria, as well as Syrian intransigence in demarcating the border between Syria and Lebanon, have slowed the implementation of U.S. assistance plans. International Sanctions and U.S. Economic Support to Lebanon Lebanon's economy has previously demonstrated resilience in the face of external shocks. Traditionally, economic recovery has occurred quickly when the country is politically stable. However, the economy is currently constrained by spiraling fiscal debt, an inhospitable business environment, and problems with the infrastructure. Enforcement of new U.S., EU, and Arab League sanctions against Syria may exacerbate these issues. U.S. economic assistance may be able to counteract some of these difficulties, but may also be subject to concerns about the role of Hezbollah and its allies in the Lebanese government. Current Economic Support Fund (ESF) program priorities focus in part on promoting economic opportunity and stabilization among the impoverished areas of the country. Plans for FY2012 assistance include improving the competitiveness of some agribusiness and tourism operations, facilitating a pro-business environment, and providing Lebanese entrepreneurs with greater financial access. The United States also plans to supplement EU and UN efforts to support the Ministry of Agriculture with complementary assistance to developing the private sector. Legislation in the 112th Congress Developments in Syria, and any changes they create in Hezbollah's strategic position, may inform future debates about the scope and conditions of U.S. assistance. As a result of increasing Hezbollah participation in the Lebanese government in 2011, some Members of Congress have questioned the advisability of funding U.S.-sponsored initiatives in Lebanon at the current level, particularly in an era of pressing budgetary constraints. In June 2011, Representatives Berman, Issa, Boustany, and Rahall proposed H.R. 2215 , the Hezbollah Anti-Terrorism Act (HATA), which is designed to limit certain types of assistance to the LAF while Hezbollah is part of the governing coalition in Lebanon; the bill did not preclude supporting those programs that foster democracy and rule of law, educational funding, or LAF training through International Military Education and Training (IMET). Representative Berman later offered HATA as an amendment to H.R. 2583 , the Foreign Relations Authorization Act. While some Members support these initiatives, others suggest that the best way to weaken Hezbollah is to continue to assist the LAF and provide a military and security counterweight. In December 2011, P.L. 112-74 , the Consolidated Appropriations Act of 2012, provided that the $100 million in Foreign Military Financing (FMF) funds appropriated in FY2012 for the LAF may not be allocated to the LAF if it is controlled by a foreign terrorist organization (FTO); Hezbollah is so designated. LAF command rests with General Jean Kahwaji. Fayez Ghosn of the March 8 aligned Marada Movement currently serves as Defense Minister. Conclusion Continued unrest in Syria leaves the future of Asad's regime uncertain, and the extent of the impact on Lebanon is still being determined. This ambiguity raises a wide range of questions for the goals and implementation of U.S. policy priorities in Lebanon. As the Obama Administration and Congress review U.S. policy priorities in this shifting landscape, issues that Members may encounter include: Whether and how U.S. assistance programs in Lebanon are being affected by developments in Syria and what, if any, changes in assistance program goals or implementation may be necessary in light of changing conditions; Whether events in Syria and Lebanon create new concerns regarding the protection of religious minorities, particularly in light of proposed H.R. 440 , which provides for the establishment of a special envoy to promote the religious freedom of religious minorities in the Near East and South Central Asia; How U.S. support for the LAF, the ISF, and Lebanon's security apparatus can best minimize risks posed by Hezbollah as its strategic alliance with Syria remains in question; How might the United States engage with Lebanon to better protect Israel in light of continuing regional unrest; and, How might U.S. assistance and trade and investment policy most effectively shield the Lebanese economy from the effects of political unrest?

As Congress exercises oversight and prepares to consider programs for Lebanon in the coming year, some observers have expressed fear that Syrian instability may negatively affect Lebanon. Syria exerts a strong political influence on Lebanon and Syrian business interests remain prominent in the Lebanese economy. Both Lebanon and Syria have diverse societies where ethnic and sectarian groups compete and cooperate as they seek power within the confines of a rigid political system. Primary concerns about the implications of Syrian unrest include: Negative effects on the Lebanese economy; Incursions by Syrian forces into Lebanese territory; The cross-border transfer of arms to Hezbollah and the Syrian opposition; opportunities for suspected Al Qaeda supporters; and, The migration of Syrian dissidents and refugees to Lebanon seeking safe haven. Continued unrest could exacerbate all of these problems, while complicating sectarian relations in Lebanon, reshaping Hezbollah's strategic position, and contributing to regional instability. Although Syrian troops withdrew from Lebanon in 2005, Syria continues to exercise influence through its patronage relationships with members of the pro-Syrian and Hezbollah-affiliated March 8 governing coalition This coalition includes Hezbollah, the Shiite party Amal, the Maronite Christian Free Patriotic Movement, and the Druze-led Progressive Socialist Party (PSP). Its members have mostly supported the Asad regime since unrest in Syria began in early 2011, complicating Lebanese politics and Lebanese-Syrian relations. Despite these complications, many analysts agree that the major political players in Lebanon share a desire to insulate Lebanon from the unrest in Syria and avoid risking domestic conflict by dramatically upsetting the current Lebanese balance of power. However, the fractious nature of Lebanese politics makes discord likely; a small provocation could easily disrupt the tenuous peace. Increased unrest in Syria or dramatic regime change there may incite instability in Lebanon. These factors also may affect the goals and implementation of U.S. programs in Lebanon, which include strengthening Lebanon's weak democratic institutions, limiting Iranian and Syrian influence in Lebanon's political process, and countering transnational threats from Hezbollah and other militant groups through security assistance. Congress may review U.S. priorities and programs and consider the following questions in relation to future U.S. policy in Lebanon: What are the rationales for key U.S. foreign assistance programs related to Lebanon's security forces, border control, and efforts to combat terrorism? How might unrest in Syria and potential spillover effects challenge the assumptions and viability of U.S. programs? How might prolonged unrest or civil war in Syria affect relations among Lebanese groups? How might U.S. assistance limit potential negative effects? How are Lebanese political leaders and groups responding to events in Syria? How has the unrest and the potential for regime change affected Hezbollah's strategic position and outlook? To what extent should U.S. policymakers seek to impose or remove conditions on U.S. assistance to Lebanon in light of events? For more information on Lebanon, please see CRS Report R40054, Lebanon: Background and U.S. Relations, by [author name scrubbed] and contact Christopher Blanchard, Analyst in Middle Eastern Affairs, at extension [phone number scrubbed].

Statute and Rules The receipt of "gifts" by Members and staff of the House of Representatives and of the Senate, including the receipt or acceptance of payment or reimbursement of travel expenses from outside, private, third-party sources, is generally restricted by the operation of federal statutory law, as applied by the House and Senate Rules. Under these provisions, Members of Congress and congressional staff are prohibited from soliciting or accepting gifts from any private sources unless expressly permitted by an exception in the congressional rules. Members and staff may generally not accept private gifts, reimbursements, or payments of their expenses, other than from their relatives and certain long-term personal friends, when the value of a gift is $50 or more (or when multiple gifts of under $50 from the same source aggregate $100 or more in a calendar year). There do exist exceptions to the gifts prohibitions under both House and Senate Rules which allow for the acceptance of some travel expenses from outside, third parties for what is characterized as "officially connected" travel by Members, officers and employees of the House and Senate in specifically defined and limited circumstances. Federal Law Provisions of federal law currently provide the general standard and prohibition on the receipt of "gifts" from certain private sources. 5 U.S.C. § 7353, states: § 7353. Gifts to Federal employees (a) Except as permitted by subsection (b), no Member of Congress or officer or employee of the executive, legislative , or judicial branch shall solicit or accept anything of value from a person— (1) seeking official action from, doing business with, or (in the case of executive branch officers and employees) conducting activities regulated by, the individual's employing entity; or (2) whose interests may be substantially affected by the performance or nonperformance of the individual's official duties. While subsection (a) of this law provides the general prohibition on the receipt of gifts from interested parties, subsection (b) of the statute expressly allows the appropriate "supervising ethics office" to promulgate rules or regulations regarding the acceptance of gifts by officers and employees, and to provide such "reasonable exceptions as may be appropriate," whereby officers or employees may accept such gifts pursuant to those rules. The "gift" Rules of the House and the Senate thus generally operate as the regulatory scheme setting out the standards for Members, officers and employees of the House and Senate, respectively, as to the prohibitions and the exceptions to the restrictions upon acceptance of private gifts and reimbursement. Congressional Rules The Rules of the House, at House Rule XXV, clause 5, and of the Senate, at Senate Rule XXXV, generally prohibit the receipt by Members and staff of any gifts of $50 or more in value from any private source (and those gifts of $10 or more aggregating $100 or more in a year from the same source), unless specifically permitted by one or more of the various exceptions specifically provided in the Rules. As noted above, one of the more common exceptions is for gifts from relatives or from (or exchanged between) certain long-term, personal friends of the Member or congressional staffer. Additionally, there are exceptions in the House and Senate Rules for the receipt (but not the solicitation) of certain travel expenses from private sources in specifically defined and limited circumstances. Under congressional rules, the threshold consideration in determining the propriety of accepting private reimbursement or payment of expenses for travel is the characterization of the purpose of the particular travel in question. Travel may be for strictly official, congressional business; may be for campaign related or other "political" reasons; may be to participate in a charitable fund-raiser; may be in relation to a Member's or a Member's spouse's outside private business endeavors; may be for purely personal purposes such as recreation, vacation or pleasure; may be for "officially connected" reasons, such as fact-finding tours or conferences; or may be some combination of these. In such cases, differing rules, prohibitions, standards and restrictions may apply depending on the nature and purpose of the travel. For example, travel for strictly official, core congressional business may not be paid for or reimbursed at all by outside, private third parties, as the House and Senate Rules on unofficial office accounts prohibit the establishment or functional operation of what used to be called congressional "slush funds," that is, private contributions or private funds paying for official congressional operations or activities. Expenses for travel for campaign related or other "political" reasons may be paid for or reimbursed from campaign accounts subject to campaign finance laws and regulations (but generally in relation to federal elections may not be accepted from corporations, labor unions, national banks, or government contractors under federal campaign laws), and when and if paid for by other outside, private parties must conform to federal campaign finance laws. Some travel and certain expenses for charitable fund-raisers may be accepted by Members participating in such fund-raising events for the charity, under particular limitations of the House and Senate Rules. Reimbursement or payment for travel in relation to a Member's or a Member's spouse's outside private business endeavors may generally be accepted subject to guidelines, while the payment by outside, private sources for travel for purely personal purposes, such as recreation, vacation or pleasure, would generally be prohibited as an impermissible personal "gift" when $50 or more in value. Officially Connected Travel The travel that has recently raised several questions has been the acceptance of private payment or reimbursement of "officially connected" travel by Members and staff. Both the Rules of the House of Representatives and the Rules of the Senate expressly permit, as an exception to the general gifts restriction, the payment or reimbursement by certain outside, private sources of the "necessary" travel expenses of Members for events such as conferences, fact-finding tours, symposia or lectures which, although not core congressional functions, are "in connection with" or sufficiently related to a Member's official duties. The wording of the House and Senate Rules on this subject are substantially identical, other than as to the permissible duration of such trips, which is limited in the House to four days for domestic and seven days for foreign travel (excluding travel days), and in the Senate to three days for domestic travel and seven days for foreign travel (also excluding travel days). Background The exception to the gift prohibitions in the House and Senate for the receipt of reimbursement or payment of expenses for "fact-finding," and similar types of officially-related or officially-connected activities has been one of fairly long-standing under congressional rules. The first restrictions on gifts with specific monetary limitations and detailed guidelines were enacted in the House and Senate in 1977, and under these Rules, provisions were made for Members and staff to accept certain travel expenses and reimbursement for such "fact-finding" events. In the House of Representatives in the 95 th Congress, a Select Committee on Ethics was established to provide advisory opinions and guidance on the new restrictions on gifts. The Select Committee noted that although "there has been some criticism regarding abuses of 'fact finding tours' in the past," it would not be in the public interest to prohibit Members from accepting necessary travel expenses for "fact finding events or activities which have a legitimate purpose directly related to the official duties of the Congress." The Committee noted that "although a Member of Congress may render some personal services in the course of a fact-finding event, the primary purpose of the trip is for the Members, officers, or employees to become better informed regarding subject matters closely related to their official duties," and found: Therefore, the Select Committee holds that necessary expenses paid by an organization sponsoring a fact-finding event are exempted from the limitations of Rule XLIII, clause 4 [now XXV, clause 5], provided that the fact-finding event or activity is directly related to the official duties of the Member, officer, or employee. Any such reimbursement or payment of travel expenses aggregating over $250 in value from one source would be subject to disclosure .... This public disclosure will guard against the potential abuse of converting this kind of activity from an official business purpose to that of personal pleasure or entertainment. Gifts of that nature exceeding $100 [now $50] in value were clearly intended to be prohibited .... To protect against potential abuses, the Select Committee narrowly defined "fact-finding" tours and activities to exclude reimbursements or provision to a Member of transportation by a corporation to his home district "on the grounds that he would 'tour' the corporate facilities there," and such things as "ship-launchings" or inaugural airline flights, which were considered more in the nature of promotional events. The Committee further emphasized that Members may only accept necessary expenses incurred in a fact-finding activity, and may not accept even entertainment, or expenses or reimbursements for entertainment, which, among all other reimbursements, expenses or things of value beyond necessary expenses , would be considered gifts to the Member subject to the specific dollar limitation on gifts: Additionally, the Select Committee emphasizes that the definition of a "fact-finding event" must be interpreted narrowly. House Rule XLIII, clause 2 [now XXIII, clause2] puts Members on notice that not only the "letter" but also the "spirit" of House Rules must be adhered to.... The intended definition of a fact-finding event would also not extend to expenses incurred during such an event which are unrelated to the specific fact-finding activity.... Similarly, this exemption for fact-finding activities applies only to necessary expenses (transportation, food, lodging) and not to entertainment. Thus, a Member of Congress, whether traveling on a fact-finding tour or under any circumstances, may not accept gifts of entertainment ... [beyond the dollar limitation]. Current Rules The current House and Senate Rules now reflect in their language the traditional restrictions and limitations on this type of privately financed travel, as well as other specific limitations, restrictions, and requirements. Because such events are intended to be restricted to those connected to one's official duties, and are ostensibly for the purpose of informing, educating or broadening the knowledge of the Member of certain issues and their factual backgrounds relevant to matters coming before the Member in an official capacity, such expenses received by or reimbursed for the Member are "considered" or "deemed" to be a "reimbursement to the House" or "to the Senate," as the case may be, rather than a personal gift to the Member, as long as such expenses are publicly disclosed within 30 days of the end of the travel. However, because of the obvious potential and opportunities for abuse, such privately funded travel is limited and restricted in some detail. Under both the House and Senate Rules, the following general limitations apply: 1. Officially Connected Purpose The underlying event for which expenses are accepted must be connected to or related to one's official duties, that is, "in connection with" a Member's duties "as an officeholder." Activities or events such as meetings, fact-findings, speaking engagements, lectures, classes, conventions, symposia, or product or process demonstrations may be those types of matters when the underlying subject is sufficiently related or connected to a Member's official duties. Both the House and Senate Rules indicate that the underlying purpose and activities of the trip must be related sufficiently enough to one's official duties so that engaging in such privately paid travel "would not create the appearance that the Member ... is using public office for private gain." If the over-all purpose of the trip is "substantially recreational in nature," the trip will not be considered officially connected. 2. Lobbyists or Foreign Agents The expenses of officially connected travel may not be paid for by a registered lobbyist or an agent of a foreign principle registered under the Foreign Agents Registration Act. While "lobbyists" and "lobbying firms" are prohibited from paying for such travel, the clients or employers of the lobbyists or lobbying firms (that is, organizations or businesses which employ lobbyists either directly as employees or by contract with outside lobbyists) are not considered "lobbyists" themselves and may sponsor and reimburse officially-related travel. In addition to the prohibition of lobbyists funding such fact-finding trips, the House Committee on Standards of Official Conduct has expressly noted in an official publication issued in April of 2000, that "The prohibition against accepting travel expenses from a registered lobbyist, an agent of a foreign principal, or a lobbying firm applies even where the lobbyist, agent or firm will later be reimbursed for those expenses by a non-lobbyist client." While the lobbyist may not pay for the travel expenses, even if later reimbursed by a client, the Rules do not expressly prohibit the lobbyist from accompanying the Members and attending such event paid for by the lobbyist's clients or employers. The Senate provides that the lobbyist is not prohibited from "assisting the organization in arranging the event, for example, by issuing the invitations on behalf of the organization or attending the event." The discussion of the House Rules notes that a private entity paying for officially connected travel should "both organize and conduct the trip, rather than merely pay for a trip that is in fact organized and conducted by someone else," but the House Rules do not expressly prohibit a lobbyist either accompanying a Member on such event, nor personally extending the sponsoring organization's invitation to the Member. 3. Source of Funds The source of the funds for a fact-finding event must be the sponsor of the event, or an entity sufficiently connected to the event or sponsoring organization in some way. The House notes that a Member "may accept expenses for officially connected travel only from a private source that has a direct and immediate relationship with the event or the location being visited." Similarly, the Senate notes that the "sponsor of the event" may pay for travel, and that other parties "so closely connected to particular events and their sponsors as to render them permissible providers" may also pay necessary expenses. Because the actual source of funds may not be readily evident, the House Committee on Standards of Official Conduct expressly advises Members to "make inquiry on the source of the funds that will be used to pay for the trip": The rule is concerned with the organization(s) or individual(s) that actually pay for travel. Thus, for example, where a non-profit organization pays for travel with donations that were earmarked, either formally or informally, for the trip, each such donor is deemed a "private source" for the trip and (1) must be publicly disclosed as a trip sponsor on the applicable travel disclosure forms and (2) may itself be required to satisfy the above standards on proper source of travel expenses. Accordingly, it is advisable for a Member or staff person who is invited on a trip to make inquiry on the source of the funds that will be used to pay for the trip. 4. Recreation and "Necessary" Expenses The permissible expenses that may be accepted for officially-connected events are only for "necessary" expenses of travel, including such things as food, transportation, lodging, conference fees, and conference or lecture materials. The Rules expressly define "necessary" expenses as being "limited to reasonable expenditures for transportation, lodging, conference fees and materials, and food and refreshments ...." The House and Senate Rules both clearly state that "necessary expenses" do not include expenditures for "recreational activities." That is, the expenses for recreational activities, even those during and incidental to otherwise legitimate, officially-connected travel, are not within this exception, and are therefore subject to the $50 limitation on personal gifts to the Member; and would include such things as expenses for jet-skiing, water skiing, golf green-fees, club guest fees and rentals, and fishing expeditions. As explained by the House Committee on Standards of Official Conduct, for example: "[D]uring the course of a trip, entertainment or recreational activities may be accepted from a private source only if their total value is less than $50, and the overall gift limit of less than $100 in any calendar year is complied with." Additionally, "entertainment" expenses are not considered "necessary expenses," and may not be accepted unless the entertainment is "provided to all attendees as an integral part of the event." 5. "Reasonable" Expenses The Rules of the House and Senate provide that the "necessary" expenses which are and may be accepted in relation to officially connected travel must also be "reasonable." There appear to be, however, no published guidelines or tables delineating any specific monetary amounts considered within, or outside of, the range of "reasonable" expenses for travel and lodging. It should be noted that the House Committee on Standards of Official Conduct explains that the qualifiers "necessary" and "reasonable" may also limit the time frame for which expenses may be accepted, depending on the nature of the event. Thus, a Member, officer or employee "may accept only such expenses as are reasonably necessary to accomplish the purpose of the trip, and thus it may not always be proper to accept expenses for the full four- or seven-day period. This is particularly so where the sole purpose of an individual's travel to an event is to give a speech." 6. Duration Officially connected, necessary travel expenses may be accepted in the House of Representatives for travel for up to four days for domestic events, and seven days for foreign travel (excluding travel days), and in the Senate for up to three days for domestic travel and seven days for foreign travel (also excluding travel days). These are maximum allowed stays, and the permissible duration of any given trip may depend, as discussed above, on the necessity and reasonableness of expenses in relation to the Member's actual functions and/or participation in any particular officially connected event or events. 7. Side Trips and Stop-Overs Additional expenses for side trips and events "unrelated to the purpose of the trip" are not permitted. In the House, the House Committee on Standards of Official Conduct notes that a Member may "not accept additional expenses for stopovers that are unrelated to the purpose of the trip" ; and in the Senate, the Senate Select Committee on Ethics notes that "necessary expenses" do not "include expenses which are associated with appearances or activities unrelated to the sponsor's event." If a Member wishes to extend a trip after the event for which expenses may be accepted, the Member may still accept return transportation from the event locale (but if the extension causes a higher airfare, the Member must pay the additional fare), but any side trips or additional stopovers for unrelated activities must be paid for by the Member, or fit within the $50 limitation on a gift from private sources. 8. Reporting, Disclosure Members of the House and the Senate are not required to provide advance notification or receive advance approval for officially connected travel. Staff employees, however, under the House and Senate Rules are required to receive advance authorization in writing from their employing Member of Congress or congressional officer, specifically determining that the purpose of the trip is officially connected and in conformance with the Rules, prior to accepting officially connected travel expenses. In the case of Members, or officers and employees, a full disclosure and reporting of any trip for which privately financed travel expenses for "officially connected" events are accepted must be made within 30 days after the end of travel. This disclosure must include the dates, itinerary, identification of the trip sponsor, a specific dollar figure for expenses when available (otherwise a "good faith" estimate of expenses), and in the case of a Member, indicating that a specific determination that the purpose of the trip is officially connected was made by the Member and "would not create the appearance that the Member ... is using public office for private gain." Bribery, Illegal Gratuities The preceding discussion has centered around the language and interpretations of internal House and Senate Rules on the acceptance of gifts and things of value from outside, private sources. It should be noted that there are also criminal statutes that involve specifically the receipt of anything of value by a public official. While a "gift" is generally understood to be given and accepted with no "strings attached," that is, that the gift has the requisite donative intent and is not specifically connected to or related to any particular "official act" by the public officer, the criminal laws are aimed at the receipt of things of value when the offer and/or acceptance or receipt are connected in some way to an official act or forbearance by that public official. The "bribery" provisions of federal law prohibit the "corrupt" receipt of something of value "in return for" being influenced in any official act, while the "illegal gratuities" clause of that law requires merely the receipt of something of value with the knowledge that one is being compensated or rewarded "for or because of" any official act done or to be done. Appendix. Language of Relevant House and Senate Rules House Rule XXV , clause 5: (b) (1) (A) A reimbursement (including payment in kind) to a Member, Delegate, Resident Commissioner, officer, or employee of the House from a private source other than a registered lobbyist or agent of a foreign principal for necessary transportation, lodging, and related expenses for travel to a meeting, speaking engagement, factfinding trip, or similar event in connection with his duties as an officeholder shall be considered as a reimbursement to the House and not a gift prohibited by this clause, if the Member, Delegate, Resident Commissioner, officer, or employee— (i) in the case of an employee, receives advance authorization, from the Member, Delegate, Resident Commissioner, or officer under whose direct supervision the employee works, to accept reimbursement; and (ii) discloses the expenses reimbursed or to be reimbursed and the authorization to the Clerk within 30 days after the travel is completed. (B) For purposes of subdivision (A), events, the activities of which are substantially recreational in nature, are not considered to be in connection with the duties of a Member, Delegate, Resident Commissioner, officer, or employee of the House as an officeholder. (2) Each advance authorization to accept reimbursement shall be signed by the Member, Delegate, Resident Commissioner, or officer of the House under whose direct supervision the employee works and shall include— (A) the name of the employee; (B) the name of the person who will make the reimbursement; (C) the time, place, and purpose of the travel; and (D) a determination that the travel is in connection with the duties of the employee as an officeholder and would not create the appearance that the employee is using public office for private gain. (3) Each disclosure made under subparagraph (1)(A) of expenses reimbursed or to be reimbursed shall be signed by the Member, Delegate, Resident Commissioner, or officer (in the case of travel by that Member, Delegate, Resident Commissioner, or officer) or by the Member, Delegate, Resident Commissioner, or officer under whose direct supervision the employee works (in the case of travel by an employee) and shall include— (A) a good faith estimate of total transportation expenses reimbursed or to be reimbursed; (B) a good faith estimate of total lodging expenses reimbursed or to be reimbursed; (C) a good faith estimate of total meal expenses reimbursed or to be reimbursed; (D) a good faith estimate of the total of other expenses reimbursed or to be reimbursed; (E) a determination that all such expenses are necessary transportation, lodging, and related expenses as defined in subparagraph (4); and (F) in the case of a reimbursement to a Member, Delegate, Resident Commissioner, or officer, a determination that the travel was in connection with his duties as an officeholder and would not create the appearance that the Member, Delegate, Resident Commissioner, or officer is using public office for private gain. (4) In this paragraph the term "necessary transportation, lodging, and related expenses"— (A) includes reasonable expenses that are necessary for travel for a period not exceeding four days within the United States or seven days exclusive of travel time outside of the United States unless approved in advance by the Committee on Standards of Official Conduct; (B) is limited to reasonable expenditures for transportation, lodging, conference fees and materials, and food and refreshments, including reimbursement for necessary transportation, whether or not such transportation occurs within the periods described in subdivision (A); (C) does not include expenditures for recreational activities, nor does it include entertainment other than that provided to all attendees as an integral part of the event, except for activities or entertainment otherwise permissible under this clause; and (D) may include travel expenses incurred on behalf of a relative of the Member, Delegate, Resident Commissioner, officer, or employee. (5) The Clerk shall make available to the public all advance authorizations and disclosures of reimbursement filed under subparagraph (1) as soon as possible after they are received. Senate Rule XXXV 2. (a) (1) A reimbursement (including payment in kind) to a Member, officer, or employee from an individual other than a registered lobbyist or agent of a foreign principal for necessary transportation, lodging and related expenses for travel to a meeting, speaking engagement, factfinding trip or similar event in connection with the duties of the Member, officer, or employee as an officeholder shall be deemed to be a reimbursement to the Senate and not a gift prohibited by this rule, if the Member, officer, or employee— (A) in the case of an employee, receives advance authorization, from the Member or officer under whose direct supervision the employee works, to accept reimbursement, and (B) discloses the expenses reimbursed or to be reimbursed and the authorization to the Secretary of the Senate within 30 days after the travel is completed. (2) For purposes of clause (1), events, the activities of which are substantially recreational in nature, shall not be considered to be in connection with the duties of a Member, officer, or employee as an officeholder. (b) Each advance authorization to accept reimbursement shall be signed by the Member orofficer under whose direct supervision the employee works and shall include— (1) the name of the employee; (2) the name of the person who will make the reimbursement; (3) the time, place, and purpose of the travel; and (4) a determination that the travel is in connection with the duties of the employee as an officeholder and would not create the appearance that the employee is using public office for private gain. (c) Each disclosure made under subparagraph (a)(1) of expenses reimbursed or to be reimbursed shall be signed by the Member or officer (in the case of travel by that Member or officer) or by the Member or officer under whose direct supervision the employee works (in the case of travel by an employee) and shall include— (1) a good faith estimate of total transportation expenses reimbursed or to be reimbursed; (2) a good faith estimate of total lodging expenses reimbursed or to be reimbursed; (3) a good faith estimate of total meal expenses reimbursed or to be reimbursed; (4) a good faith estimate of the total of other expenses reimbursed or to be reimbursed; (5) a determination that all such expenses are necessary transportation, lodging, and related expenses as defined in this paragraph; and (6) in the case of a reimbursement to a Member or officer, a determination that the travel was in connection with the duties of the Member or officer as an officeholder and would not create the appearance that the Member or officer is using public office for private gain. (d) For the purposes of this paragraph, the term "necessary transportation, lodging, and related expenses"— (1) includes reasonable expenses that are necessary for travel for a period not exceeding three days exclusive of travel time within the United States or seven days exclusive of travel time outside of the United States unless approved in advance by the Select Committee on Ethics; (2) is limited to reasonable expenditures for transportation, lodging, conference fees and materials, and food and refreshments, including reimbursement for necessary transportation, whether or not such transportation occurs within the periods described in clause (1); (3) does not include expenditures for recreational activities, nor does it include entertainment other than that provided to all attendees as an integral part of the event, except for activities or entertainment otherwise permissible under this rule; and (4) may include travel expenses incurred on behalf of either the spouse or a child of the Member, officer, or employee, subject to a determination signed by the Member or officer (or in the case of an employee, the Member or officer under whose direct supervision the employee works) that the attendance of the spouse or child is appropriate to assist in the representation of the Senate. (e) The Secretary of the Senate shall make available to the public all advance authorizations and disclosures of reimbursement filed pursuant to subparagraph (a) as soon as possible after they are received.

While the acceptance by Members of Congress and staff of personal gifts from most outside, private sources is significantly regulated and restricted by internal congressional rules, Members of the House and Senate may still generally accept from some private sources—other than those who are registered lobbyists or registered foreign agents—necessary travel expenses, including transportation, food and lodging, for travel "in connection with" their official duties, such as for fact-finding trips, conferences or symposia, under certain limited circumstances. Under both House and Senate Rules, the over-all purpose of any privately funded trip of this nature must be related or connected to official duties, and may not be "substantially recreational in nature." Furthermore, while Members may accept "necessary" travel expenses for events which are sufficiently officially-related or "officially connected," the expenses for incidental recreational activities during these trips, such as the costs for golf, snow-skiing, jet-skiing, or tennis, are expressly not considered "necessary" expenses of such travel under either the House or the Senate Rules, and thus fall within the general prohibitions and the $50 limitations on gifts from private sources. (Under both the House and Senate Rules, gifts from any private source, other than from relatives and certain long-term personal friends, are generally prohibited if the value of the gift is $50 or more.) The duration of any permitted trip under the "officially connected" travel exception is limited in the House to four days for domestic and seven days for foreign travel (excluding travel days), and in the Senate to three days for domestic travel and seven days for foreign travel (also excluding travel days). Staff employees must receive advance approval for accepting from private sources expenses for such officially connected travel, and whenever expenses or reimbursement for officially connected travel are accepted by Members or staff, a disclosure report on such travel and expenses is required to be made within 30 days of the end of the travel.

Real Estate Price Volatility and Appraisal Regulation Appraisers provide an estimate of the value of real estate prior to the completion of a sale or refinance of the property. Lenders typically rely on independent real estate appraisers because the property serves as collateral for the loan used to finance the transaction. The lender is in a position to seize and sell the property if the borrower defaults. Borrowers who are purchasing or refinancing the property may also desire an appraisal in order to reassure themselves that the price of the property is in line with an objective evaluation of its value. Either the buyer or the seller may be dissatisfied with the property appraisal if prices rise or fall rapidly after the sale; as a result, reexamination of appraisal regulation is not unusual following a real estate related financial crisis. Current regulation of property appraisals is based on legislation passed following two financial crises linked to real estate bubbles. Legislation governing appraisal regulation includes Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA, P.L. 101-73 ) enacted after the Savings and Loan Crisis, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act, P.L. 111-203 ) enacted after the Subprime Mortgage Crisis. In addition to the changes included in the Dodd-Frank Act, requirements for appraiser independence were included in the Housing and Economic Recovery Act (HERA) of 2008. FIRREA created a federal framework to oversee the state licensing and certification of real estate appraisers. It did so by establishing the Appraisal Subcommittee (ASC) within the Federal Financial Institutions Examinations Council (FFIEC), but the licensing and certifying of appraisers was left to the states. FIRREA required the states to establish licensing and certification requirements and to coordinate through the ASC and a nongovernmental organization, the Appraisal Foundation, which establishes the Uniform Standards of Professional Appraisal Practice (USPAP). Federal banking regulators established the threshold for requiring an appraisal for federally related loans, and the states created appraisal boards to license and certify appraisers. The mortgage crisis that began in 2007 has primarily affected residential properties, not commercial properties. The Dodd-Frank Act transferred some of the regulation of residential mortgages to the new Consumer Financial Protection Bureau (CFPB), established more specific criteria for residential property appraisals and the appraiser profession, and also required a property visit for appraisals financed by a high risk residential mortgage. Other changes mandated in the DFA include mandated independence for appraisers, requiring regulators to establish customary and reasonable fees for appraisal activities, requiring that banks separate the loan officers who underwrite loans from the people who pick the appraisers, and establishing standards for the professional education of licensed and certified appraisers. The Housing and Economic Recovery Act (HERA, P.L. 110-289 ) included a provision designed to increase the independence of appraisers. It prohibited mortgage lenders, mortgage brokers, mortgage bankers, real estate brokers, appraisal management companies, employees of appraisal management companies, and any other people with an interest in a real estate transaction from improperly influencing, or attempting to improperly influence, the development, reporting, result, or review of a real estate appraisal in connection with a federally related mortgage. Federally Related Mortgage Transactions Federal regulation of appraisals is typically linked to federally related transactions. In practice, federal regulation applies to most of the mortgage market because it includes any loans from federally chartered or insured banks, thrifts, and credit unions. It includes any loans that are part of a Federal Housing Administration (FHA) or Department of Housing or Urban Development (HUD) program. It also includes any loans originated with the intent to be eligible for sale to the housing government sponsored enterprises (GSEs). However, not all property sales and transfers require a mortgage; therefore, there are some property transactions for which federal appraisal regulation would have limited applicability. Appraisers are licensed and certified at the state level. More complex real estate transactions require a certified appraiser. Licensed appraisers may conduct less-complex appraisals. In general, residential appraisals are considered less complex than commercial real estate transactions. Although state boards license and certify appraisers, the boards themselves are subject to oversight by federal authorities in the Appraisal Subcommittee. The Appraisal Subcommittee (ASC) The ASC is a federal agency that oversees state licensing and certification of appraisers and appraisal management companies. The ASC is part of the Federal Financial Institutions Examinations Council (FFIEC), which coordinates federal banking regulators. The ASC's board is appointed by the heads of related agencies. Each member agency of the FFIEC (banking regulators) appoints one ASC board member. The head of the Federal Housing Finance Agency (FHFA) and the head of the CFPB each appoint one board member. At least one member of the board must have demonstrated knowledge of the appraisal profession through licensure, certification, or designation. The ASC has a number of regulatory responsibilities and must report annually to Congress. The ASC monitors the requirements established by the state boards for the certification and licensing of appraisers, state registration and supervision of appraisal management companies (AMCs), appraisal standards for federally related transactions, and the level of required appraisal (licensed or the more stringent certified) for federally related transactions. The ASC also maintains national registries of certified and licensed appraisers and of appraisal management companies. The ASC oversees the state codes of professional responsibility for real estate appraisers. ASC Supervision of State Appraisal Boards The ASC reviews about half of the state appraiser boards every year. Boards are assessed in seven categories of federal regulations, including statutes/policies, temporary practice, national registry, application process, reciprocity, education, and enforcement. The most common areas of noncompliance during 2009-2011 were enforcement and application. Based on these seven categories, the ASC rates each state as being (1) in substantial compliance, (2) not in substantial compliance, or (3) not in compliance. The rating "not in substantial compliance" applies when the ASC has concerns regarding the state board's compliance with ASC Policy Statements or Appraisal Qualifications Board (AQB) Criteria but the concerns do not rise to the level of "not in compliance." Until 2011, "not in substantial compliance" had been the most common rating. In 2007, 26 of the 30 state boards reviewed received not in substantial compliance; that ratio had fallen to 11 of 27 by 2011. Table 1 shows the trend in state board ratings during 2009-2011. The number of states receiving not in substantial compliance fell from 18 in 2009 to 11 in 2011. In the last three years (2009, 2010, and 2011), one state has been found not in compliance, although the rating "not in substantial compliance" is common. The state found not in compliance in 2011 was Illinois, which resulted in a move from the standard two-year review cycle to a one-year review cycle. Florida is also on a one-year review cycle. National Registry of Appraisers The ASC maintains a registry of state licensed and certified appraisers. Information that is made public includes whether the appraiser is licensed or certified and whether the appraiser's credentials have been suspended or revoked. The database includes nonpublic information such as disciplinary actions other than suspensions and revocations. Only certain state and federal regulatory officials have access to the nonpublic data. ASC Revenues, Operating Expenses, and Grants The ASC does not receive an annual appropriation. The ASC was provided $5 million in startup funds in FIRREA. Since that time, the ASC's funding has largely come from registration, certification, and licensing fees of appraisers. According to the 2011 Annual Report, the ASC received $2.6 million in fees in FY2011, down from $2.8 million in FY2010. Other than the grant to the Appraisal Foundation, most of the ASC's operating expenses are allocated to personnel. In FY2011, personnel and expenses made up $1.5 million of the $2.3 million operating expenses (excluding grants). The category of expenses with the largest increase was depreciation, which rose from $49,838 to $76,883 dollars from FY2010 to FY2011. The only other category of expenses with significant increase was contracted expenses, which rose from $210,379 to $227,647 during the same period. The ASC is required by FIRREA to provide grants for appraisal related activities. Grants represented $1.4 million of the ASC's outlays in FY2011, down from $1.3 million in FY2010. Most of the grants go to the Appraisal Foundation in order to help defray the costs of issuing appraisal standards and maintaining appraisal qualifications, as required by FIRREA. The ASC also makes some grants to state certification and licensing boards, which are required to conduct audits and report data on the appraisers and appraisal management companies they oversee. The ASC also funds some professional education programs. The Appraisal Foundation and the USPAP The Appraisal Foundation (Foundation) is an independent non-profit organization for appraisal professionals, not a government agency. However, the Foundation was authorized by Congress to establish standards for the appraisal profession, and receives funding from the ASC. The Foundation's core activities include promulgating appraisal standards, appraiser qualifications, and appraisal practices. The Foundation's Appraisal Standards Board (ASB) issues and amends professional appraisal standards, called the Uniform Standards of Professional Appraisal Practice (USPAP). FIRREA requires appraisers to adhere to the USPAP for all federally related transactions. The USPAP are not federal statutes, but they are the standards guiding industry professionals. Some readers may be helped by thinking of the USPAP as similar to accounting standards, which are issued by industry professionals, but are used in many regulatory contexts. The Foundation also hosts the Appraiser Qualification Board (AQB) and the Appraisal Practices Board (APB). The AQB establishes the professional requirements (education, experience, etc.) for certification. The APB is a relatively new (2010) professional board that focuses on technical issues, such as recognized valuation methods and techniques. Dodd-Frank Act As described above, the Dodd-Frank Act (DFA) made a number of changes to the regulation of property appraisals. It set new federal standards for the independence of appraisers, particularly for properties on which higher risk loans were being made. It eliminated the Home Valuation Code of Conduct (HVCC). Other significant provisions include a requirement of a property visit for appraisals financed by a high-risk mortgage; conditions for a second appraisal at no cost to the home purchaser; mandated independence for appraisers; portability of some residential property appraisals; rules for customary and reasonable fees; standards for appraiser education; and a mandatory annual report to Congress by the ASC on its activities. Selected issues are described in more detail below. Appraisal Requirements for High Risk Loans The Dodd-Frank Act, Title XIV, Subtitle F, set new standards for the independence of appraisers. Title XIV of the DFA is also referred to as the Mortgage Reform and Anti-Predatory Lending Act. Because of the focus on combating predatory lending, several of the changes to appraisal regulation in the DFA are limited to properties on which higher-risk loans are being made. Higher risk loans are defined as loans with higher than prevailing interest rates. A loan might have a higher than prevailing rate if the borrower has a blemished credit history, has a smaller than usual down payment, or is using a nontraditional loan. The DFA also transferred certain rulemaking authority for residential appraisals to the new Consumer Financial Protection Bureau, although the ASC retains much of its general mission. Section 1471 of the DFA requires a written appraisal for high-risk residential mortgage loans. The appraisal must include a physical visit to the property being appraised. If the property being financed has been sold within the previous 180 days, and the new price is lower than the previous sale price, then a second appraisal is required that includes an analysis of market conditions and why the price has fallen. The cost of the second appraisal cannot be charged to the loan applicant. Reasonable and Customary Fees Section 1472(i) of the DFA directs the regulators to establish reasonable and customary fees for fee appraisers. The definition of fee appraiser excludes employees of banks and appraisal management companies. Fee appraisers are to receive payment that is customary and reasonable for appraisal services performed in the market area of the property being appraised. In formulating the fees, regulators are to consider objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. When collecting information to formulate customary and reasonable fees, Section 1472(i) directs the agencies to exclude fees that are connected to assignments ordered by appraisal management companies. Sunset of the HVCC The Home Valuation Code of Conduct (HVCC) was an industry standard for appraisals created during the subprime mortgage crisis. The HVCC resulted from an out of court settlement of a legal investigation into Fannie Mae and Freddie Mac by the attorney general of the state of New York. Section 1472 (j) of the DFA eliminates the Home Valuation Code of Conduct. Although the DFA contained a sunset of the HVCC agreements, several of the principles of the HVCC were incorporated into subsequent changes to federal regulation of appraisals, including separating loan production staff from the staff who pick the appraiser for the loan (see " December 2010 Financial Institution Letter (FIL) " below). The settlement that created the HVCC was controversial in part because it appeared that a state official might be setting federal regulatory policy. In the agreement, the New York attorney general agreed to end the state investigation of Fannie Mae if Fannie Mae agreed to purchase mortgages only from banks that did not conduct home appraisals in-house. A similar agreement was reached with Freddie Mac, the other secondary mortgage market GSE. Because the GSEs purchase a high percentage of prime mortgages originated by banks, it could be argued that the agreement was a de facto banking regulation because any bank that conducted in-house appraisals would lose access to a large source of funds for mortgages. Although the agreement was negotiated with the knowledge of the federal regulator of the GSEs at the time, the Office of Federal Housing Enterprise Oversight (OFHEO), other federal financial regulators have challenged both the substance of the agreement and the authority of a state official to establish rules for federally chartered banks. Rulemaking Authority of the CFPB and the Financial Regulators The DFA transferred authority and personnel for regulating many consumer-related issues from the banking regulators to the CFPB. Appraisals used for purchases and refinances of residential properties involve both consumers and lenders. The DFA instructs the financial regulators and the CFPB to jointly issue rules for appraisals of residential properties in many cases. The DFA directs the head of the CFPB to appoint a member to the board of the ASC. Section 1472 instructs courts to grant deference to CFPB rulemaking in some areas of appraisal regulation "as if the Bureau were the only agency authorized to apply, enforce, interpret, or administer the provisions of this title.'' Regulation of Appraisal Management Companies Section 1473(f) of the DFA sets regulatory standards for appraisal management companies (AMCs). It requires appraisal management companies to be registered with state appraisal boards. It directs the ASC to monitor and oversee these state boards. It directs the regulators to jointly issue rules for the registration of AMCs. The DFA sets four requirements for registered AMCs at the state level. Specifically, AMCs must (1) register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates; (2) verify that only licensed or certified appraisers are used for federally related transactions; (3) require that appraisals coordinated by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and (4) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence standards established under section 129E of the Truth in Lending Act (TILA). Banking Agency and CFPB Rulemaking Regulators issue rules for appraisals within the statutory framework. Although the Dodd-Frank Act required a number of rules related to appraisals, banking regulators had also been considering a number of changes to property valuations that they believe would support real estate transactions. October 2010 Federal Reserve TILA Rule The Federal Reserve issued an interim final rule for appraisal independence in October 2010. Although the Dodd-Frank Act required the banking regulators to issue an interim rule on appraisals, the Federal Reserve had already been formulating many of the proposed changes under its Truth in Lending Act (TILA) authority prior to passage of the DFA. Some sections of the interim rule, such as reasonable and customary fees for appraisals, are directly related to specific Dodd-Frank Act provisions. The October 2010 rule contains five major provisions. It prohibits coercion of appraisers to influence the appraised value of properties. It prohibits appraisers and appraisal management companies having financial interests in the transaction. It prohibits lenders from providing credit if they know beforehand of violations involving appraiser coercion or conflicts of interest. It requires that lenders that have information about appraiser misconduct file reports with the appropriate state licensing authorities. It sets the standards for the payment of reasonable and customary compensation to appraisers as required by the Dodd-Frank Act. The October 2010 rule is broad. The covered transactions that it applies to are extensions of consumer credit that are or will be secured by the consumer's principal dwelling. This includes home equity lines of credit. The rule is not limited to appraisers. It also applies to any person who makes a valuation of real estate for a covered transaction, including real estate agents. December 2010 Financial Institution Letter (FIL) The banking regulators issued FIL-82-2010, "Interagency Appraisal and Evaluation Guidelines," on December 2, 2010. The FIL applies to lenders regulated by members of FFIEC. FILs do not apply to nonbank lenders like mortgage companies that are funded solely by securitization. The FIL makes a number of substantive changes and clarifications to permitted methods of collateral valuation by banks. It states that automated valuation models and similar technical systems cannot be substituted for an appraisal when the transaction requires an appraisal. It prohibits covered lenders from relying on valuation methods that do not provide a property's market value, such as a broker price opinion. It requires covered lenders to file a complaint with state appraiser regulatory officials when they suspect that an appraiser failed to comply with the USPAP. Section VI of the FIL prohibits banks from accepting appraisals under some circumstances. The agencies stated that the independence of the appraiser is compromised if the borrower recommends the appraiser or bank's loan production staff selects the appraiser. The FIL requires banks to separate their loan officers from the staff that selects the appraisers. Borrowers cannot recommend the appraiser, or offer an appraisal that was submitted to another lender; however, a borrower may tell the bank that another appraisal exists, and the bank can request the appraisal report directly from the other institution. December 2011 CFPB Rule In December 2011, the CFPB issued an appraisal rule. The DFA had transferred some regulatory authority under TILA as well as some personnel from the Federal Reserve to the CFPB. The 2011 CFPB rule confirmed the Federal Reserve's 2010 rule, and has been effective since April 2011. However, the CFPB continued to accept comments on the rule and may issue changes. Unlike the banking regulator's FIL, the CFPB rule applies to all lenders, not just banks. July 2011 FHA Appraiser Roster Rule The Federal Housing Administration (FHA) insures qualifying residential mortgages. The Housing and Economic Recovery Act of 2008 required that appraisers for FHA loans be certified at the state level, not merely licensed. Only an appraiser listed on HUD's FHA Appraiser Roster may perform the appraisal. The 2011 rule updated the FHA roster and clarified additional standards that appraisers must meet to be chosen as an appraiser for an FHA loan. For example, and appraiser must not be listed on the General Services Administration's Suspension and Debarment list, on HUD's Limited Denial of Participation list, or in HUD's Credit Alert Interactive Voice Response System (CAIVRS).

Real estate appraisers attempt to measure the value of a property that is being purchased or refinanced. In mortgage contracts, the property serves as collateral for the loan. Banks and their regulators may rely on the appraisal to reduce the potential losses if the borrower fails to repay the loan. Property purchasers may also rely on an appraisal if they wish to reassure themselves that the price they offered was reasonable given market conditions. This report discusses the regulation of appraisers and provides information on related statutes and rules. The fallout from the housing bubble raised questions about the effectiveness of the regulation of residential real estate appraisers before and during the financial crisis. Real estate prices rose rapidly in some areas, then fell rapidly. When the real estate bubble burst, questions arose about the accuracy of the appraisals that supported the mortgage loans during the housing bubble. Traditionally, regulation of real estate appraisers was handled at the state level, with a federal agency, the Appraisal Subcommittee (ASC), overseeing the state boards that licensed and certified appraisers. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act, P.L. 111-203) increased federal requirements for real estate appraisers and transferred some federal oversight powers from banking regulators to the new Consumer Financial Protection Bureau (CFPB). The Appraisal Foundation, a professional organization, issues the specific standards for conducting appraisals. These standards form the Uniform Standards of Professional Appraisal Practice (USPAP), but are not federal law. The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examinations Council (FFIEC) provides some of the funding for the Appraisal Foundation and oversees its activities. Business practices of banks and securities firms that offer or purchase a large share of mortgages can influence appraisal standards. The rules that banking regulators and the Federal Housing Finance Agency (FHFA) set for these institutions can influence industry-wide standards, even when the rules do not technically apply to all firms. During the financial crisis, the Home Valuation Code of Conduct (HVCC) was an informal industry standard created as part of a settlement between the attorney general of New York and Fannie Mae and Freddie Mac, which are regulated by the FHFA. The Dodd-Frank Act included a sunset provision for the HVCC, and directed the banking regulators to propose interim regulations until the CFPB began operating. Title XIV, subtitle F of the Dodd-Frank Act included other changes to the regulation of real estate appraisals. Major provisions of subtitle F include a requirement of a property visit for appraisals of a home financed by a high-risk mortgage; conditions for a second appraisal at no cost to the home purchaser; mandated independence for appraisers; portability of some residential property appraisals; rules for customary and reasonable fees; standards for appraiser education; and a mandatory annual report to Congress by the ASC on its activities. The ASC, banking regulators, and the CFPB are proposing and implementing several new rules. For example, the agencies issued an interim final rule for reasonable and customary fees for appraisers, as required by Section 1472 of the Dodd-Frank Act.

Most Recent Developments On February 12, 2003, Congress passed the Consolidated Appropriations Resolutions, 2003, P.L.108-7 . The bill includes funding for USAID global health activities at the following levels: Table 1. Child Survival and Health (CSH) Programs Fund HIV/AIDS Activities. The omnibus bill appropriates a total of $800 million for USAID HIV/AIDS activities. However, the $591.5 millionlisted above is allocated for the Child Survival and Health (CSH) Programs Fund. Another $38.5million is provided through other USAID-managed or co-managed accounts, and $170 million isreserved for the Global ATM Fund and UN agencies. P.L. 108-7 reserves an additional $100 millionfor the Global Fund through the Labor, HHS, and Education Appropriation, bringing the total UnitedStates contribution to the Global Fund to date to $725 million. Other Infectious Diseases. Congress reserves a total of $120 million for tuberculosis assistance in the FY2003 omnibus appropriations bill. Of thisamount, $65 million is funded through the CSH account, $15 from other bilateral accounts and $40million through the Global Fund contribution. A total of $115 million is appropriated for malariaassistance, with $65 million directed to the CSH account, $7.5 million designated to other bilateralaccounts and $42.5 million through the Global Fund contribution. Family Planning/Reproductive Health. A total of $446.5 million is made available for family planning/reproductive health from all accounts, with$368.5 million reserved for the CSH account. Background The Administration gave priority to HIV/AIDS in its budget request for USAID programs. Inits FY2003 global health budget proposal it dedicated more than 40% of its funding to HIV/AIDSactivities, while decreasing spending in most of the other health programs. Some Members ofCongress expressed concern that reserving a significant portion of the global health budget forHIV/AIDS activities without increasing overall global health funding would have left other healthprograms without enough funds. Meanwhile, USAID maintained that in practice the increase in theoverall global health budget was more important than the program in which the funding changesoccurred. (1) Additionally, it asserted that itsintegrative approach would minimize the impact of thelower budget allocations on the other health programs. This report examines U.S. global healthfunding trends since 1999, reviews issues surrounding USAID's decision to funnel much of itsmoney into HIV/AIDS activities, and analyzes current global health spending priorities. Global health activities have become a major component of U.S. foreign aid, partially due to growing concern among some policy makers that health could significantly impact economic growth,national security, and political stability in many parts of the world. According to a 2000 CIA report, The Global Infectious Disease Threat and Its Implications for the United States , the persistentinfectious disease burden is likely to increase the risk of economic decay, social fragmentation, andpolitical destabilization in the hardest hit countries in the developing and former communist worlds. (2) The report further indicates that the economic costs of infectious diseases, especially HIV/AIDS andmalaria, are already significant and will take a heavy toll on productivity, profitability, and foreigninvestment, possibly reducing GDP by as much as 20% or more by 2010 in some sub-SaharanAfrican countries. (3) Infectious diseases could significantly affect not only those abroad, but also Americans at home. According to the CIA report, over the last 30 years, twenty well known diseases, including TB,malaria and cholera, have reemerged or spread geographically, often in more virulent anddrug-resistant forms. Furthermore, at least 30 previously unknown incurable diseases have emergedsince the 1970s. Although infectious diseases do not pose as great of a threat to American securityas they do for other countries they could still have a significant impact. Many infectious diseases,most recently, the West Nile virus, originate outside U.S. borders and are introduced by internationaltravelers, immigrants, returning U.S. military personnel, or imported animals and foodstuffs. TheCIA report predicts that the most dangerous known infectious diseases likely to threaten the UnitedStates over the next two decades will be HIV/AIDS, hepatitis C, TB, and new, more lethal variantsof influenza. (4) U.S. health programs, for many years, have included programs that aim to thwart the spread of infectious diseases, address the disastrous effects of HIV/AIDS, and bolster the crumbling healthinfrastructures of many developing countries. Members of Congress have become increasinglyaware of the potential dangers of the spread of infectious diseases. Consequently, the priority placedon global health funding within the broad scope of foreign aid has increased significantly since themid 1990s. Congress has been especially supportive, and in many cases the initiator, of increasedhealth spending. USAID is the U.S. agency primarily responsible for implementing international health programs. The global health pillar, one of USAID's four program pillars, covers a range of healthprograms and resources whose funding came from preexisting accounts that funded child survivaland disease activities. Those accounts are: Child Survival and Health Programs Fund (CSH) Economic Support Fund (ESF) Assistance for Eastern Europe and the Baltic States(AEEB) Assistance for the Independent States of the Former Soviet Union(FSU) P.L. 480 Title II Food Aid (PL 480) Table 2 shows the funding levels of USAID global health programs since 1999. As the table illustrates, while the global health program is funded through a number of sources most programactivities are financed through the Child Survival and Health Programs Fund (CSH). Nearly 90%of the global health budget comes from the CSH account. CSH is the most significant part of theglobal health budget, and consistently receives bicameral and bipartisan support in Congress. Table 2. USAID Global Health Programs (in millions of dollars) Source: USAID Budget Office, April 15, 2002. a Includes $50 million supplemental. b FY2003 includes $100 million for the International Mother and Child HIV PreventionInitiative. c Global Fund contributions only reflect funds allocated to USAID. The full Global Fundcontribution is attributed to HIV/AIDS totals in fiscal years 2001 and 2002. However, in FY2003,only $170 million of the Global Fund contribution directed to HIV/AIDS activities is included in theHIV/AIDS total. d The $100 million was funded through the 2001 Supplemental Appropriations. e According to the FY 2003 omnibus appropriations bill, contributions to the Global Fundare to bedivided between HIV/AIDS($170 million), malaria ($42.5 million) and tuberculosis ($40million). Additional contributions have been made to the Global Fund totaling $650 millionto date. For more information on Global Fund contributions see CRS Report RL31712 . f Includes $170 million Global Fund contribution for HIV/AIDS. The Child Survival and Health Programs Fund, created in FY1996, is an account that funds acompilation of global health programs that enhance the likelihood of child survival, address maternalhealth concerns and curb the spread of infectious diseases. The CSH was created when there wassignificant pressure to cut foreign aid spending as part of the overall effort to eliminate the federalbudget deficit. (5) In an effort to protect the mostvulnerable populations in the poorest parts of theworld the House Subcommittee on Foreign Operations, Chaired by Representative Sonny Callahan,added language that would introduce the Child Survival and Disease Fund into the ForeignOperations appropriation legislation. The objective was to ensure that there would be no reductionsin programs that directly affect younger children, and to accelerate efforts to eradicate diseases thatthreaten younger children. (6) Funding for CSH wasderived from preexisting child survival and adultdisease accounts. Those accounts were: The Development Assistance Fund (DA); The Development Fund for Africa (DFA); The Economic Support Fund (ESF); Assistance for Eastern Europe and the Baltic States (AEEB); Assistance for the New Independent States of the Former Soviet Union(FSU); and the UNICEF portion of International Organizations and Programs. (7) Initially, the Child Survival and Health Programs Fund (originally called the Child Survival and Disease Programs Fund) account did not include reproductive health and population activities, andincluded basic education for children's initiatives. Education programs are no longer part of theCSH account, while reproductive health and population programs have been added. Currently, CSHis used for activities related to: immunizations; oral rehydration; health and nutrition; water and sanitation; a grant to UNICEF; displaced and orphaned children; reproductive health and population activities; the treatment, prevention and research for tuberculosis, HIV/AIDS, polio,malaria and other diseases; (8) and the Global Fund to Fight HIV/AIDS, Tuberculosis andMalaria. Figure 1 illustrates the trend in CSH and global health funding since 1999. Although CSH is only one part of the global health budget it has become a significant part, receiving bicameral andbipartisan support in Congress. It accounts for more than 90% of the FY2002 global health budget. Since it was created in FY1996, allocations for CSH have increased from $592.6 million to $1.836billion in FY2003. When combined with funds from all accounts, including CSH, funding for theglobal health budget reached $1.972 billion in FY2003. For FY2003, the Administration did not request CSH funds. Instead, it requested that $1.594 billion of the global health budget (ordinarily funded through CSH) be funded through developmentassistance. It requested that the remaining $177 million come from the other accounts, bringing thetotal global health budget request to $1.771 billion. USAID argued that funding the global healthprograms through the development assistance account would give it greater flexibility in projectimplementation. As in past years, the Administration requested the FY2003 UNICEF contributionthrough the international organization contributions rather than global health funds. Congress haschallenged both of these decisions. Protecting the Child Survival and Health Programs Fund andmaintaining UNICEF contributions have remained a high priority for many in Congress.Consequently, funding for global health programs and UNICEF were placed under the ChildSurvival and Health Programs account for FY2003 in the Senate and House Foreign Operations bills. USAID Global Health Priorities The Administration request for FY2003 includes a significant increase in HIV/AIDS spendingand a decrease in nearly all of the other health programs. Figure 2 illustrates the rate at whichHIV/AIDS spending has increased relative to the other health programs. In FY1999, USAID spent12.7% ($139 million) of its global health budget on HIV/AIDS. In FY2002, USAID spent 29.7%($485 million) of its global health budget on HIV/AIDS activities. Finally, in FY2003, 40.6% ($800million) of the USAID global health budget was reserved for HIV/AIDS activities, including $100million for the President's new initiative, the International Mother and Child HIV PreventionInitiative. The FY2003 appropriation increased HIV/AIDS spending nearly 40% within one fiscalyear. If Congress had approved the Administration's request, the budget share of other programswould have fallen 28% from FY1999 spending levels and 11% from FY2002 spending levels. Allfigures include Global Fund contributions. (9) (10) Instead of focusing on the cuts in some programs USAID argued that the most important thing to concentrate on is the integrative nature of the programs, and that overall spending on global healthwould increase. On March 13, 2002, USAID Administrator Andrew Natsios testified before theHouse Foreign Operations Subcommittee. During that hearing Mr. Natsios stated, There are a number of things we do in HIV/AIDS which is also something we do in maternal health and in child survival. For example, a mother that has asexually transmitted disease that is pregnant has a very high risk of the kid dying when the child isborn. The survival rate dramatically drops if the woman has an STD when she's pregnant. So partof our child survival strategy is STD strategy. That's also part of our HIV strategy. So a lot of theseprograms in the field are actually integrated together and they have to be or they don't work... Theimportant factor I would point out here in all of these health accounts is the bottom line is up $60million. (11) And so there's $60 million more beingspent on health programs than there were before. And I think that's a good message. (12) Issues and Options for Congress In its deliberations over the FY2003 appropriations for global health in the foreign operationsbill, Congress considered a number of issues, including: the adequacy of the global health budget,global health funding versus other development assistance, HIV/AIDS spending versus other globalhealth programs, and the number of directives in global health programs. Adequacy of Global Health Budget Given the trade-offs that proposed funding levels for global health seemed to face, were proposed funding levels adequate to meet U.S. health objectives? As HIV/AIDS continues to ravagedeveloping countries and emerging states, the Administration deemed it vital to place a substantialamount of resources into activities that counter the spread of HIV/AIDS. Some at USAID arguedthat overall funding for global health activities is not sufficient to meet all the needs in the field.They said that it is often difficult to balance competing priorities within the global health budget. Consequently, they say that the size of the global health budget necessitates that as funding increasesin one program area it decreases in others. On February 12, 2003, Congress passed P.L. 108-7 , an FY2003 omnibus appropriations bill, which included $1.84 billion for CSH and $1.97 billion for USAID global health activities. Mostglobal health programs (except family planning and reproductive health initiatives) were fundedabove requested levels. The increase was most significant for HIV/AIDS. Directed funds include$800 million for the fight against HIV/AIDS. This figure is $140 million above the Administration'srequest of $740 million, and includes the President's $100 million request for the InternationalMother and Child HIV Transmission (MTCT) initiative on September 3, 2002. (13) The HIV/AIDSfunds also include $170 million of the $250 million Global Fund contribution. $384 million isdirected for maternal and child health activities, the Administration requested $344 million. ThePresident only requested $122 million to fight other infectious diseases, while Congress set aside$178 million. Congress directed $383.5 million to fund family planning and reproductive healthactivities, $41.5 million below the $425 million request from the Administration. Finally, the SenateAppropriations Committee voted to give $120 million to the United Nations Children's Fund(UNICEF) through the CSH account although the Administration did not request funding forUNICEF under the account. The omnibus bill also reserves an additional $100 million for theGlobal Fund through the Labor, HHS, and Education Appropriation, allocating $350 million in totalfor the Global Fund. Global Health Versus Other Development Assistance Do current global health funding levels affect the implementation of other development assistance programs? Some are concerned with what they perceive as an overemphasis on globalhealth vis-à-vis other development programs. In FY2002, health programs accounted for about 60%of all development assistance. (14) Critics believethat other areas also need support, namely education,democracy, trade and investment, and agriculture. These areas also significantly impactdevelopment and health, critics argue. Some claim if the programs that build human capacity,promote stable governments, encourage private investment and foster environmentally-friendlygrowth are not simultaneously supported, then the health programs will not be sustainable. This issue has been raised during some of the Foreign Operations hearings. USAID Administrator Andrew Natsios noted that while agriculture is vital in countering poverty andsupporting health programs, the trend has been to reduce funding to agricultural programs as otherissues, such as HIV/AIDS and famines demand immediate responses. "[T]he only way you're goingto reduce poverty in the world and reduce hunger is not by constant humanitarian programs, but byteaching people how to grow more food. And we're not doing that because all of the money hasbeen shifted to accounts where there is more and legitimate interest." (15) "If you have child survivalprojects and you keep kids alive until they're 5 years old - you know what happens after 5? Theybecome malnourished, because the parents are still so poor they can't provide for them. We shouldlook at the countries where we have child survival programs for older kids to see what themalnutrition rates are. They have been disturbingly high." (16) U.S. Representative Jerry Lewisconceded that agriculture does impact poverty reduction, good governance, and a host of otherdevelopment issues. "[I]ndeed, I've felt for many, many years it's very difficult to talk to developingcountries about democracy and freedom and peace, and indeed terrorism, if their children go to bedwith their stomachs hurting every night." (17) Although some may like to see some of the foreign assistance money spent on other development assistance activities, Chairman Kolbe described the difficulty that many in Congressfaced while considering the President's request. "If Congress fully funds the HIV/AIDS request thatthe president has made, it's going to have to be something reduced somewhere else: economicgrowth, agriculture, trade. That happens, the advocates of trade promotion, basic education,microcredit, all of which are represented before this committee, are going to face some toughchoices. [T]he question is, if we go complete funding of what there's a huge amount of publicpressure now to do...the other kinds of things in agriculture, trade promotion are going to likelysuffer." (18) The FY2003 Omnibus Appropriationsbill, P.L. 108-7 , funded most global healthprograms above requested levels. Although it is unclear whether family planning programs werefunded below requested levels to fund increases in other global health programs, some requests forcuts have been made in other areas. (19) HIV/AIDS Versus Other Global Health Programs How does funneling a significant portion of the global health budget to HIV/AIDS programs affect the other health programs? Historically, Congress has placed heavy emphasis on halting thespread of infectious diseases, particularly those that are becoming increasingly antimicrobialresistant. It has maintained its support for infectious diseases, and has funded the programs aboverequested levels. In FY1998, the Senate and House Subcommittees on Foreign Operations expressedconcern that USAID had not placed enough emphasis on combating the spread of infectiousdiseases. (20) Recognizing the correlation betweenHIV/AIDS and TB, in FY2001, the House andSenate Subcommittees on Foreign Operations urged USAID to increase its activities related toHIV/AIDS and TB prevention, as well as those that seek to treat and prevent sexually transmitteddiseases. They also recognized the promising results of microbicide research and urged USAID toincrease its work in that area. (21) Still later theHouse Subcommittee on Foreign Operations expressedconcern in FY2002 that USAID had not placed enough emphasis on halting emerging epidemics. (22) Finally, in FY2002, the Senate Subcommittee on Foreign Operations added that USAID should seekto provide resources to build the capacity of governments to effectively use additional funds for theprevention and treatment of HIV/AIDS programs so that they can reach people in need. (23) Not only are some in Congress particularly concerned about the spread of infectious diseases, but they are also concerned about the other programs in global health. At the hearing on the USAIDbudget proposal for FY2003, some Members expressed concern about the impact of increasingspending on HIV/AIDS activities at the expense of other global health programs. RepresentativeJesse Jackson stated, "I am concerned with what the Administration has proposed to thissubcommittee regarding international health. The Administration's budget cuts funding for TB,malaria, and child survival programs, all programs I believe Congress strongly supports, and wrapsup the stand-alone child survival and health account, created by my good friend from Alabama,Sonny Callahan, into development assistance accounts. I think some of the increases we are makingin our bilateral contributions for HIV/AIDS is a good first step. But, it seems to me that we aresimply robbing Peter to pay Paul. Could you explain to us why we're not growing all the globalhealth accounts equally?" (24) Although many in Congress also deem countering the spread of HIV/AIDS a priority, they differ from the Administration in that they do not want to boost HIV/AIDS funding at the expenseof other health programs. Congressional support for HIV/AIDS programs is illustrated by theinclusion of additional funding for HIV/AIDS through the FY2002 supplemental, H.R. 4775 . (25) After passing the House on May 24, 2002,and later the Senate on June 6, 2002, the FY2002Supplemental Appropriation became Public Law 107-206 on August 2, 2002. The $28.9 billion billincluded $200 million to fight HIV/AIDS with at least $100 million reserved for the Global Fundto Fight HIV/AIDS, Tuberculosis and Malaria. The additional $200 million for HIV/AIDS was part of a $5.1 billion contingency emergency package that was attached to the supplemental bill. As provided by P.L. 107-206 , the President haduntil September 1, 2002, to decide whether to obligate all of the funds or spend none of it. (26) At aneconomic forum held in Waco, Texas on August, 13, 2002, the President announced that he wouldnot obligate the contingency funding because he felt that the government needed to practice fiscaldiscipline. Some Democrats reportedly said that they perceived the action as "a White House effortto portray the withholding of the funds as a struggle between the President and Democrats, eventhough the appropriations had broad Republican support." (27) Critics also accused the President ofblocking funding to his own programs. The President acknowledged that he supported some of theinitiatives in the contingency package, however he said that he would request support for hispriorities, including HIV/AIDS from the FY2003 appropriations. On September 3, 2002, the President proposed changes to the FY2003 Department of Health and Human Services (HHS) Appropriations and the Foreign Operations Appropriations to request$200 million for his new initiative, the International Mother and Child HIV Prevention Initiative. The President requested that the money be shared equally between HHS and the USAID. Congressfunded this initiative in FY2003. P.L. 108-7 includes $140 million for the new initiative. $100million comes from USAID funds and the remaining $40 million is drawn from HHS funds. Number of Directives in Global Health Programs How do congressional directives affect the United States' ability to adjust health assistance programs to match the conditions in the field quickly? In an attempt to demonstrate the impact ofthe directives, representatives from USAID stated that only $207 million, the portion of the FY2002global health budget designated to reduce the main causes of child mortality and morbidity, does notcontain specific directives as to the allocation of funds. They reported that it is not the largedirectives that significantly impact the global health programs, rather it is the small ones that becomesubstantial when totaled. (28) Legislative directives have become more specific as Congress has become increasingly concerned about global health issues. When global health programs first began Congress offeredfew directives. As criticisms about the effectiveness of foreign aid mounted, Congress began toclearly earmark areas of high priority, ultimately leading to the creation of the Child Survival andHealth Programs Fund. (29) Although the Administration has expressed dissatisfaction with the level of congressional directives, Congress attached directives to the FY2003 global health budget, as it has in the past,to ensure that its spending priorities are protected. Chairman Kolbe's comments during SecretaryPowell's hearing in February 2002 illustrate divergent spending priorities in the global health budgetbetween Congress and USAID. "This budget would increase funding for AIDS so rapidly that itcalls for sharp cutbacks in maternal health, child survival, and the equally critical struggle againstresurgent tuberculosis and malaria." (30) Directiveshave remained in the FY2003 global health budgetthis fiscal year, and may continue in the future to the extent that Congress' spending priorities differfrom those of USAID.

Global health has become a major focus of the U.S. foreign assistance program. Congressional proponents of more health assistance have successfully increased appropriations aboveAdministration requests in recent years. Some have challenged the Administration's FY2003 budgetproposal during the foreign operations debate, particularly the manner in which the Administrationproposed the United States Agency for International Development (USAID) allocate its funds. Itrequested a $36 million increase in FY2003 for global health programs. It proposed that more than40% of the global health budget be spent on HIV/AIDS activities, up substantially from the previousfiscal year. USAID emphasized that HIV/AIDS affects all sectors of societies, and thus it is apriority in global health. Some in Congress have expressed concern about the consequences ofspending a significant portion of global health funds on HIV/AIDS, and suggested that more moneybe spent on other programs, namely infectious diseases and child survival. As Congress debatedfunding levels for FY2003 global health activities it discussed several issues including: global healthfunding versus other development assistance programs, and increasing funding to HIV/AIDS at theexpense of other global health programs. This report will be updated as needed.

Introduction The Americans with Disabilities Act (ADA) is a broad civil rights statute prohibiting discrimination against individuals with disabilities. As stated in the act, its purpose is "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." Title III of the ADA prohibits discrimination by public accommodations, which are defined to include movie theaters, but the statute does not include specific language on closed captioning or video description. The Department of Justice (DOJ) has promulgated regulations under Title III, but has not specifically addressed issues regarding closed captioning or video description. However, DOJ has issued an advance notice of proposed rulemaking (ANPR) to establish requirements for closed captioning and video description for movie theaters. In addition, the Ninth Circuit, in the first court of appeals case to address the issue, held that the ADA requires the provision of closed captioning and descriptive narration in movie theaters unless to do so would be a fundamental alteration or an undue burden. Statutory Language and Legislative History Title III of the ADA prohibits discrimination in "the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of a place of public accommodation by any person who owns, leases (or leases to), or operates a place of public accommodation." Public accommodations are defined as including "a motion picture house, theater, concert hall, stadium, or other place of exhibition entertainment." Places of public accommodation are prohibited from providing individuals with disabilities a service that is not equal to that afforded individuals without disabilities. In addition, public accommodations are required to take action to ensure that an individual with a disability is not excluded, denied services, or otherwise treated differently because of the absence of auxiliary aids and services "unless the entity can demonstrate that taking such steps would fundamentally alter the nature of the good, service, facility, privilege, advantage, or accommodation being offered or would result in an undue burden." Auxiliary aids and services are defined as including "qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impairments; [and] qualified readers, taped tests, or other effective methods of making visually delivered materials available to individuals with visual impairments." Although the ADA does not define "undue burden," the DOJ regulations define undue burden as meaning "significant difficulty or expense" and provide various factors to be considered in making this determination. When the ADA was enacted in 1990, the technology for closed captioning was limited. The legislative history of the ADA did not specifically discuss closed captions, but did discuss open captioning. Open captioning was not seen as required by the ADA, but open captioned versions of films were encouraged and theaters were encouraged to have some preannounced screenings of open captioned films. The House Education and Labor Committee report also emphasized that advances in technology may change what the ADA requires: The Committee wishes to make it clear that technological advances can be expected to further enhance options for making meaningful and effective opportunities available to individuals with disabilities. Such advances may require public accommodations to provide auxiliary aids and services in the future which today would not be required because they would be held to impose undue burdens on such entities. DOJ Advance Notice of Proposed Rulemaking On July 26, 2010, the 20 th anniversary of the enactment of the ADA, DOJ issued an advance notice of proposed rulemaking (ANPR) regarding movie captioning and video description. DOJ examined the ADA's statutory language and found that "given the present state of technology, we believe that requirements of captioning and video description fit comfortably within the statutory text." Although DOJ had raised some questions regarding closed captioning and video description in its 2008 notice of proposed rulemaking, no regulations on the subject were proposed, and none were included in the final rule. In the ANPR, DOJ sought further public comment on several new issues and technical questions as well as the implications of the conversion to digital cinema for potential regulations. The issues DOJ sought public comment on included the following: the implications of a sliding compliance schedule; the appropriate basis for calculating the number of movies that will be captioned and video described; whether movie theater owners and operators should be given the option to use open captioning; the number of movie theater owners or operators who have converted to digital cinema; whether there are specific protocols or standards for captioning and video description for digital cinema; whether DOJ should require a system of notifying individuals with disabilities in advance as to which movies provide captioning and video description; whether DOJ should consider a training requirement for movie theater personnel; and whether a proposed rule should be considered an economically significant regulatory act and, if so, are there alternative regulatory approaches to minimize such impact. Arizona v. Harkins Amusement Enterprises The Ninth Circuit in Arizona v. Harkins Amusement Enterprise s became the first court of appeals to address the ADA's requirements concerning closed captioning and video descriptions. The court held that closed captioning and video descriptions may be required by the ADA, but are subject to the ADA's fundamental alteration and undue burden exceptions. Harkins involved a suit by two patrons of a theater, one with a hearing impairment and one with impaired vision. They alleged that the theater owners discriminated against them by not providing open or closed captioning and descriptive narration. The court examined the statutory language of the ADA, emphasizing the requirement for auxiliary aids and services and finding that "movie captioning and audio descriptions clearly are auxiliary aids and services." Rejecting the defendant's argument that captioning and descriptive narration fall outside the scope of the ADA , the Ninth Circuit noted that the ADA makes it discriminatory to fail to take steps to ensure that an individual with a disability is not excluded "because of the absence of auxiliary aids and services." The defendant also argued that DOJ's regulatory commentary specifically did not require open captioning, and the court agreed that the defendant should be able to rely on the plain meaning of DOJ's commentary until it was revised. However, the commentary did not address closed captioning, and the court returned to the statutory language regarding auxiliary aids for its analysis, finding that closed captioning and descriptive narration "fall comfortably within the scope of this definition." In addition, the court noted that several defenses were available to the defendant, including the arguments that closed captioning and descriptive narration would fundamentally alter the nature of its services or constitute an undue burden. Although the Ninth Circuit's decision is only binding in that circuit, its decision provided an added impetus to DOJ's consideration of regulations in the area.

The Americans with Disabilities Act (ADA) is a broad civil rights statute prohibiting discrimination against individuals with disabilities. Title III of the ADA prohibits discrimination by public accommodations, which are defined to include movie theaters, but the statute does not include specific language on closed captioning or video description. Although the Department of Justice (DOJ) has promulgated regulations under Title III, it has not specifically addressed issues regarding closed captioning or video description. However, DOJ has issued an advance notice of proposed rulemaking (ANPR) to establish requirements for closed captioning and video description for movie theaters. The ANPR asks for input in several areas including the implications of a sliding compliance schedule, and the appropriate basis for calculating the number of movies that will be captioned and video described. In addition, the Ninth Circuit, in the first federal court of appeals case to address the issue, held that the ADA requires the provision of closed captioning and descriptive narration in movie theaters unless to do so would be a fundamental alteration or an undue burden.

From the Mainland to Taiwan With the victory of Mao Tse-tung and his Communist Party military forces on mainland China in 1949, the remnants of the government of America's former World War II ally, the Republic of China (ROC) led by Generalissimo Chiang Kai-shek, fled to the island of Taiwan off the south China coast. For the next thirty years, both regimes claimed legitimacy as the sole legal government of the Chinese people. In Beijing on October 1, 1949, a victorious Mao proclaimed the creation of the People's Republic of China (PRC). Meanwhile, Chiang Kai-shek established a temporary capital for his government in Taipei, Taiwan, declaring the ROC still to be the legitimate Chinese government-in-exile and vowing that one day he would "retake the mainland" and drive out communist forces. The United States initially appeared reluctant to support the ROC's claim of legitimacy, and there is evidence that President Harry Truman was prepared to abandon Chiang's government on Taiwan and deal with Mao's PRC regime. But that U.S. position quickly evaporated with North Korea's surprise invasion of South Korea on June 25, 1950. Within a week, President Truman ordered U.S. air, naval, and ground forces to go to South Korea's aid and ordered the U.S. 7 th fleet to prevent any attack on Taiwan, saying that "determination of the future status of Formosa [the island's designation as a Japanese colony] must await the restoration of security in the Pacific ..." U.S. support for the ROC was solidified when Chinese Communist forces entered the Korean War in support of North Korea in October-November 1950. As a result, in April 1951, the United States resumed direct military assistance to the ROC government on Taiwan, and in 1954 the United States and Chiang's government signed the U.S.-ROC Mutual Defense Treaty, making the two governments allies once again. This remained the situation for three decades: Taiwan and China remained officially at war; the United States continued to support the ROC claim as the legitimate government of all China, refused to recognize the legitimacy of the PRC, and maintained a defense alliance with the ROC government on Taiwan. For much of this time, the ROC government continued to represent China in the United Nations and other international organizations. Official U.S. Recognition of PRC in 1979 In the 1950s and 1960s, the U.S.-ROC Mutual Defense Treaty allowed U.S. forces to use Taiwan as a forward base against Sino-Soviet communism in Asia. But after President Nixon's diplomatic opening to Beijing in 1971-72 and the major pullback of U.S. forces in Asia under the guidelines of the "Nixon doctrine," U.S. officials began to view Beijing more as a strategic asset against the Soviet Union than as an adversary to be confronted in the Taiwan Strait. The Nixon overtures resulted in the so-called "Shanghai Communiqué" of 1972 (the first of three U.S.-China communiqués) which set the stage for the reversal of U.S. post-WWII China policy. Official U.S. recognition of PRC legitimacy did not come until 1979, after the Carter Administration made a surprise announcement on December 15, 1978, that the United States would sever official relations with the ROC government on Taiwan and recognize the PRC government in Beijing on January 1 of the new year. In the Joint Communiqué on Establishing Diplomatic Relations that announced the change, the United States acknowledged (an important distinction in future debate on the U.S. "one-China" policy) that both the PRC and ROC governments claimed there was only one China and that Taiwan was a province of it. As part of the process of recognizing the PRC government, U.S. officials also notified the ROC government (Taiwan) that the United States intended to terminate, effective January 1, 1980, its military obligations toward Taiwan under the 1954 U.S.-ROC Mutual Defense Treaty. In a unilateral statement released on December 16, 1978, the United States declared that it "continues to have an interest in the peaceful resolution of the Taiwan issue and expects that the Taiwan issue will be settled peacefully by the Chinese themselves." In an important historical side-note, President Carter's unilateral decision to terminate the U.S.-ROC Mutual Defense Treaty in accordance with the treaty's terms (which permitted either party to terminate it with one year's notice) resulted in a landmark lawsuit over congressional constitutional prerogatives that went all the way to the Supreme Court. The suit, brought by Senator Barry Goldwater, alleged that the Senate's constitutional role in approving treaties required President Carter to consult the Senate before ending a treaty. (The constitution is silent on how U.S. treaties can be terminated.) After decisions and reversals in Federal District Court, the District of Columbia Court of Appeals in 1979 issued a ruling which among other things stated that the President did not have to seek congressional approval before ending the U.S.-ROC Mutual Defense Treaty. Senator Goldwater appealed to the U.S. Supreme Court, which on December 13, 1979, denied his appeal, leaving the appellate court's ruling standing. The Taiwan Relations Act (P.L. 96-8) While the record shows that the 96 th Congress in 1979 clearly concurred with the strategic imperative of normalizing relations with the PRC, many Members were unhappy with what they saw as the Carter Administration's minimal proposals for continued dealings with the ROC government on Taiwan. In particular, some were concerned that the package of legislation the White House submitted to Congress to govern future unofficial relations with Taiwan—the "Taiwan Enabling Act"—did not go far enough in protecting either Taiwan's or U.S. interests. Congressional debate on the legislation in 1979 was extensive and complicated. The end result was passage of a much amended version of the Administration's proposal—the Taiwan Relations Act (TRA— P.L. 96-8 )—which remains the domestic legal authority for conducting unofficial U.S. relations with Taiwan today. Much of the TRA deals with the logistics of U.S.-Taiwan relations: the establishment of the American Institute in Taiwan (AIT) as the unofficial U.S. representative for diplomatic interactions with Taiwan, including details about its staffing, functions, and funding. Of particular relevance for long-term U.S. policy are Section 2 (b) and Section 3 of the TRA, dealing with U.S. strategic interests in and arms sales commitments to Taiwan; and Section 4, allowing for the continued application of existing U.S. laws and treaties with Taiwan in the absence of official diplomatic ties. Infrastructure of U.S.-Taiwan Relations Under the TRA The dissolution of U.S. diplomatic relations with Taiwan placed Taiwan into a unique legal no-man's land that the TRA was designed to redress. One set of considerations involved how Taiwan—essentially rendered a legal "non-state" by the severing of relations—was to be treated under U.S. law after 1978. Many of these issues are addressed in Section 4 of the TRA, which specifies that in matters of U.S. law, Taiwan is to be treated in a manner consistent with the way that "foreign countries, nations, states, governments, or similar entities" are treated, irrespective of other provisions in U.S. law concerning the requirements of maintaining diplomatic relations. The TRA specifically includes in this treatment the maintenance of all treaties (agreements between sovereign states); the continuation of "the ownership of or other rights or interests in properties, tangible and intangible, and other things of value" owned by the governing authorities on Taiwan prior to December 31, 1978; immigration laws; and the capacity of Taiwan to sue and be sued in U.S. courts. In another key issue, the severing of diplomatic relations with Taiwan left both the Taiwan and U.S. governments with no practicable official way of managing programs, transactions, financial arrangements, consular services, or other relations with each other. Sections 6 through 9 of the TRA, then, established a non-profit, tax-exempt corporation separate from the U.S. government—the American Institute in Taiwan (AIT)—to handle those issues with Taiwan that would have been conducted by U.S. government authorities such as the State Department if diplomatic relations existed. The AIT is funded through an annual U.S. government appropriation and has offices in Taiwan (in Taipei and Kaohsiung) as well as in Washington, DC (headquartered in Arlington, Virginia). In providing for staffing for the AIT, Section 11 of the TRA states that U.S. government officers or employees may separate from the U.S. government in order to take a position with AIT. Upon completion of their service with AIT, such U.S. government employees are entitled to return to comparable positions in the U.S. government with no loss of "attendant rights, privileges, and benefits ... " The title of the head of the U.S. AIT is "Director." The TRA provided for a comparable "Taiwan Instrumentality" in Section 10, authorizing the President to extend similar privileges and immunities to Taiwan officers of this instrumentality as Taiwan extended to AIT officials. Originally established as the Coordination Council for North American Affairs, (or CCNAA), the Taiwan office in Washington, DC, has been known as the Taipei Economic and Cultural Representative's Office (TECRO) since 1994. In addition, TECRO oversees twelve other offices throughout the United States, known as Taiwan Economic and Cultural Offices (TECO); these are in Atlanta, Boston, Chicago, Guam, Honolulu, Houston, Kansas City, Los Angeles, Miami, New York, San Francisco, and Seattle. The title of the head of TECRO is "Representative." AIT and TECRO officials operate on behalf of their governments in dealing with each other's governments. U.S. Arms Sales Commitments to Taiwan Although it is a common misperception that the TRA mandates the United States to defend Taiwan in case of attack, nothing in the TRA specifically obligates the United States to come to Taiwan's defense or to resort to military conflict on Taiwan's behalf. Section 2 of the TRA speaks in broad terms about U.S. interests in peaceful resolution to the Taiwan question, saying that any forceful resolution would be of "grave concern to the United States," and further states that U.S. policy is to "maintain the capacity of the United States to resist ... coercion" in addressing the Taiwan issue. Section 3 provides for the sale of U.S. defense articles and services to Taiwan, but it is non-specific about the nature of these articles. It merely calls for "such defense articles and services ... as may be necessary to enable Taiwan to maintain a sufficient self-defense capability." Section 3 gives Congress a role in determining what needs Taiwan may have. Much of the U.S. debate on Taiwan arms sales since the TRA was enacted has involved differing judgments—often between Congress and the White House—about what should be the capabilities and quantities of the "necessary" articles and services provided for in Section 3 of the TRA. A more recent U.S. debate has evolved since 2001, after Taiwan itself began to appear increasingly hesitant (for domestic political reasons) to invest in some of the weapons systems that the United States offered for sale under the TRA. This latter development—undoubtedly unforeseen at the time of the TRA's enactment—raises potentially consequential questions for Congress about how, or even if, the United States can honor its commitments under Section 3 of the TRA if Taiwan seems unwilling to participate meaningfully in expanding or at least in maintaining its own self-defense capacity, particularly in the face of significant and ongoing military improvements in the PRC. Strategic Ambiguity After normalization of Sino-U.S. relations and the severing of the U.S.-ROC military alliance, the PRC was largely satisfied with U.S. "one-China" formulations alluding to Taiwan's political status. But upon Congress' passage of the TRA, PRC leaders objected strenuously to the act's provision for continued U.S. arms sales to Taiwan, regarding it as a violation of U.S. commitments to end its military alliance with Taipei. After two years of bilateral tensions, a U.S.-PRC joint communiqué—the third and final Sino-U.S. communiqué since Nixon's opening to China in 1972—addressed this point on August 17, 1982. In that communiqué, the PRC cited it had a "fundamental policy" of striving for a peaceful solution to the Taiwan question, while Washington stated that the United States did not: seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends to reduce gradually its sales of arms to Taiwan. The three U.S.-PRC communiqués and the 1979 Taiwan Relations Act for decades served as the framework by which U.S. officials balanced two competing policy objectives—widely referred to as U.S. "strategic ambiguity" about Taiwan. On the one hand were three communiqués in which U.S. policymakers recognized the legitimacy of the PRC government, appeared to acknowledge there was only "one China," and suggested an eventual ending point to U.S. weapons sales to Taiwan. On the other was the TRA in which the United States established a statutory framework for maintaining extensive unofficial contacts with Taiwan and which committed the United States to providing weapons for Taiwan's defense against what most saw as Taiwan's only potential enemy—the PRC. "Strategic ambiguity" remained the basis of U.S. Taiwan policy throughout the 1980s and well into the 1990s, and many observers give it much of the credit for helping to facilitate U.S.-China relations, preserve U.S.-Taiwan contacts, and protect Taiwan's own political and economic interests. Policy Implications and Issues for Congress Despite the policy framework of the TRA and the three communiqués, Taiwan continues to be a particularly complex issue for U.S. policy and a recurring issue for Congress. Some of these complicating factors are old issues arising from the political compromises that the 1979 normalization process demanded—notably, the "one-China" formulation, U.S. security interests in and arms sales to Taiwan, and the U.S. position on Taiwan's status in key international organizations. Other complications are the result of changing political trends, particularly in Taiwan, that have presented increasing challenges for the policy framework. These issues crop up periodically in congressional debate in ways that occasionally prompt comment from U.S. government officials. One such recurring issue concerns the U.S. position on Taiwan's membership in international organizations, such as the World Health Organization and the United Nations. The policy parameters in Section 4(d) of the Taiwan Relations Act make the following specific pronouncement on this point: "Nothing in this Act may be construed as a basis for supporting the exclusion or expulsion of Taiwan from continued membership in any international financial institution or any other international organization." But nuance has crept into this TRA formulation in subsequent U.S. Administrations. In his "three no's" statement of June 30, 1998, for example, President Bill Clinton said "... we don't believe that Taiwan should be a member of any organization for which statehood is a requirement." Some claim that this phraseology is a misinterpretation of the relevant provision in the TRA. Another such issue concerns the U.S. "one-China" policy formulation. Although the United States has never repudiated and in fact has continued forcefully to restate that commitment, purists can argue that the U.S. iterations of the "one China" policy over the years have departed from the original formulation in subtle but significant ways. The first two joint communiqués, below, address the "one China" issue in a similar manner, in contrast to the third communiqué, which injects more nuance into the formulation: "The United States 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. The United States Government does not challenge that position." – The Joint U.S.-China C ommuniqué , Shanghai , February 1972 "The Government of the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China." – The Joint Communiqué on the Establishment of Diplomatic Relations Between the United States of America and the People's Republic of China, January 1, 1979 "In the Joint Communiqué [of January 1, 1979]... the United States of America ...acknowledged the Chinese position that there is but one China and Taiwan is part of China.... The United States Government attaches great importance to its relations with China, and reiterates that it has no intention of infringing on Chinese sovereignty and territorial integrity, or interfering in China's internal affairs, or pursuing a policy of 'two Chinas' or 'one China, one Taiwan.' " – The U.S.-China Joint Communiqué , August 17, 1982. Enacted between the second and third communiqué, the Taiwan Relations Act of 1979 leaves the "one-China" question unaddressed. But language in the Conference Report suggests that the 96 th Congress wanted to emphasize the "one-China" formulation contained in the first two communiqués. As the Conference Report states: "[The U.S. Administration] has acknowledged the Chinese position that Taiwan is a part of China, but the United States has not itself agreed to this position." Subsequent iterations by a series of U.S. Administrations concerning U.S. policy on Taiwan almost always have adhered to bare-bones statements, with each being parsed and dissected meticulously by the parties involved for any hidden nuance or perceived change. A third issue is the question of U.S. arms sales to Taiwan, for which the TRA makes provision. Despite the 1982 communiqué in which the United States expressed intent to reduce and eventually end annual arms sales to Taiwan, such sales not only have continued but in some years have increased substantially—notably, with the George W. Bush Administration's April 2001 weapons sale package to Taiwan that included, among other systems, four decommissioned Kidd-class destroyers, 12 anti-submarine warfare P-3 aircraft, and eight diesel submarines. This sale was surpassed in size and value only by the 1992 sale of 150 F-16 aircraft to Taiwan by the George H. W. Bush Administration. Debate also regularly recurs over what the United States should do if the PRC uses force against Taiwan. Some observers focus on the lack of any mandate in the TRA for U.S. military intervention, while others point out that the TRA bases the entire foundation of U.S.-PRC official relations on the premise that Taiwan's future will be resolved peacefully. Some believe that the potential for U.S. military conflict with China over Taiwan has grown given the PRC's military build-up opposite Taiwan, Beijing's refusal to renounce using force against the island, and intermittent but troubling U.S.-PRC naval encounters in the western Pacific and the South China Sea. Others suggest the potential for conflict has been minimized given the growing rapprochement, renewed negotiations, and cross-Strait ties between the PRC and Taiwan that have occurred after the 2008 election of Taiwan President Ma Ying-jeou. In the years ahead, U.S. officials also are likely to continue to debate the medium and longer-term implications of China's military buildup on the PRC-Taiwan strategic military balance, particularly as it affects U.S. responsibilities under the TRA to assist Taiwan's self-defense. The biggest complicating factor for U.S. policymakers today may come from Taiwan's own political circumstances, which have changed dramatically since Congress passed the 1979 TRA. Under the authoritarian rule of Chiang Kai-shek's Nationalist Party (also known as the KMT), Taiwan's political decisions were predictable, closely aligned with U.S. interests, and dependent largely on U.S. support. But several decades of political reforms have made Taiwan politics not only more democratic and more nationalistic, but more fluid and harder to predict. Given the historical record and with continuing transformations in both the PRC and Taiwan political systems, U.S. officials may be facing new and more difficult policy choices concerning Taiwan in the coming years. While many consider Taiwan's continuing democratic maturation, most recently demonstrated by the 2008 presidential election, to be a validation of U.S. goals for the spread of democratic values, that democratization also further emphasizes the unique and delicate challenges for U.S. policy that Taiwan poses. The U.S. government continues to embrace the efficacy of the fundamental U.S. policy framework on Taiwan—defined by one observer as "one-China, peaceful resolution, U.S. arms sales, the Taiwan Relations Act, and the three communiqués." But other observers, including some Members of Congress, appear critical of what they see as excessive U.S. secretiveness and substantive "inflexibility" on Taiwan issues. Criticism has been leveled especially at the secretive set of "Taiwan Guidelines"—a lengthy and closely held State Department memo written in 1979-1980 purporting to govern what U.S. officials can and cannot do or say with respect to Taiwan after the severance of official U.S.-Taiwan relations. Under the "Guidelines," for instance, the U.S. government maintains that senior U.S. officials are unable to have any contact with senior Taiwan officials, and that Taiwan officials cannot be received in U.S. government buildings, because the United States does not recognize the government in Taiwan as the legitimate Chinese government. The full "Guidelines" reportedly are extremely confidential even within the U.S. government apparatus, although officials in relevant U.S. government departments are reminded of their basic premises periodically in an abbreviated memo. Reportedly, the only official modification of the "Guidelines" since their original inception occurred during the Clinton Administration in 1993-1994, the principal change being the initiation of U.S. high-level engagement with Taiwan for economic entities. The only public issuance of these modifications appears to have been given in the 1994 testimony of Winston Lord, Assistant Secretary of State for East Asia, before the Senate Foreign Relations Committee. As of the date of this report, evidence suggests that the administration of President Barack Obama will continue to pursue the overall policy direction toward the PRC and Taiwan that past U.S. administrations have followed. But within this broad framework, it still is unclear what shading, if any, the Administration may give to the U.S. policy direction or whether administration officials will undertake another Taiwan policy review to respond to new developments. Some Members of Congress and former U.S. government officials, for instance, have suggested that there is room for more flexibility on the logistics of daily U.S. interaction with Taiwan. In this view, the United States could ease the constraints on U.S. interaction with Taiwan and make clear that routine practical interactions—such as higher-level working visits, permitting Taiwan officials to enter the premises of the State Department and the National Security Council, or more routine treatment of requests for U.S. visits by senior Taiwan officials—have no implications for the U.S. "one China" policy. A few have taken the notion of flexibility even farther, arguing that the United States should scrap the "one China" policy altogether, despite the potentially grave costs to U.S.-China relations, and establish diplomatic relations with Taiwan. Reflecting these views, Members of Congress in recent years have introduced a number of measures calling for changes or for greater flexibility in U.S. policy on Taiwan. Measures introduced in the 111 th Congress as of this writing include: A bill establishing diplomatic relations with Taiwan: H.Con.Res. 18 (introduced January 9, 2009, by Representative John Linder); A measure expressing U.S. concern over and support for peaceful resolution to Taiwan's political status: H.Con.Res. 200 (introduced October 15, 2009, by Representative Robert Andrews); A provision funding democracy assistance to Taiwan: in S. 1434 , the Department of State, Foreign Operations, and Related Agencies Appropriations Act for 2010 (introduced July 9, 2009); And a provision requiring the Pentagon to assess and submit a report on the capabilities of Taiwan's air force and a five-year plan for fulfilling U.S. defense obligations to Taiwan under the Taiwan Relations Act: in S. 1390 , the National Defense Authorization Act for FY2010 (introduced July 2, 2009).

In 1979, official U.S. relations with Taiwan (the Republic of China) became a casualty of the American decision to recognize the government of the People's Republic of China (PRC) as China's sole legitimate government. Since then, U.S. unofficial relations with Taiwan have been built on the framework of the Taiwan Relations Act (P.L. 96-8) and shaped by three U.S.-China communiqués. Under these agreements, the United States maintains its official relations with the PRC while selling Taiwan military weapons and having extensive economic, political, and security interests there. But developments in both the PRC and Taiwan political systems mean U.S. officials continually are facing new policy choices. These developments include ongoing transformations in both Taiwan's and the PRC's political systems, economic and trade cycles and, in 2008, a renewal of contacts, talks, and agreements between the two sides. This report is intended as a background overview of the historical and political complexity associated with Taiwan's status in the world and its continuing policy ramifications. In brief, this report discusses the civil war on China in the 1940s that resulted in the victory of communist forces and the ROC government's flight to Taiwan; reviews the Taiwan government's continued recognition as the sole government of China by much of the world and the United States until 1979; and discusses the Taiwan government's eventual loss of diplomatic relations with the United States and with all but a handful of countries. The report further discusses how the United States handles its extensive ongoing economic and security interests in Taiwan in the absence of official relations, and places in context the recurring policy complications that these interests pose for U.S. relations with the PRC. This report lays out the background and framework that affect how U.S. relations with both Taiwan and China are conducted today. This report will not be updated, and readers wishing to follow current policy issues involving Taiwan and China should consult other regularly updated CRS reports. As of the date of this report, these include CRS Report R40493, Taiwan-U.S. Relations: Developments and Policy Implications; and CRS Report RL30957, Taiwan: Major U.S. Arms Sales Since 1990. Relevant legislation introduced in the 111th Congress as of the date of this report includes a measure that would establish diplomatic relations with Taiwan (H.Con.Res. 18, introduced January 9, 2009); a measure expressing U.S. concern over and support for peaceful resolution to Taiwan's political status (H.Con.Res. 200, introduced October 15, 2009); a provision funding democracy assistance to Taiwan (in S. 1434, the Department of State, Foreign Operations, and Related Agencies Appropriations Act for 2010, introduced July 9, 2009); and a provision requiring the Pentagon to assess and submit a report on the capabilities of Taiwan's air force and a five-year plan for fulfilling U.S. defense obligations to Taiwan under the Taiwan Relations Act (in S. 1390, the National Defense Authorization Act for FY2010, introduced July 2, 2009).

Introduction and Overview of the VA Health Care System The Department of Veterans Affairs (VA), through the Veterans Health Administration (VHA), operates the nation's largest integrated direct health care delivery system. While Medicare, Medicaid, and the Children's Health Insurance Program (CHIP) are also publicly funded, most health care services under these programs are delivered by private providers in private facilities. In contrast, the VA health care system is a truly public health care system in that the federal government owns the medical facilities and employs the health care providers. The VA's health care system is organized into 21 geographically defined Veterans Integrated Service Networks (VISNs) (see Appendix ). Although policies and guidelines are developed at VA headquarters, to be applied throughout the system, management authority for basic decision making and budgetary responsibilities are delegated to the VISNs. VHA's health care delivery network includes 153 hospitals (medical centers), 135 nursing homes, 803 community-based outpatient clinics (CBOCs), 6 independent outpatient clinics, and 271 Readjustment Counseling Centers (Vet Centers), which are supported by more than 242,000 employees. In general, eligibility for VA health care is based on veteran status, service-connected disabilities or exposures, income, and other factors such as former prisoner of war (POW) status or receipt of the Purple Heart. As required by the Veterans Health Care Eligibility Reform Act of 1996 ( P.L. 104-262 ), most veterans are required to enroll in the VA health care system to receive care. Once enrolled, veterans are assigned into one of the eight priority groups based on various criteria. For instance, veterans who are rated 50% or more service-connected disabled or who are unemployable due to service-connected disabilities are enrolled in Priority Group 1. According to VA, there are approximately 23.1 million living veterans in the U.S. Of these, approximately 8.3 million (36%) were enrolled in the VA health care system, and over 5.0 million unique veteran patients received care from the VA in FY2009. Generally, veterans have a choice of where they receive their care. While some veterans rely more heavily on care through the VA health care system, the majority of veterans not enrolled in the VA health care system receive care through the private sector which is financed by Medicare, private health insurance, or the military health care system. VHA is a direct health care provider, but it is not generally a third-party payer of care. For veterans who are eligible to receive care through the VA health care system, the decision on whether to receive care from the VA may depend on a variety of factors, such as out-of-pocket costs, distance, and waiting times for appointments, among other things. In general, VHA provides a majority of medical services to enrolled veterans within its health care system. However, in some instances, such as when a clinical service cannot be provided by a VA medical center, and the patient cannot be transferred to another VA medical facility; or when VA cannot recruit a needed clinician; or when a veteran is unable to access VA health care facilities due to geographic inaccessibility; or in emergencies when delays could lead to life threatening situations; VA is authorized to send the veteran outside of its health care system to seek care. VHA uses two major mechanisms to provide care outside its health care system. These include contracts to purchase care, or non-contracted medical care purchased on a fee for service basis from providers in the community. See the box below for a brief description of these methods. In 2006, Congress directed VHA to implement a contracting pilot program, which was later named Project Healthcare Effectiveness through Resource Optimization (Project HERO ) to better manage the fee basis care program (discussed later in this report). Policymakers and other stakeholders hold a variety of views regarding the appropriate role of the private sector in meeting the health care needs of eligible veterans. Some believe that the best course for veterans is to provide all needed care in facilities under the direct jurisdiction of the VA. On the other hand, some see the use of private sector providers as important in assuring veterans' access to a comprehensive slate of services (in particular, to specialty services that are needed infrequently), or in addressing geographic or other access barriers. In addition, those who believe that all needed care should be provided by VA providers in VA-owned facilities are concerned that private sector options for providing care to veterans will lead to a dilution of quality of care in the VA health care system, and could fail to leverage key strengths of the VHA network, such as its system of electronic medical records. However, some propose that over the long term, having private sector options could improve the quality of services within the VHA network through competition. Reaching the correct balance between providing care through VA's health care network and through non-VA providers is an issue for policymakers, as well as for the VHA and other stakeholders. In addition to these broad concerns, Congress has been interested in specific aspects of VHA's use of private health care services. First, expenditures for contract and fee basis care services are increasing. In FY2008, VHA spent approximately $3.0 billion for contract and fee basis care. By FY2009, that amount had increased by 27% to approximately $3.8 billion. These expenditures now comprise an estimated 9% of VHA's $41.9 billion total appropriations. Second, specific concerns have been raised about the fee basis care program. The program is complex, highly decentralized, and lacks a standardized implementation process across the VA health care system. Specifically, VA's Office of Inspector General (OIG) has reported that VHA has made a significant number of improper payments for fee basis care, and in some instances has not properly justified and authorized care. Congress established the Project HERO demonstration to determine if it could provide better management of non-VA provided care. At least two policy questions about Project HERO may be of interest to Congress: 1. Has Project HERO enhanced the existing fee basis care program? 2. Are there findings from Project HERO that could be applied to standardize the fee basis care program throughout the VA health care system? To provide some context to the discussion of these questions, this report first provides an overview of Project HERO. Second, it discusses the current fee basis care process, as well as the implementation of Project HERO. The report concludes with a discussion of observations on the implementation of Project HERO based on VHA and Humana Veterans Healthcare Services Inc. (HVHS) perspectives. This report is based on information received during visits to three of the four Project HERO demonstration sites as well as discussions with officials from HVHS. Although the provision of dental care through Delta Dental Federal Services is part of Project HERO, this report does not discuss this aspect of the program. Project Healthcare Effectiveness through Resource Optimization (Project HERO) As stated earlier, in 2006, Congress directed VHA to implement a contracting pilot program, to better manage the fee basis care program. The conference report ( H.Rept. 109-305 ) to accompany the Military Quality of Life and Veterans Affairs Appropriations Act, 2006 ( P.L. 109-114 ), directed the VA to implement a cost-effective purchased care management program and to develop at least three objectives-oriented demonstrations (pilot programs) to encourage collaboration with industry and academia. According to the conference report: The conferees support expeditious action by the Department to implement care management strategies that have proven valuable in the broader public and private sectors. It is essential that care purchased for enrollees from private sector providers be secured in a cost effective manner, in a way that complements the larger Veterans Health Administration system of care, and preserves an important agency interest, such as sustaining a partnership with university affiliates. In that interest, the VHA shall establish, through competitive award by the end of calendar year 2006, at least three managed care demonstration programs designed to satisfy a set of health system objectives related to arranging and managing care. The VA began developing plans based on this requirement. However, although the conference report language directed VA to implement a managed care demonstration, after meetings with various stakeholders VHA developed a set of objectives that led to a demonstration program to enhance the existing fee basis care program. Its goals were to provide as much care for veterans within the VHA system as possible; when necessary, efficiently refer veterans to high-quality community-based care; improve exchange of information between VA and community providers; increase veteran patient satisfaction; foster high-quality care and patient safety; sustain partnership with university affiliates; and secure an accountable evaluation of demonstration results. To implement this demonstration VHA selected four Veterans Integrated Service Networks (VISNs), based on data that showed that these four networks had the highest expenditures for community-based care relative to the number of veterans enrolled for care. In addition, these areas included some of VHA's largest networks representing 25% of VHA's total enrollment. A contract for medical services was awarded on October 1, 2007, to Humana Veterans Healthcare Services Inc. (HVHS). Medical, surgical, mental health, diagnostic, and dialysis services became available through a network of providers recruited by HVHS. The demonstration program became operational on January 1, 2008. Overview of Fee Basis Care17 Services provided in non-VA health care facilities and by non-VA providers fall into two broad categories: contract care and fee basis care. Since Project HERO is a pilot to enhance fee basis care, this part of the report will first provide an overview of the current fee basis care process in the VHA. Under this system VA health care facilities are authorized to pay for health care services acquired from non-VA health care providers. VA manages the authorization, claims processing and reimbursement for services acquired from non-VA health care providers through the fee basis care program. The fee basis care program is used predominantly to provide outpatient care. Outpatient fee care involves two major phases: (1) pre-authorization of care and (2) claims processing. Figure 1 provides a generalized depiction of the pre-authorization phase. As seen in Figure 1 a VA health care provider (generally a clinician) requests a specific health care service or procedure for the veteran and justifies use of non-VA care because of the lack of clinical capacity or capability to provide the service to the veteran. After the initial consult is received by the fee basis care program office at the local VA medical center (VAMC), the Chief Medical Officer (CMO) at the program office, or a designated official, reviews the request and authorizes the care if it is determined to be appropriate. Following this first stage of review, fee basis care program office staff reviews the authorization. They review it to see if the veteran is eligible for the program and whether an appropriate justification has been provided. Once the veteran is notified that the service is authorized, he or she selects a provider and receives services. The next phase of the fee basis care program is the processing of fee claims. Figure 2 provides a generalized depiction of receipt and payment of claims. Once the veteran receives care from a non-VA provider, the provider sends a claim to the fee basis care program office at the VAMC that authorized the care. The fee basis care program office staff then reviews the claim to ensure that billed services match the services that were authorized. Following this review, staff determines the correct pricing methodology and payment rate based on the type and location of care provided. In the next step the claims are "scrubbed," or validated, to ensure that they are properly coded. After this step staff releases the claim to the Finance Services Center in Austin, Texas to certify fee disbursements to the Department of the Treasury, and the non-VA provider receives an electronic payment. How Project HERO Works Compared to Fee Basis Care Under Project HERO, veterans receive primary care at their local VA health care facility, as is the case under the regular fee basis care program. Similarly, if a VA health care provider determines that the specific medical expertise or technology is not readily available at the local facility then the provider requests that the service be obtained from a non-VA provider. The consult request is reviewed by the fee basis care CMO and, if the CMO concurs, the request proceeds to the fee basis care program office. At this point in the process, the fee basis care program office determines whether to send the referral to Project HERO (based on whether the services are provided within a reasonable distance under Project HERO), and if so sends an authorization for care to HVHS. Generally, authorizations are provided to HVHS for each episode of required care. In contrast to the regular fee basis care program in which the veteran selects his or her own provider, under Project HERO HVHS contacts the veteran by phone to schedule an appointment with an HVHS network provider. During this process appointment details are communicated back to the referring VA health care facility, and the veteran receives a letter with appointment details and instructions. According to HVHS officials, the veteran receives a reminder call prior to the appointment. HVHS coordinates the transfer of any required pre-visit clinical information from the local VA medical facility to the HVHS network provider. After the veteran is seen by the HVHS network provider, and if additional services are needed, HVHS sends a request back to the referring VAMC for authorization. Under the contract, HVHS is required to return clinical information from the visit back to the referring VA medical facility—typically within 30 days of the appointment. In contrast to regular fee basis care, where clinical information is received directly from the non-VA provider to the referring medical facility, under Project HERO all clinical information is channeled through HVHS. When possible, the information is returned in an electronic format. Otherwise, the information is sent through fax or in hard copy format. Once the clinical information is received, the referring VA medical center reviews it for coordination of care and uploads it into the Computerized Patient Record System (CPRS). Timely return of clinical information to the referring VA medical center is not a requirement under the regular fee-basis care program. Moreover, there is a simplification of claims payment under Project HERO compared to the regular fee basis care process (see Figure 2 ), whereby under Project HERO the network provider submits a claim to HVHS and is paid within about 30 days, and HVHS then submits electronic claims to VA for payment. A general depiction of this process is provided in Figure 3 and Figure 4 . Project HERO Implementation This section provides a brief overview of implementation of the Project HERO demonstration in the four pilot VISNs. This section will discuss utilization of the program compared to regular fee basis care and VA provided care, quality of care under Project HERO, and reimbursement and cost of care under the demonstration program. Utilization Project HERO is primarily an outpatient program. According to VHA data, between January 2008 and September 30, 2009, approximately 51,000 veteran patients received care through Project HERO within the four participating VISNs, compared to approximately 481,000 patients who received care through VHA's regular fee basis care program ( Figure 5 ). During this same time period there were approximately 111,000 outpatient visits under Project HERO authorizations compared to approximately 1.8 million outpatient visits under regular fee basis care authorizations ( Figure 6 ) . As seen in the figures below, Project HERO represents a small percentage of all outpatient medical care provided by VHA. Quality of Care One objective for Project HERO is to ensure that veterans receive high quality care, even when that care is provided by non-VA providers in the community. The Project HERO demonstration includes measures of care along five dimensions: (1) timeliness of access to care, (2) return of clinical information, (3) facility accreditation, (4) patient safety, and (5) complaints. In addition, the demonstration also conducts patient satisfaction surveys. The demonstration project is in its early stages, and the metrics are evolving. However, CRS was able to obtain some preliminary information. Project HERO is used to provide quality health care when needed health care services are not available. "Not available" means that services are not offered at all, are not available within a reasonable amount of time, or are not available within a reasonable distance, within the VA health care system. Currently, VHA policy has established a goal of scheduling appointments within 30 days of the desired appointment but not more than four months beyond the desired appointment date. When a specific appointment date is not requested, VHA policy requires the scheduler to use the next available appointment. Furthermore, VHA policy also requires that all appointment requests, including consult referrals to a specialist, must be acted on by the medical facility within seven days. The contract requires that HVHS report the following metrics as part of the standard evaluation of access to care: number of times care is provided within 30 days, number of appointments scheduled within 5 days, and number of patients seen within 20 minutes of appointment time. HVHS reports that in August 2009, 93.9 % of appointments were scheduled within five days of receipt of authorization, and that the average time it took to schedule an appointment was 2.1 business days once an authorization was received. HVHS also claims that in the same month 88.2% of the referred patients were seen by a HVHS provider within 30 days. Under Project HERO, VHA did not establish drive time or distance requirements in the contract with HVHS. However, due to the need for such a standard, a business process has been mutually agreed upon by VHA and HVHS. HVHS notifies the referring VA medical center if the care provider is more than 50 miles from the veteran's home address. The referring VA medical center can determine if it is a reasonable distance based on where the veteran lives. If the VA medical center staff believes they can obtain care closer to the veteran, they can cancel the HVHS authorization and issue a regular fee basis care authorization. With respect to the return of clinical information, under the Project HERO demonstration HVHS is required to provide clinical data generated as result of a routine referral for authorized care to the referring medical facility within 30 days of the appointment date, although this is not a requirement under the regular fee basis care program. Early reports from the Project HERO Program Management Office indicated that HVHS did not meet the 100% standard, and showed a downward trend in this measure, meaning that the percentage of records returned within 30 days was declining. In September 2009, HVHS claimed that it was working on process improvements and on educating noncompliant providers. HVHS reported in August that average business days to return clinical information is 14.3 days. Accreditation of facilities and credentialing of providers are seen as proxy measures to evaluate quality of clinical care provided. Generally, under the regular fee basis care program, once a veteran is authorized to receive care outside the VA health care system, the veteran is free to choose a provider within the community. Therefore, although the provider may be licensed to practice medicine within the state, he or she is not necessarily credentialed in a manner similar to the credentialing process that VHA uses to credential its own health care providers. However, under Project HERO requirements, HVHS has stated that it recruits credentialed providers using the same guidelines that VHA uses for its providers. Credentialing includes verification of appropriate education, certificates, licensing, criminal record, registrations and insurance. According to HVHS it only sends veterans to providers who meet VA credentialing requirements. In addition, the Project HERO HVHS network of providers is required to practice at Joint Commission accredited facilities. Currently all facilities providing inpatient care within the contractor network are accredited by one of the following organizations: The Joint Commission, the Commission on Accreditation of Rehabilitation Facilities (CARF), The Intersocietal Commission for the Accreditation of Vascular Laboratories (ICVAL), or the American Osteopathic Association (AOA). According to the VA, the Project HERO Program Management Office audits HVHS for provider credentialing and facility accreditation, and to date, the VA has stated that the audit results have shown that HVHS providers are compliant with credentialing requirements. According to the VHA National Patient Improvement Handbook, patient safety is ensuring freedom from accidental or inadvertent injury during health care processes. Under Project HERO patient safety incidents must be reported within one business day to the referring VA medical facility, and these violations are required to be investigated and resolved by VHA and HVHS. In its July 2009 monthly report, the Project HERO Program Management Office did not report any patient safety violations. With respect to complaints, a majority of complaints in the July 2009 report were related to the authorization process. For example: "one veteran was sent to a provider who could not perform the procedure needed," "another veteran had an appointment rescheduled and his medical records were not requested," and "another veteran went to an appointment and was told that the appointment was not scheduled for him." As part of Project HERO, HVHS conducts surveys of patients to measure patient satisfaction, and these are reported to the Project HERO Program Management Office. In its July 2009 report (representing averaged data from October 2008-March 2009), the Project HERO Program Management Office indicated that over 75% of patients were very or completely satisfied with their visit and 80% rated the overall quality of the visit as very good or excellent. However, only 52% were satisfied with their appointment wait times. Costs and Reimbursements Project HERO prices for medical care are a negotiated percentage of U.S. Department of Health and Human Services (HHS), Centers for Medicare and Medicaid Services (CMS) rates based on the local market rates where the services are provided. In contrast, under the regular fee basis care, with the exception of physician services, dialysis and laboratory testing, VHA does not have authority to pay at CMS rates. VHA pays for regular fee basis outpatient care based on the lesser of the amount billed by the provider or the amount calculated using a formula developed by CMS's participating physician fee schedule for the period in which the service is provided. If there is no calculated amount under the CMS's participating physician fee schedule, reimbursements are based on the lesser of the actual amount billed or the amount calculated using the VA's 75 th percentile methodology or the usual and customary rate. Under Project HERO, VHA pays HVHS a value added fee that ranges from $30.75 to $48.09 per claim, and these amounts vary by VISN and type of service ( see Table 1 ). The value added fee supports provision of such services as: coordinating appointments for veterans; returning clinical information (for example medical records) to VHA; processing provider invoices for reimbursement to providers; and monitoring and reporting access to care, appointment timeliness and patient safety. As seen in Table 2 , in FY2008 VHA paid approximately $69,000, and for FY2009 it paid HVHS approximately $3.3 million in value added fees. Discussion Stakeholders have voiced various concerns about care provided outside the VA health care system, and these concerns have been voiced regarding both contract care and fee basis care. Some Veterans Service Organizations (VSO) are concerned that a mixture of government providers and private providers could grow over time and place at risk the VA health care system as a whole. Unions are concerned that care provided by non-VA providers would eventually lead to "outsourcing of functions that have traditionally been performed in-house." Congress has expressed concern with the growth of non-VA provided care, and whether VHA is prudently using taxpayer dollars to purchase care for veterans. Congress has also expressed concern about whether VHA can ensure timely access to quality care when that care is provided by outside providers. The Project HERO demonstration is characterized by the VA as an effort to address these concerns and in the early stage of its implementation is perceived to have achieved mixed results. The next part of this report addresses the two questions posed at the beginning of this report. Has Project HERO Enhanced the Fee Basis Care Program? During visits to three of the four demonstration sites CRS heard mixed reviews about the pilot program. Some categorized it as a "tool in a toolbox" meaning that Project HERO was one of many options a VA medical facility could use to provide care outside the VA health care system (other options include care through medical school affiliates or through existing contracts with local providers, among others). Some officials categorized Project HERO as a "concierge service" where HVHS guides the veterans in scheduling appointments and ensuring that clinical information is provided to a network provider and then transferred back to the VA, as well as maintaining a credentialed network of providers, and claims payment to providers. The current Project HERO demonstration could be categorized as an enhancement of the regular fee basis care program. The demonstration pilot provides a single point of contact for those veterans who are authorized to receive care outside the VA health care system. Under the demonstration HVHS works with the veterans and the HVHS network provider in scheduling the appointment. It also allows the veteran to seek care from a credentialed provider, as well as facilitates the transfer of medical information, thereby assisting with care coordination. Furthermore, under Project HERO, VA does not have the responsibility for paying for care provided outside the system directly to non-VA providers. However, VA pays for these services through value added fees to HVHS. Are There Lessons to Be Learned from the Pilot Program? (1) Establishing a robust network of providers takes time, even when dealing with an established health care services provider. Most VISNs stated that early on in the pilot HVHS had fair to moderate success building its network of providers within the VISN, and that the short implementation period between the time the contract was awarded in October 2007 to when it became operational in January 2008, was inadequate to establish a robust network of providers. This was especially true in VISNs that had rural or highly rural areas. According to some VISN officials, in some instances this lack of a network of providers has resulted in ongoing challenges in providing timely access to medical care. HVHS has asserted that based on feedback received from the Project HERO Program Management Office, it has worked with VA to resolve most of these issues. For example, HVHS has adapted to the changing clinical needs of each VISN and has attempted to recruit a provider network to meet those clinical needs. (2) Establishing services and pricing, and keeping them up-to-date, is a challenge. Some VISNs stated that clinical care services included in the contract were based on prior needs and did not meet the current needs of the network. Some VISNs also raised the issue that some contract pricing is higher than what VA would have paid under the regular fee basis care, and that some services are cost-prohibitive when the value-added fees are applied. However, the Project HERO Program Management Office has noted that 89% of Project HERO prices are at or below CMS rates, and that amounts paid to providers are less than 7% of the regular fee basis care program. (3) Education is key to a successful functioning network. Almost all VISNs stated that there has been organizational resistance to change. According to VISN staff, the primary implementation challenge has been providing training to staff at all levels of the organization, especially educating providers and fee basis care office staff. This has been true even for providers recruited by HVHS, especially when they are required to send clinical information back to the VA. (4) The project has yielded information that could be applied to the existing regular fee basis care program. First, without the electronic sharing of medical records between the VA health care system and non-VA providers, there are delays in the transfer of clinical information. In some instances this delay may result in a VA provider not being alerted to the need for immediate follow-up care required based on a diagnosis or laboratory result. Second, VHA's regular fee basis care program could adopt certain quality metrics that are currently used under Project HERO, such as how far the veteran travels to receive his or her care as well as how long the veteran waits once he or she arrives for an appointment. Lastly, VA could develop a provider network within each VISN that the veteran could be referred to so that the veteran receives care from provider who has been credentialed similarly to a VA provider. However, prior to implementing this pilot demonstration throughout the VA health care system, it may be useful to conduct an independent evaluation to conclusively measure if Project HERO has been a worthwhile effort. Appendix. Veterans Integrated Services Networks (VISNs)

In general, the Department of Veterans Affairs (VA), through the Veterans Health Administration (VHA), provides a majority of medical services to veterans within its health care system. However, in some instances, such as when a clinical service cannot be provided by a VA medical center, when a veteran is unable to access VA health care facilities due to geographic inaccessibility, or in emergencies when delays could lead to life threatening situations, VHA is authorized by law to send the veteran outside of VA's health care system to seek care. In 2006, the conference report to accompany the Military Quality of Life and Veterans Affairs Appropriations Act of 2006 (P.L. 109-114, H.Rept. 109-305) directed the VA to implement a cost-effective purchased care management program and to develop at least three pilot programs to encourage collaboration with industry and academia. In response to this requirement, VHA established a demonstration program to enhance the existing fee basis care program that was named Project HERO (Healthcare Effectiveness through Resource Optimization). In October 2007, VA awarded a contract to Humana Veterans Healthcare Services (HVHS) for medical/surgical, mental health, diagnostic and dialysis services, and the contract became operational in January 2008. Under Project HERO, HVHS maintains a prescreened network of health care providers who meet VA quality standards. In general, when a patient requires a specific service, and the local VA medical center does not have the specific medical expertise or the technologies to meet that necessity, the local VA medical center authorizes the specific service to be provided under Project HERO. Once the veteran receives care, HVHS is contractually required to return the patient's medical record to the local VA medical center, and HVHS sends the claims data to VA for reimbursement. VHA's contract and fee basis care expenditures are of interest to Congress for at least two reasons. First, expenditures for contract and fee basis care services are increasing, and second, concerns have been raised about the fee basis care program. Specifically, VA's Office of Inspector General (OIG) has reported that VHA has made a significant number of improper payments for fee basis care as well as in some instances has not properly justified and authorized fee basis care. Given these concerns, and the establishment of the Project HERO demonstration as a means to better manage non-VA provided care, at least two broad policy questions may be of interest to Congress: (1) Has Project HERO enhanced the existing fee basis care program? and (2) Are there lessons to be learned from the Project HERO demonstration that could be applied to standardize the fee basis care program throughout the VA health care system? This report first provides a brief overview of the VA health care system, followed by a overview of Project HERO. Second, it discuses the current fee basis care process, as well as the implementation of Project HERO. The report concludes with a discussion of observations on the implementation of Project HERO based on VHA and HVHS perspectives. It should be noted that although dental care services are a component of Project HERO, and are provided through Dental Federal Services (Delta Dental), this report does not discuss dental care services provided under Project HERO. This report will be updated if events warrant.

Introduction HOPE VI is a public housing reform program. Through HOPE VI, the Department of Housing and Urban Development (HUD) provides funds to rehabilitate or demolish public housing and replace it with housing that serves both the poor as well as the middle class. In order to understand HOPE VI and its issues, it is important to first understand a brief history of the larger public housing program. History of Public Housing The Low-Rent Public Housing program was created as a part of the U.S. Housing Act of 1937 (P.L. 75-412). The Depression-era program was intended to stimulate construction activity, clear slums, and provide low-rent housing to poor families. As designed under the act, public housing is built and operated by local, quasi-governmental, public housing authorities (PHAs). Tenants who live in public housing typically pay 30% of their adjusted gross incomes toward rent, although they can opt for a market-based flat rent and PHAs can choose to institute minimum rents of up to $50 per month. PHAs are able to keep public housing rents low because local governments provide property tax reductions and the federal government provides both capital and operating subsidies to supplement the low rents paid by tenants. From its inception, public housing has faced a number of barriers to success. Many communities were resistant to accepting public housing. This opposition, paired with strict federal rules about how much could be spent to build a unit of public housing, led to the construction of public housing developments in undesirable areas, such as near railroad tracks, highways, and industrial zones. The housing that was constructed was often high-density, high-rise structures. This form of development has often been characterized as "the projects." In addition to location and construction problems, many projects faced management problems. Although many public housing projects were run by effective and efficient PHAs, others had inexperienced PHAs, or in some cases, negligent PHAs, who were unable or unwilling to deal with problems as they arose. Furthermore, PHA budgets were often insufficient to maintain the properties. It was thought at the time the program was created that most tenants would be working adults whose incomes would increase until their economic situation improved enough that they could move out of public housing. This was the case in the early years of the program. However, policies that adopted rent levels based on incomes rather than operating costs and gave priority to the elderly and disabled, paired with changing demographics and a growth in single-mother-headed households, resulted in a population of public housing residents that was very different than originally envisioned. Today, about half of public housing residents are elderly or disabled and about half are non-elderly, non-disabled single-adult-headed households, the majority with children. Of those non-elderly, non-disabled households, only about half have income from work, while the other half either receive some form of cash assistance, such as welfare, or report no income. Today's public housing serves the very poor, who are only required to pay a percentage of their income toward rent. Since the rent that PHAs receive from tenants is so low, public housing is dependent on congressional appropriations, and the budget has not always kept up with need. Many units of public housing fell into disrepair, and some units had to be left vacant because they were no longer habitable. Public housing, over time, became known for terrible living conditions. Research has shown that communities with high concentrations of poverty often fall victim to myriad social ills. The often dense, high-rise structures of public housing became riddled with crime, drugs, and violence. Public housing was the primary government housing program for the poor until the late 1970s. However, out of growing concern about the problems with public housing, and other government-subsidized housing construction programs, President Nixon declared a moratorium on federal housing construction programs in 1973. In 1974, Congress authorized the Section 8 program, which provided subsidies to allow low-income families to live in private market housing. It was hoped that through partnerships with the private sector, the Section 8 program could avoid the problems faced by public housing. The Section 8 program also introduced tenant-based assistance, which subsidized tenants rather than units, giving tenants the option to move. Tenant-based assistance has grown in popularity, partially out of the hope that it can prevent concentrations of poverty in neighborhoods. Over time, Section 8 overtook public housing as the government's largest housing program for the poor; today, almost twice as many households are served by Section 8 than are housed in public housing. Basis for HOPE VI Although new construction of public housing had ended by the early 1970s, over 1 million units of public housing were still occupied, and many were still plagued by problems. In order to determine how to deal with the existing stock of public housing, Congress created the National Commission on Severely Distressed Public Housing ( P.L. 101-235 ) in 1989. The commission was mandated to identify those public housing projects that were in a severe state of distress; assess the most promising strategies for improvement; and develop a national action plan. In 1992, the commission issued its findings and recommendations on the state of the nation's public housing. The commission labeled 6% of the public housing stock as severely distressed, at the time, equal to 86,000 units. It also reported finding the following: residents afraid to move about in their own homes and communities because of the high incidence of crime; high unemployment and limited opportunities for the meaningful employment of residents; programs designed to address the conditions with too few resources, provided too late; programs designed to assist residents of public housing that provide disincentives to self-sufficiency; and families living in physical conditions that have deteriorated to a degree that renders the housing dangerous to the health and safety of residents. The national action plan presented by the commission included proposals for change in five major categories: Addressing the needs of residents : recommendations included increasing funding for social services, increasing coordination among federal agencies that provide social services, and promoting economic development opportunities for residents. Addressing the physical conditions : recommendations included increasing funding for capital improvements, providing national leadership to PHAs in planning and design, establishing a model process to eliminate the causes of severe distress, and increasing coordination among government programs that support the rehabilitation of severely distressed housing. Addressing management needs : recommendations included providing funding for security, further tying PHA funding to performance, and promoting income-mixing in public housing. Other strategies : recommendations included encouraging PHAs to pursue private and non-profit management opportunities, increasing and improving available data on public housing, creating a new office on severely distressed public housing at HUD, and encouraging Congress to authorize a new partnership program between PHAs, non-profits, the private sector, and residents to attract additional resources to public housing. History of HOPE VI HOPE VI began as a demonstration program, created in reaction to the findings of the National Commission on Severely Distressed Public Housing. The commission's National Action Plan was presented in August 1992; in October 1992 the final version of the FY1993 HUD appropriations bill ( P.L. 102-389 ) passed Congress, including $300 million for an Urban Revitalization Demonstration program. Under the demonstration, the Secretary of HUD was to choose 15 cities, based on need, to receive up to $50 million each to revitalize distressed public housing. Each city was required to spend 80% of its funds toward the capital costs of major reconstruction, rehabilitation and other physical improvements, the capital costs of replacement units and/or Section 8 certificates, management improvements for the reconstructed project, and for planning and technical assistance purposes. The remaining 20% was to be used for community and supportive services. PHAs were required to match 15% of all funds provided. From 1993 until 1998, the Urban Revitalization Demonstration, now commonly referred to as HOPE VI, continued to receive funding through annual appropriations bills; however, the program remained unauthorized. The law governing the program was contained within annual appropriations bills and the requirements for eligibility and funding changed from year to year. HUD administered the law not through regulation, but in the directions it issued along with each annual Notice of Funding Availability (NOFA), to which communities would apply for HOPE VI funding. Changes to the program, in addition to those mandated by annual appropriations laws, were included in these NOFAs. The FY1999 HUD appropriations bill ( P.L. 105-276 ) included a major public housing reform initiative, the Quality Housing and Work Opportunity Reconciliation Act (QHWRA), that authorized the HOPE VI program. QHWRA codified four purposes for the program: improving the living environment for public housing residents of severely distressed public housing projects through the demolition, rehabilitation, reconfiguration, or replacement of obsolete public housing projects (or portions thereof); revitalizing sites (including remaining public housing dwelling units) on which such public housing projects are located and contributing to the improvement of the surrounding neighborhood; providing housing that will avoid or decrease the concentration of very low-income families; and building sustainable communities. In the law, severely distressed public housing was defined as public housing that requires major redesign, reconstruction or redevelopment, or partial or total demolition; is a significant contributing factor to the physical decline of and disinvestment by public and private entities in the surrounding neighborhood; is occupied predominantly by families that are very low-income families with children, unemployed, and dependent on various forms of public assistance; or has high rates of vandalism and criminal activity (including drug-related criminal activity) in comparison to other housing in the area; cannot be revitalized through assistance under other programs because of cost constraints and inadequacy of available amounts; and is lacking in sufficient appropriate transportation, supportive services, economic opportunity, schools, civic and religious institutions, and public services, resulting in severe social distress in the project. QHWRA authorized funding for HOPE VI through the end of FY2002 and included a sunset clause which stated that no assistance could be provided to the program after September 30, 2002. The FY2003 HUD appropriations bill ( P.L. 108-7 ) extended authorization for the HOPE VI program through the end of FY2004 and P.L. 108-186 reauthorized the program, with some changes, through FY2006. Each year since, Congress has extended the program's authorization in the annual appropriations acts. The program lacks formal regulation; guidance is set out for each cohort of grantees in the annual Notice of Funding Availability to which they apply for funds. The Program The purpose of the HOPE VI program is to revitalize severely distressed public housing developments and transform them into safe, liveable environments. As described by HUD, this includes changing the physical characteristics of public housing from high-rise tenements to attractive, marketable units that blend in with the surrounding neighborhoods; lessening concentrations of poverty by reducing density and promoting mixed-income communities; encouraging partnerships with other agencies and local governments for support and resources; achieving high-quality management in public housing and enforcing strict eviction rules; and helping residents to attain self-sufficiency by providing services and educational opportunities, and by encouraging economic development in the area surrounding public housing. HUD seeks to meet the goals of the HOPE VI program by providing grants to PHAs for revitalization, or if this is not economically feasible, for demolition of distressed public housing. The majority of funds are awarded through revitalization grants; funds have also been awarded through demolition grants (until FY2004) and planning grants (until FY1995). A 2003 HOPE VI reauthorization law ( P.L. 108-186 ) created a fourth type of HOPE VI grant, designed to promote "main street" revitalization in small communities, which is unrelated to public housing. HOPE VI Funding and Grants Funding for the HOPE VI program increased in the beginning, but remained relatively steady over many years. However, in the face of mounting budget pressures and a desire from the Bush Administration to eliminate funding for the program (discussed later in this report), Congress enacted a major decrease in funding in FY2004 that has been continued each year since. Table 1 presents HOPE VI appropriations from FY1993 to FY2012. This funding has been used to provide 587 grants. Table 2 shows the amount and number of grants awarded, by type, from FY1993 to FY2009. Planning Grants Thirty-five planning grants were awarded to PHAs between 1993 and 1995. They were used to pay for studies of the area to be revitalized; to develop a plan for revitalization; for economic development; and for technical support. Planning grants were suspended after 1995, because HUD believed that there were enough examples of PHAs that had begun the revitalizing process that the technical assistance was no longer necessary. Demolition-Only Grants In 1996, HUD established a goal of demolishing 100,000 units by the year 2003. Since then, the department has awarded 284 demolition-only grants. PHAs are awarded these grants when it is not economically feasible to redesign or reconstruct the existing units of a project. They are used to demolish existing units and to relocate the affected tenants in replacement housing, which could include providing them with tenant-based vouchers. Often, demolition-only grants are used as precursors to future HOPE VI revitalization grant initiatives. Since FY2004, when funding for HOPE VI was significantly reduced, HUD has not made any demolition-only grants available. Main Street Revitalization Grants The American Dream Downpayment Act ( P.L. 108-186 ) added a new category of HOPE VI grants. Main Street Revitalization grants are awarded to units of local government (rather than PHAs) in small communities (with a population under 50,000) that are not currently served by a PHA, or are served by a small PHA (administer 100 or less units) and that have an active main street rejuvenation effort. Historically, the majority of HOPE VI grants have gone to large cities, arguably where the most blighted public housing is found. Funds can be used to develop affordable housing that is located in a community area that is undergoing a historic main street revitalization; there is no requirement that the use of funds be at all related to public housing. Main Street grants are statutorily capped at $1 million each (although HUD capped grants at $500,000 each in FY2005), and grantees must match at least 5% of the grant award. The grants are funded through a 5% set-aside in the HOPE VI annual appropriation. The first round of grants was made available in FY2004, but awarded in FY2005. Revitalization Grants The bulk of funding provided for the HOPE VI program has been awarded through revitalization grants, which is the most well-known component of the program. HUD has awarded 246 revitalization grants since the inception of the HOPE VI program. They can be used for the development of new public housing, rehabilitation of existing public housing, demolition and/or disposition of existing public housing, the creation of homeownership replacement units, the acquisition of new property, the relocation of displaced residents, community and supportive services for residents, and administrative fees and costs. Up to 20% of grant funds may be used for community and supportive services programs. Grantees must match grant funds, and they are generally used to leverage other resources. Over the history of the HOPE VI program, over $6 billion worth of revitalization grants have been awarded to PHAs in 36 states and territories. In addition, $10 million in Main Street Revitalization grants have been awarded, including to five states which had never received HOPE VI Revitalization grants. Table 3 shows the breakdown of revitalization grants and awards by state. The Application and Awards Process Each year, HUD publishes a NOFA in the Federal Register inviting PHAs to apply for HOPE VI grants. The NOFA includes application procedures and requirements, which change somewhat every year. PHAs submit applications requesting a specified amount of money to be used to implement a plan that they have detailed to HUD. Demolition-Only Grants Demolition-only grants were awarded on a first-come, first-served basis. Once the NOFA was published, eligible PHAs could apply. In order to be eligible, a PHA had to fall into one of four priority groups that involve the mandatory or voluntary demolition of public housing or prior approval for a revitalization grant. HUD screened applications as they arrived to ensure that they were in a priority group and that they met minimum requirements. For example, in 2003, minimum requirements included a cap of 2,500 units to be demolished per applicant, a plan to relocate residents, and proof that the units are in severe distress. HUD funded eligible applicants on a first-come, first-served basis, by priority group, until the HOPE VI funds were exhausted. No demolition-only grants have been awarded since FY2003. Main Street Grants The application process for Main Street grants largely mirrors that for revitalization grants. A NOFA for Main Street grants is published in the Federal Register, laying out the application requirements and deadlines. Once HUD receives applications, it screens them to determine whether they meet threshold requirements. In the FY2009/FY2010 NOFA, the thresholds included requirements that the applicant had matching funding in place and leveraged funding available; that, if the applicant had received a prior award, adequate progress had been made; and that the applicant have a Main Street, among other requirements. Once applications have been screened, they are scored. Scoring categories in the FY2009/FY2010 NOFA included the capacity of the community, including prior experience, the need for affordable housing, the readiness of the plan for implementation, and the appropriateness of the plan. While Main Street grants are capped in law at $1 million, in some years HUD has limited the maximum to $500,000, presumably to serve more communities. Revitalization Grants PHAs that wish to receive a revitalization grant must apply by the deadline published in the NOFA. Once the deadline has passed, HUD screens the applications to ensure that they meet threshold requirements. If they do not, then they are disqualified. For example, in order to meet the threshold requirements in 2009, applicants had to prove, among other factors, that they had secured site control for the proposed site, had issued a Request for Qualifications (RFQ) to secure a developer, that they had prepared a plan in advance for relocating residents impacted by the revitalization, and that affected residents had been involved at the beginning and during the planning process. The NOFA also explains deadlines for spending funds and penalties for slow expenditure. Once HUD screens the applications, the agency scores them on a variety of factors. For example, in the 2009 NOFA, applications received scores in categories including capacity to undertake development, need, the amount of outside resources brought in (leveraging), resident and community involvement, community and supportive services, commitment to early education, and the relocation plan. HUD then ranks the scored applications and funds them, in order, until the HOPE VI funds are exhausted. In the early years of the HOPE VI program, there was no cap on the amount a HOPE VI grantee could be awarded. However, since 1996, when HUD began allowing PHAs to use HOPE VI dollars to leverage outside resources, the average grant amount per project has dropped significantly. In recent years, HUD has generally capped revitalization grants at $20 million each, although in FY2009 several grants exceeded $20 million. Once grantees are selected, they are notified and are required to sign a grant agreement with HUD. The grant agreement includes time-lines for progress. For example, under the terms of the 2009 NOFA, HOPE VI revitalization grantees are expected to complete their developments within 48-54 months. However, as the NOFAs change every year, different cohorts of grantees have had different time-lines for spending their funds. PHAs must agree to meet all requirements of the program, including match requirements. For example, PHAs must match 5% of their HOPE VI grant award with other resources and must match, dollar-for-dollar, any amount over 5% of the grant amount that is used for community and supportive services for residents. If a PHA is not successfully meeting its deadlines or requirements, HUD has the authority to penalize the PHA either by appointing some form of receiver or by rescinding grant funds. To date, HUD has not rescinded HOPE VI funds from delinquent grantees, although performance on a HOPE VI grant has contributed to HUD's finding of substantial default and appointment of a receiver for several PHAs. Leveraging One of the key components of the HOPE VI program is the leveraging of outside resources. Beginning in 1996, revitalization grantees were encouraged to seek outside sources of funding to undertake their redevelopment, in addition to meeting their match requirement. Since that time, grantees have partnered with private non-profit and for-profit organizations and local and state governmental entities who have contributed both expertise and resources to HOPE VI projects. In aggregate, PHAs have budgeted $2.16 in leveraged (meaning non-HOPE VI) funds for each HOPE VI revitalization grant dollar awarded. Figure 1 demonstrates the generally increasing trend in the amount of funds leveraged by HOPE VI grantees. Despite general satisfaction with the amount of non-HOPE VI funds grantees are bringing into projects, concern has been raised that HOPE VI redevelopments may be raising only limited private investment and may be more expensive than they appear. According to HUD's FY2006 HOPE VI Report to Congress, about 60% of funds spent on revitalization projects had come from leveraged funds, and 73% of those leveraged funds were from non -federal sources. However, that estimate includes private equity raised from the sale of Low-Income Housing Tax Credits (LIHTC) as a non-federal source, although some might consider it a form of federal funding. A study conducted by General Accounting Office (now the Government Accountability Office) in 2002 found that, after excluding LIHTC funds, only 12% of leveraged funds had come from private sources; LIHTC funding had accounted for 27% of all leveraged funds in the projects studied. Successes and Concerns HOPE VI has been credited with a number of successes. In terms of addressing severely distressed public housing, the program has largely met its original goal: to eliminate the worst severely distressed public housing. Grantees have been provided sufficient funding to demolish over 100,000 units of public housing. The homes that are built in place of the demolished units are typically lower-density, safer, and more attractive. The new designs also generally connect the public housing developments with their surrounding communities, both functionally and aesthetically. Despite the HOPE VI program's successes, there are several issues in the program that have led some to call for reforms to the program. They include the slow expenditure of HOPE VI funds, the impact of HOPE VI on the original public housing residents, the cost-effectiveness of the program, and the loss of assisted housing stock. Neighborhood Improvements Success in the HOPE VI program can be measured, in part, by the amount of revitalization it has sparked in surrounding communities. Although this kind of change is hard to measure, studies have shown that HOPE VI has had some success. A study of eight HOPE VI sites undertaken by the Housing Research Foundation found that in communities surrounding recent HOPE VI revitalization projects per capita incomes increased more than for the cities as a whole; neighborhood unemployment rates had fallen; receipt of public assistance had declined; fewer households qualified as low-income; commercial and residential lending rates increased at a faster rate than overall city increases; and overall and violent crime had declined at a more rapid rate than in the overall city. The author concluded that "although there are many non-HOPE VI factors contributing to change in these communities, the nature of HOPE VI development has helped determine the extent and pace of that change." A 2003 GAO report looking at the neighborhoods surrounding several HOPE VI sites also attempted to assess the impact of HOPE VI on neighborhoods. Using decennial Census and Home Mortgage Disclosure Act data, GAO found that the neighborhoods surrounding the HOPE VI developments generally experienced positive changes in education, income, and housing indicators. However, further analysis found mixed results in some neighborhoods compared to comparable neighborhoods that had not undergone a HOPE VI redevelopment. In summary, GAO's report stated: We cannot attribute these changes solely to the HOPE VI program. To the extent that they do reflect the program's influence, however, they suggest that demolition of old, deteriorated public housing alone may influence surrounding neighborhoods. For example, average housing value and average household income increased even though no new units had been constructed. It is possible that the HOPE VI program influenced these indicators by removing blight from the neighborhoods and temporarily relocating large numbers of low-income households during demolition. Regardless of whether HOPE VI redevelopments actually spur new neighborhood improvement—or if such improvements would have happened without a HOPE VI grant—the award of a HOPE VI grant has often brought positive press to areas of towns that were plagued by negative perceptions. Many news stories have been written about community transformations linked to HOPE VI. Arguably, HOPE VI might help to change the public's generally negative perceptions of public housing. Mixed Finance HOPE VI has encouraged PHAs to build relationships with outside partners, including non-profits and the business community. These partnerships bring new resources into communities undergoing revitalization. Examples include the creation of community centers, charter schools, and new commercial activity in redeveloped HOPE VI sites and the provision of capital to help public housing residents start small businesses and social services to help public housing residents further their educations or overcome personal barriers. PHAs have also gained new knowledge about private capital markets partly as a result of HOPE VI. This new knowledge has allowed a number of PHAs, outside of the HOPE VI program, to participate in mixed-finance deals and secure private loans. As of the end of FY2009, HUD has approved 116 transactions in which 200 PHAs secured a total of approximately $3.65 billion in loan and bond financing to address the capital needs of public housing. These extra funds supplement federal funds and rents used to modernize public housing. It is hoped that, with the use of outside funding, PHAs can begin to address the large backlog of modernization needs in existing public housing and prevent further disrepair. Residents The majority of HOPE VI revitalization plans require at least the temporary displacement of residents. Grantees can relocate residents, either temporarily or permanently, to other public housing sites or by providing them with vouchers to be used in the private market. According to HUD program summary data, as of March 2006, 63,885 households had been relocated by HOPE VI revitalization grantees. Of those households, 49% had been moved to other public housing, 32% had been given Section 8 vouchers, 6% had been evicted, and 13% had made other arrangements or left the program. Of the 63,885 that were relocated, 22% are now living in revitalized units. Although the intention of many grantees is to return as many displaced residents as possible to redeveloped sites, often fewer residents return than planned. GAO found that, in 1999, grantees estimated that 61% of original residents would return to redeveloped sites; by 2003, their estimate of resident returns had dropped to 44%. Some families choose not to return, opting instead to stay where they were relocated and avoid the hassle of another move. In other cases, families are ineligible to move back because they do not meet additional screening requirements—sometimes related to criminal background or financial background (such as a history of unpaid rent)—adopted by the PHA for the project. According to March 2006 HUD data, grantees estimated that only 38% of original residents would return to redeveloped sites. Given that many residents who are displaced from public housing projects undergoing HOPE VI renovation do not return or are not permitted to return when the revitalization is complete, low-income housing advocates have raised questions about what has happened to them. Since HUD has not always required PHAs to follow residents during the revitalization process, some PHAs have lost track of residents after their initial relocation. To learn more about what has happened to displaced residents, the Urban Institute conducted a study that looked at the living conditions of former residents of eight HOPE VI sites that had been relocated either with vouchers or to other public housing units, several years after their initial relocation. Their study found that, overall, relocated tenants lived in safer, healthier communities and better housing after relocation. Although both groups have seen some gains, families relocated with vouchers have generally fared better than families relocated to other public housing. Particularly, the study found that children in voucher households have done better than children relocated to other public housing, for whom behavior problems have increased. One way in which voucher holders have done worse includes financial hardship. Voucher holders are more likely than public housing residents to report difficulty in paying for utilities and food—indicating that they are having to make tradeoffs to pay their rent. The Urban Institute also found that the most vulnerable and "hard to house" families struggled the most following a HOPE VI relocation, especially if they were relocated with vouchers. Low-income housing advocates argue that HUD should put a greater priority on the needs of public housing residents when selecting HOPE VI grantees. Advocates contend that more units of public housing should be built through HOPE VI and that displaced tenants should have a right to return. They also argue that PHAs should be responsible for providing sufficient support to displaced residents, especially residents that leave public housing and those that are most vulnerable, to ensure that their relocation is successful. The Urban Institute findings have also led to calls for the greater use of vouchers when relocating families. Mentoring Demonstration Grants In FY2005, HUD awarded more than $500,000 of prior years' funds for Mentoring Demonstration grants. They were awarded to prior revitalization grantees to partner with community and faith-based organizations who provide community and supportive services to families. HUD will use these grantees to see whether a "mentoring" model improves self-sufficiency outcomes for families affected by HOPE VI redevelopments. The grants were funded with previous years' appropriations funding, presumably recaptured from grantees who were unable to use them. Expenditure One of the major criticisms of the HOPE VI program in recent years has been the slow expenditure of HOPE VI funds. In FY2003, unspent balances reached a peak of over $3.3 billion (over half of the $6 billion appropriated for the program). A number of reasons have been cited for PHAs' slow expenditure of HOPE VI funds. One is the changing nature of the program. In the beginning, grantees were chosen almost solely on the basis of need. Often, the PHAs with the most need had the weakest management capacity. As a result, the poorest-performing PHAs were awarded large grants. It is not surprising that they had difficulty in implementing their redevelopment plans. This was especially true in 1996, when Congress set aside grants for a set of PHAs outside of any competitive process. A 2003 GAO report found that the majority of revitalization grantees had missed at least one of the deadlines established in their grant agreements. HUD has worked to address several of these problems. Over time, the process for selecting grantees has become more competitive, and HUD now uses a number of criteria to judge applicants' capacity for undertaking these complicated development projects. For example, recent revitalization NOFAs have included rating factors that reward applicant and developer capacity and deduct points from applicants with previous HOPE VI grants that are behind in development. There is reason to believe that more recent HOPE VI grantees have performed better than earlier grantees. HUD's FY2006 2 nd Quarter HOPE VI Progress Report to Congress included information demonstrating the improved performance of more recent cohorts of grantees on a number of administrative performance measures. For example, the number of days it took more recent grantees (those from FY2002 through FY2004) from the execution of their grant agreement to the approval of their revitalization plan averaged 177 days, compared to an average of over 600 days for older grantees (those from FY1993 through FY2001). Pre-2002 grantees took an average of over 1,100 days to get approval of their mixed finance proposals, compared to an average of about 356 days for FY2002 and later grantees. These improvements may be due, in part, to more robust selection criteria used by HUD in choosing grantees, greater PHA experience and familiarity with HOPE VI-like mixed finance developments, and more focus by HUD on interim performance measures. Another important change has come in the way that Congress provides funding to the HOPE VI program. Prior to FY2002, HOPE VI was provided with no-year funding, meaning that the funds provided by Congress remained available to the grantee until they were spent. Beginning in FY2002, Congress adopted a one-year obligation and a five-year expenditure deadline for HOPE VI funds. Any HOPE VI funds remaining unspent at the end of that period will expire and revert back to the Treasury. This change in funding should effectively solve the problem of future accumulations of unspent balances. The FY2002 cohort of grantees were the first to experience an expiration of funds; $13 million of FY2002 grant funds expired at the end of FY2008 before they could be used by grantees. FY2003 grantees had about $10 million expire in FY2009 and FY2004 grantees had less than $1 million expire in FY2010. At the end of FY2010, unspent balances in the HOPE VI fund had been reduced from their peak of $3.3 billion in FY2003 to under $700 million. As illustrated in Figure 2 , just about one-third of that amount (33%) is funding that will not expire. The remaining 67% of those funds will expire if not spent within six years of their award. Over time, the remaining balance of unspent, no-year funds (awarded pre-FY2002) has been declining. As shown in Figure 2 , of the $4.9 billion in no-year funding awarded to grantees prior to FY2002, just under $255 million remained at the end of FY2010. That balance has been reduced significantly in recent years; at the beginning of FY2002, the unspent balance of no-year funds was over $3 billion. Outlays among the pre-FY2002 grantees have been relatively constant in recent years, with pre-2002 grantees spending between 20%-30% of their remaining funding each year for the past five years. HUD has taken a number of steps to encourage these earlier grantees to spend their funds, including hiring grant expediters to provide technical assistance to grantees. Also, as noted earlier, HUD has also used poor performance on a HOPE VI grant as a factor in deciding to place a PHA in receivership. Cost-Effectiveness Over the history of federal housing programs, priorities have shifted from providing publicly constructed and owned housing for low-income families to providing subsidies, either to the private market to build low-cost, private housing, or to residents for use in the private market. One of the main reasons for this shift was the finding that it was more expensive to build and maintain publicly owned housing than it was to provide subsidies to the private market. As a result, the government has not funded the development of new public housing units for many years. Grantees can use HOPE VI funds, in conjunction with other public and private funds, to build replacement units of public housing. Given what is known about the past cost-effectiveness of the construction of public housing, questions can be raised as to whether this is an effective use of limited government dollars. HUD testified before Congress in 2003 that it is not an efficient method. According to the Assistant Secretary for Public and Indian Housing, the division that oversees the HOPE VI program: Moreover, it is evident to us that HOPE VI is not an efficient method for meeting the current and future capital needs of the public housing program. The average cost of building a unit under HOPE VI is $120,000, more than 33% greater than the average cost of building a similar unit using the HOME block grant program. Given overall budget constraints, it just doesn't make sense for us to continue funding for this program at the expense of more cost effective programs to serve the same ends. Taking a different look at the costs of HOPE VI, researchers at the Urban Institute attempted to undertake a cost-benefit analysis of HOPE VI redevelopment compared to maintaining the status quo in distressed public housing. Their study contrasted the up-front costs of undertaking a HOPE VI development (including HOPE VI and other government funding, but excluding equity generated by LIHTCs) to the savings to the government that could result from undertaking the redevelopment. They estimate savings from reduced housing subsidy needs (since new buildings require lower subsidies and are likely to be more energy efficient), improved family well-being (lower welfare, unemployment insurance, Medicaid, and criminal justice system costs), and improved neighborhoods (increased property tax revenue). The Urban Institute study estimates that a prototypical distressed public housing project, undergoing a HOPE VI mixed income redevelopment, could save the government more than $20 million over 20 years. One-for-One Replacement The loss of the nation's stock of publicly assisted housing, affordable to low-income families, has been a concern for a number of years. The congressionally mandated, bipartisan Millennial Housing Commission found "a critical shortage of affordable apartments for extremely low-income households." As noted earlier, most HOPE VI developments do not replace every unit of public housing demolished, and most include a number of market rate units that are too expensive for public housing residents to afford. As of March 2006, HOPE VI revitalization grantees planned to demolish 88,469 units of public housing, rehabilitate 10,993 units of existing public housing, and build 92,644 units of new housing—only about half of which would be public housing units, a net loss of 41,000 public housing units. As of March 2006, 88% of the units planned for demolition had been demolished, and 54% of the public housing units slated for construction had been built, an interim net loss of over 50,000 units. Low-income housing advocates have expressed concern that HOPE VI is eroding the nation's stock of affordable housing, and many have argued that HUD should reinstate the one-for-one replacement requirement. They argue that, in many communities, there is simply a shortage of lower-cost housing and that the federal government has some responsibility to help increase, or at least maintain, the supply. The requirement that each unit of public housing destroyed be replaced with a new unit of public housing, called "one-for-one replacement," was suspended in 1994 and fully repealed in 1996. Much of the impetus behind the suspension of the requirement was the argument put forward by PHAs that they were unable to deal with troubled public housing because the one-for-one replacement requirement, coupled with site standards, deconcentration requirements, limited funding, and other rules, made the demolition and revitalization process unworkable. At Congress's request, GAO investigated these issues and reported that PHAs were concerned that one-for-one replacement was resulting in developments becoming decrepit. In addition to development concerns, critics of one-for-one replacement argued that it promoted concentrations of poverty, did not appeal to investors, and that the low rents paid by public housing residents would not allow projects to remain financially viable. PHA groups have contended that reinstating traditional one-for-one replacement will again hamper their ability to undertake housing rehabilitation. Further, there are questions about how one-for-one replacement could affect efforts to deconcentrate poverty. Some compromise strategies, such as requiring some minimum threshold of hard unit replacement, or greater replacement with project-based subsidies, have been considered. Recent Developments Funding The Bush Administration requested no new funding for the HOPE VI program in each of his FY2004-FY2008 budget requests to Congress. Citing the slow expenditure of funds, concerns about cost-effectiveness, and that the program had effectively reached its goal of demolishing 100,000 units of distressed public housing, the former Administration stated it was time to rethink whether HOPE VI is still necessary or effective. The Bush Administration argued that even without new funding, the program would not end any time soon because so many projects are still in the pipeline, but that by not funding the program, HUD would have time to throughly evaluate the program and consider alternatives. Each year, Congress rejected the Bush Administration's request to eliminate funding for the program, but it contined funding at a level significantly less than the amout provided prior to FY2004. (See Table 1 for historical appropriations levels.) President Obama's first budget in FY2010 requested no new funding for HOPE VI, and instead, requested $250 million for a new Choice Neighborhoods Initiative (discussed later in this report). The final FY2010 funding law, P.L. 111-117 , included $200 million for HOPE VI, but of that amount, $65 million was set aside to fund a demonstration of the Choice Neighborhoods Initiative. President Obama's FY2011 budgets again requested funding for Choice Neighborhoods, but not for HOPE VI. Congress responded by providing $100 million ( P.L. 112-10 ), of which $65 million was set aside for Choice Neighborhoods. In FY2012, for the first time since the program's inception, Congress provided no new funding for HOPE VI ( P.L. 112-55 ), as requested by the President in his FY2012 budget. Instead, Congress provided $120 million for Choice Neighborhoods. HOPE VI Reauthorization The HOPE VI program was originally authorized through the end of FY2002. The 108 th Congress initially extended the program through the end of FY2004 ( P.L. 108-7 ) but later extended the HOPE VI program through the end of FY2006, as a part of a larger bill designed to make changes to a number of housing programs, including HOPE VI. The American Dream Downpayment Act ( P.L. 108-186 ) amended the program to change the selection criteria, broaden the definition of severe distress, require GAO to conduct a study, and add a new category of grant (Main Street Revitalization grants). Several bills to reauthorize the HOPE VI program were introduced in the 109 th Congress, although none were enacted. Several reauthorization bills were also considered in the 110 th , and one version ( H.R. 3524 ) passed the House. No reauthorization legislation was introduced in the 111 th Congress. The program's authorization has been maintained through extensions included in the annual appropriations bills. It is unclear if reauthorization legislation will be considered in the 112 th Congress. Choice Neighborhoods The Choice Neighborhoods Initiative (CNI) was originally proposed by the Obama Administration as a replacement for the HOPE VI program. The initiative is designed to "transform neighborhoods of poverty into viable mixed income neighborhoods with access to economic opportunity by revitalizing severely distressed public housing and assisted housing and investing and leveraging investment in well-functioning services, effective schools and education programs, public assets, public transportation and improved access to jobs." As described by the Administration, CNI is similar to HOPE VI in that it is a competitive grant program aimed at improving distressed communities. However, it is broader in scope than HOPE VI in that it targets distressed neighborhoods with HUD-assisted housing, not just distressed public housing communities. Key differences between Choice Neighborhoods and HOPE VI, as outlined by the Administration, include the following: Eligible Choice Neighborhood grantees may include local governments, nonprofit entities, and for-profit entities partnered with local governments, in addition to PHAs. PHAs are the only eligible grantees in the HOPE VI program. While Choice Neighborhood grant funding is to be primarily focused on the transformation of distressed housing, the funding could also be used, on a limited basis, for improvements to the surrounding community. HOPE VI funding can only be used for public housing demolition and development and related supportive services (including relocation). Choice Neighborhood grants are targeted to distressed neighborhoods with assisted housing and severely distressed public housing developments. HOPE VI grants are limited to severely distressed public housing developments. While the Choice Neighborhoods initiative has received some support for its concept of broadening the focus beyond public housing, it has also been met with concerns. Those concerns include whether the program will have the same displacement and loss of affordable housing stock effects as HOPE VI, and whether in a limited funding environment CNI, with its broader pool of eligible applicants, will lead to more entities competing for a limited pot of funds, resulting in less funding available for public housing. Legislation to authorize the Choice Neighborhoods Initiative was approved by the House Financial Services Committee in the 111 th Congress but was not enacted before the end of the 111 th Congress ( H.R. 5814 ). Choice Neighborhoods authorizing legislation has been introduced in the 112 th Congress ( H.R. 762 and S. 624 ), but no further action has been taken. While the program is not formally authorized, a Choice Neighborhoods demonstration was funded in FY2010 and FY2011 at $65 million and in FY2012 at $120 million. The first round of Choice Neighborhoods implementation grants was announced in August 2011. Five grants worth a total of $122 million were awarded to grantees in Boston, MA; Chicago, IL; New Orleans, LA; San Francisco, CA; and Seattle, WA.

The Revitalization of Distressed Public Housing program, referred to as HOPE VI, has been credited with eliminating and replacing some of the most dangerous and dilapidated public housing in the country with new mixed income communities. However, the program has come under scrutiny for slow expenditure of funds and for displacing poor families. Reflecting these criticisms, the Bush Administration requested no new funding for the program in each budget request from FY2004-FY2009, and the Obama Administration requested no new funding (proposing, instead, that Congress fund a new program) in the FY2010 and FY2011 budget requests. Congress responded by continuing to fund the program, but at less than a quarter of what it had been funded at in FY2003 and prior years. In FY2012, for the first time since the program's inception, Congress provided no new funding for HOPE VI. Created in 1992 and administered by the Department of Housing and Urban Development (HUD), the HOPE VI program provides funds to renovate or demolish existing public housing and replace it with mixed-income housing. The local public housing authorities (PHAs) that administer public housing apply for grants and use the funds to leverage other private and public resources. The main component of the HOPE VI program is revitalization grants, which can be used for demolition, rehabilitation, and new construction of public housing, as well as land acquisition, relocation of residents, and community and supportive services for residents. HUD has also provided demolition-only grants that could be used—often in conjunction with revitalization grants—for the physical destruction of distressed public housing and the relocation of its residents, although no demolition grants have been issued for several years. A third type of grant, planning grants, are no longer awarded, but could be used for technical assistance in preparing a property to go through a demolition or revitalization. Another type of revitalization grant, Main Street Revitalization Grants, was created in 2003. They are available to local governments in small communities rather than PHAs for main street revitalization projects, which may be unrelated to public housing. Over the history of the program, 268 HOPE VI revitalization grants (incluing Main Street grants) have been made to PHAs in 41 states, districts, and territories. As of June 2009, the program had been responsible for the demolition of 93,295 units of public housing and the construction or substantial rehabilitation of 78,692 replacement units. The HOPE VI program has helped transform a number of severely distressed neighborhoods, which has made the program popular with many members of Congress from both parties. The program's authorization was set to expire at the end of FY2006, but Congress has extended the authorization for the program each year in the annual appropraitions acts. Beginning with its FY2010 budget request to Congress, the Obama Administration has requested that Congress replace the HOPE VI program with a new program, the Choice Neighborhoods Initiative (CNI), which would expand the scope of HOPE VI beyond public housing to other assisted housing, with a greater focus on neighborhood revitalization. The House Financial Services approved authorizing legislation in the 111th Congress, but it was not enacted before the end of the session. Congress did fund a demonstration of CNI in the FY2010-FY2012 HUD appropriations act. FY2012 was the first year since the HOPE VI program began that it received no new appropriations. However, the FY2012 appropriations law (P.L. 112-55) did extend the authorization for the program.

Introduction The U.S. electric grid consists of over 700,000 miles of transmission lines and over 55,000 substations linking over 7,000 power plants to around 150 million customers. Likewise, the U.S. energy pipeline network is composed of over 2.9 million miles of pipeline transporting natural gas, oil, and hazardous liquids; the natural gas transmission pipelines feed approximately 1,400 local distribution systems serving over 67 million customers. These vast networks comprise the critical backbone of U.S. energy supply, supporting the vast majority of U.S. economic activity and playing a vital role in national defense. Consequently, the secure operation of both the power grid and pipelines are national priorities. While physical threats to the U.S. power grid and pipelines have long worried policymakers, cyber threats to the computer systems that operate this critical infrastructure are an increasing concern. Especially over the past decade, cyber threats against energy infrastructure have grown in frequency and severity. While most of these threats have been against the electric subsector, pipeline systems have also faced growing risk to their information communications technology. Both the Departments of Energy and Homeland Security have been directed to assess impacts of a cyberattack against the energy sector. Furthermore, with ever greater physical interdependency between electricity generators and the natural gas pipelines which supply their fuel, many in Congress recognize that grid and pipeline cybersecurity are intertwined. The Department of Energy (DOE) is the lead agency for the protection of electric power, oil, and natural gas infrastructure—cooperating with the Department of Homeland Security (DHS), the lead agency for pipelines. DOE's energy sector cybersecurity activities are led primarily by its Office of Electricity Delivery and Energy Reliability (OE). In 2015, the Fixing America's Surface Transportation Act (the FAST Act) provided the Secretary of Energy with additional authority to order measures to protect or restore the reliability of the power grid during a grid security emergency, including "a malicious act using electronic communication." The 115 th Congress is considering additional legislation to fund and expand DOE's cybersecurity programs, including appropriations in the Defense, Military Construction, Veterans Affairs, Legislative Branch, and Energy and Water Development National Security Appropriations Act, 2018 ( H.R. 3219 ) and the Energy and Water Development and Related Agencies Appropriations Act, 2018 ( S. 1609 ). The Energy and Natural Resources Act of 2017 (S. 1460) and the Enhancing State Energy Security Planning and Emergency Preparedness Act of 2017 ( H.R. 3050 ) would authorize additional DOE funding for cybersecurity research and assistance to states, respectively. This report examines the energy sector cybersecurity program administered by DOE's Office of Electricity Delivery and Energy Reliability as it applies to the electric power and pipelines subsectors. The report summarizes risks to the computer-based control systems used in these subsectors, threats to those systems, and recent cyberattacks. The report reviews the legislative authorities and policy guidance that have directed OE's cybersecurity program and its activities, including its relationship to the national laboratories and other federal agencies with cybersecurity roles. The report concludes with a discussion of key policy issues for Congress. Cybersecurity Risks Federal security officials and industry analysts have long identified the grid and pipelines in the United States as potential targets for intentional disruption, although the nature and degree of cyber risk has been steadily evolving. For example, a 2011 DHS pipeline threat assessment concluded that "terrorist groups have discussed attacks on unspecified [supervisory control and data acquisition] systems, but it is uncertain whether al-Qa'ida or any other group has the capability to conduct a successful cyberattack on these systems." However, in 2016, the President of the Association of Oil Pipe Lines testified before a congressional committee that cybersecurity threats to pipelines were increasing and that "there is a great concern about … being prepared for cyber attacks" in the pipeline industry. In January 2017, the DOE similarly concluded that "Cybersecurity is a particular concern for national and homeland security.… Malicious cyber activity against the electricity system and its suppliers is growing in sophistication." While the threat of terrorist groups seeking to employ cyber tools against critical infrastructure persists, terrorist organizations have not yet demonstrated a capability to attack U.S. critical infrastructure in this manner. Generally, the electricity grid and energy pipelines are under the same types of cybersecurity risks as other industries, such as financial services or transportation. However, different adversaries may choose to employ similar cyber tools to focus on different targets at different moments in time based on their unique motivations. Cybersecurity risks thus reflect both general threats to the energy sector as a whole and specific threats to industrial control systems as the focus of attack. Industrial Control System Security Risks Software-based industrial control systems (ICS) are used to monitor and control many aspects of network operation for railways, power grids, water and sewer systems, and pipeline networks. One category of ICS widely used in electric grid and pipelines networks—supervisory control and data acquisition (SCADA) systems—collect data (e.g., voltage, line pressure) in real time from sensors throughout a network, displaying those data to human operators in remote network control rooms. These operators can send computerized commands from SCADA workstations to control geographically dispersed equipment such as electric switches, pipeline valves, pumps, and many other network components. The SCADA system provides continuous feedback about conditions throughout the network, generating safety alarms when operating conditions fall outside prescribed levels. Communications links may employ dedicated telephone landlines, wireless communications (satellite, microwave, and radio), cellular telephone service, Wi-Fi, and the Internet. As SCADA technology has matured, system control has become more intelligent and more automated, requiring less human intervention. Historically, SCADA systems employed highly customized proprietary software and were physically isolated from outside communications and computer networks. Because many of these systems were largely unique to a specific operator, it would have been difficult for malicious individuals outside the company to access a SCADA system and know what to do with it. However, due to advancements in computer technology and the ongoing development of communications and Internet-based control system applications, SCADA systems have become much more vulnerable to outside intrusion and manipulation. Specific SCADA security weaknesses include the adoption of standardized control system technologies with known vulnerabilities, increased connection to external networks, insecure communication connections, and the public availability of sensitive information about control systems and infrastructure. Once accessible to a knowledgeable attacker, a SCADA system can be exploited in a number of specific ways to carry out a cyberattack: issuing unauthorized commands to control equipment; sending false information to a control-system operator that initiates inappropriate actions; disrupting control system operation by delaying or blocking the flow of information through the control network; making unauthorized changes to control system software to modify alarm thresholds or other configuration settings; and rendering resources unavailable by propagating malicious software (e.g., a virus, worm, Trojan horse) through the control network. Depending upon the configuration of a particular system, such cyberattacks could potentially disrupt service, cause a hazardous release into the environment, or damage equipment. An example of the latter was a proof-of-concept attack hosted by the DHS in 2007 known at the Aurora Project. In this experiment, researchers working with DHS sent two sets of commands to a diesel-fueled electric generator. The first set of commands told the generator to repeatedly open and then rapidly close circuits in a manner that would cause failure. The second set of commands sent outputs to the operator-readable control panel that the generator was operating normally. The result was that the generator spun in such a manner that it destroyed itself without the operators knowing. Recently, reports of harmful software (malware) known as CrashOverride emerged as the latest example of destructive malware that can be used against the energy sector. CrashOverride reportedly includes capabilities allowing an attacker to disrupt ICS operations by opening and closing electric circuit breakers (degrading operations), denying access to communication ports on devices, and wiping modules to render devices inert. While there is no reported case of CrashOverride residing on U.S.-based systems, an updated version of the malware reportedly was used in a 2016 attack against the Ukrainian electric grid. Most of the cyberattacks that have been made public in the past few years have been against electricity generation and delivery infrastructure. However, in March 2012, the Industrial Control Systems Cyber Emergency Response Team (ICS-CERT) within DHS identified an ongoing series of cyber intrusions among U.S. natural gas pipeline operators dating back to December 2011. According to the agency, various pipeline companies described targeted spear-phishing attempts and intrusions into multiple natural gas pipeline sector organizations that were "positively identified … as related to a single campaign. " In 2010, the Stuxnet computer worm was first identified as a threat to industrial control systems. The Stuxnet software initially spreads indiscriminately, but the software includes a highly specialized industrial process component targeting specific Siemens industrial SCADA systems. Furthermore, the capabilities demonstrated during the Aurora Project and the CrashOverride malware described above are also applicable against other ICS, including those for pipelines. DOE's Authority in Energy Delivery Cybersecurity DOE has authority and responsibilities for the cybersecurity of energy delivery systems from both presidential action memoranda and law. A chronologic perspective provides some insight on how energy security policy has evolved. Federal Actions in Energy Infrastructure Cybersecurity The Clinton Administration released Presidential Decision Directive 63 (PDD-63) in 1998. For the first time in executive branch operations, PDD-63 established national policy for critical infrastructure protection from both physical and cyber threats. The directive discussed using a public-private partnership to reduce vulnerability to critical infrastructure from attacks, with lead federal agencies responsible for coordinating government efforts for specific sectors. PDD-63 established 15 critical infrastructure sectors and four special functions. DOE was assigned responsibility for (1) the electric power, and (2) the oil and natural gas production and storage sector. The George W. Bush Administration built on the work of PDD-63, superseding it in 2003 with Homeland Security Presidential Directive 7 (HSPD-7) on "Critical Infrastructure Identification, Prioritization, and Protection." HSPD-7 shifted the doctrine by removing "special functions" and expanding the sectors. In some cases, the expansion also included the addition of subsectors, as in transportation and energy. The transportation sector identified pipelines as a subsector; the energy sector identified an electric power subsector, and an oil and natural gas subsector. Lead agencies were replaced by Sector Specific Agencies (SSA), which had to collaborate with other federal agencies in a similar way as in PDD-63, but were also given responsibility for vulnerability assessments and assisting in risk management. In HSPD-7, DHS was named as the SSA for the transportation sector, including pipelines; DOE was assigned responsibility for the energy sector, as well as being the federal coordinator for all critical infrastructure protection efforts. In implementing HSPD-7, DHS pursued a risk-based approach to focus federal resources in areas of greatest risk, based on assessments as well as stakeholder (e.g., companies and state officials) input. Congress passed legislation on the cybersecurity of energy delivery systems during the George W. Bush Administration with the Energy Policy Act of 2005 (EPACT). EPACT included the Electricity Modernization Act of 2005, which directed the Federal Energy Regulatory Commission (FERC) to establish an "Electric Reliability Organization" (ERO, a role which the North American Electric Reliability Corporation [NERC] currently fulfills) to develop "reliability standards" for the "reliable operation" of the bulk power system. The authority allowed for standards to address "cybersecurity protection" and also defined a "cybersecurity incident" as a unique incident which disrupted the "programmable electronic devices and communications networks ... essential to the reliable operations of the bulk power system." FERC's authority under EPACT applies only to the bulk power system, and that authority is limited to review of the ERO's standards. FERC cannot author standards independently, but can remand ERO-drafted standards back for reconsideration. While FERC also has regulatory authority over interstate natural gas pipelines under the Natural Gas Act (P.L. 75-688), its role is limited to siting and rate regulation, not safety or security. The Obama Administration superseded HSPD-7 with Presidential Policy Directive 21 (PPD-21) on "Critical Infrastructure Security and Resilience" in 2013. "Resilience" was a term adopted in the Obama Administration as a way of recognizing that critical infrastructure is inherently vulnerable and will be disrupted at some point (historically, by severe weather, and potentially by an intentional attack), and that the infrastructure's degree of resilience will affect response time and eventual recovery. PPD-21 sought to further integrate cybersecurity as part of critical infrastructure protection by clarifying federal roles for security and resilience; establishing baseline information exchange requirements; and integrating analysis to inform planning, operations, and critical infrastructure decisions. PPD-21 retained the SSAs from HSPD-7, with DOE continuing as the SSA for the energy sector (electric power, and oil and natural gas). DHS was named the co-chair with the Department of Transportation (DOT) on the transportation sector and its subsectors, including pipelines. Congress further legislated on energy sector cybersecurity in 2015 with the Fixing America's Surface Transportation Act (FAST Act). Division F of the FAST Act on "Energy Security" included the designation of DOE as the SSA for cybersecurity for the energy sector. With this authority, DOE was directed to work with DHS in collaboration with electric infrastructure owners and operators for prioritization of activity, incident management, and vulnerability identification. While the law broadly states that DOE has a responsibility for the energy sector, the specific activities for collaboration refer only to the electricity subsector. The Trump Administration has not released a presidential memorandum superseding PPD-21, so that directive remains in effect. However, on May 11, 2017, the Administration issued Executive Order 13800 (E.O. 13800) on "Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure." E.O. 13800 requires DOE and DHS to assess U.S. readiness to manage the consequences of a prolonged power outage as a result of a significant cyber incident. DOE also worked on a similar plan in accordance with a FAST Act directive on strategic transformer reserve options, although that plan is not focused on a specific type of threat, addressing the effects of any disruption on power delivery. Key Policy Guidance for Energy Delivery Cybersecurity In addition to executive action and legislation, numerous federal policy documents over the last two decades from various presidential administrations have addressed cybersecurity for energy infrastructure. This policy guidance, together with the related presidential directives and executive orders discussed above, has resulted in DOE's energy delivery cybersecurity program in its current form. Key guidance documents over this period are briefly discussed below. The comprehensive federal program for cybersecurity in energy delivery originated largely in 2000 under the National Plan for Information Systems Protection , which identified the electric power system and pipelines as critical infrastructure "that could be a target for significant cyber or physical attacks." In particular, the plan stated The cyber nation of our infrastructures has created an intense reliance upon an underlying fabric of telecommunications and information networks. The infrastructures also rely heavily upon the Nation's energy production and distribution networks, especially through the I&C [information and communications] infrastructure's energy requirements. It is noteworthy that this passage refers broadly to "energy distribution networks," although I&C energy requirements imply an emphasis on reliable electricity supply. The plan reiterated DOE's role as the lead agency under PDD-63 for protection of electric power and oil and gas production and storage infrastructure, and DOT as the lead agency for pipelines. In 2003, the National Strategy to Secure Cyberspace also identified the energy sector (electric power, oil and gas production, storage, and pipelines) as critical infrastructures dependent upon computer systems and vulnerable to cyber threats, reaffirming the lead agency roles under PPD-63. The strategy placed a particular emphasis on securing digital control systems (DCS) and SCADA, which are particularly important in the electric power and pipeline sectors. Due to the ubiquity of these systems, the strategy explicitly called for coordination among DHS, DOE, other concerned agencies, and private industry in addressing DCS and SCADA cybersecurity. In 2006, DOE and DHS released their jointly-developed Roadmap to Secure Control Systems in the Energy Sector to provide "a strategic framework for investment and action in industry and government." The Roadmap stated that the agencies were collaborating on energy sector critical infrastructure protection—citing specifically "the U.S. electric grid and oil and gas pipeline networks." The overarching energy sector vision stated in the Roadmap was as follows: "In 10 years, control systems for critical applications will be designed, installed, operated, and maintained to survive an intentional cyber assault with no loss of critical function." In 2011, the Roadmap to Achieve Energy Delivery Systems Cybersecurity was published by the Energy Sector Control Systems Working Group (ESCSWG), sponsored by DOE as an update to the 2006 Roadmap . The infrastructure scope of the 2011 Roadmap encompassed the "electricity, oil, and natural gas sectors," specifically including the "production, transmission, distribution, and delivery of energy to consumers." The stated vision of the 2011 Roadmap includes a reference to resiliency similar to that of the 2006 report: "By 2020, resilient energy delivery systems are designed, installed, operated, and maintained to survive a cyber incident while sustaining critical functions." This vision statement also is directed at "energy delivery systems" as a specific type of infrastructure. Appendix D of the Roadmap defines "energy delivery systems" as: A network of processes that produce, transfer, and distribute energy and the interconnected electronic and communication devices that monitor and control those processes. Energy delivery systems include control systems—the sensors and actuators that physically monitor and control the energy processes, the computer-based systems that analyze and store data, and the communication networks that interconnect the process and computer systems. The Roadmap includes under this umbrella: generation, transmission, and distribution in the electric power sector, and drilling, processing, refining, and pipelines in the oil and natural gas sector. Pipeline Cybersecurity at DOE In 2015, DOE—in coordination with DHS—released its most recent Energy Sector-Specific Plan (SSP) "to help guide and integrate the sector's continuous effort to improve the security and resilience of its critical infrastructure." The SSP places an "increased emphasis on the Energy- and cross-sector interdependency issues and the integration of cyber and physical security efforts." Notably, the SSP defines the "Energy Sector" as: three interrelated segments or subsectors—electricity, oil, and natural gas—to include the production, refining, storage, and distribution of oil, gas, and electric power, except for hydroelectric and commercial nuclear power facilities and pipelines. This explicit exclusion of pipelines from the energy sector under the 2015 SSP appears to be a difference from the other DOE cybersecurity policy guidance discussed above. However, this divergence may be specific to the National Infrastructure Protection Plan (NIPP) under which the SSPs are derived, as pipelines are under the purview of the transportation sector in the NIPP. The SSP also states that DOE and DHS, as co-chairs of the Energy Government Coordinating Council, are engaged in the security and resilience efforts of "other" critical infrastructure sectors, including pipeline, maritime, chemical, and dams. The SSP also states that DOE and DHS work together with Canadian agencies "to coordinate matters related to pipeline safety and security." Based on these statements, the degree of DOE attention to pipeline cybersecurity is unclear but appears limited. Among the electricity subsector priorities stated in the SSP are "deploying proprietary government technologies on utility systems that enable machine-to-machine information sharing and improved situational awareness of threats to the grid" and implementing the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Other Cybersecurity Authorities Along with the DOE, two other federal agencies play significant roles in cybersecurity for energy infrastructure. Both FERC and the Transportation Security Administration (TSA) have statutory authority to regulate cybersecurity for energy infrastructure under their relative jurisdictions, but they exercise it differently, due to different requirements underlying their respective authorities. FERC's Bulk Power Cybersecurity Standards The bulk electric power system has mandatory and enforceable standards for cybersecurity. As stated earlier, EPACT gave FERC authority over the reliability of the grid, with the power to approve mandatory cybersecurity standards proposed by the Electric Reliability Organization (ERO). The North American Electric Reliability Corporation (NERC) serves as the ERO. NERC therefore proposes reliability standards for critical infrastructure protection, which are updated based on the status of reliability and cybersecurity concerns for the grid. FERC views grid security as a high priority, having separately established the Office of Energy Infrastructure Security (OEIS) to deal with cyber and physical security. OEIS has a mission to provide expertise to FERC to "identify, communicate and seek comprehensive solutions to potential risks to FERC-jurisdictional facilities from cyberattacks and such physical threats as electromagnetic pulses." TSA Pipeline Security Authority The federal program for U.S. pipeline security began under DOT immediately after the terror attacks of September 11, 2001. The Aviation and Transportation Security Act of 2001 ( P.L. 107-71 ), which established the Transportation Security Administration within the DOT, authorized the agency "to issue, rescind, and revise such regulations as are necessary" to carry out its functions (§101). TSA was transferred to DHS, newly created under the Homeland Security Act of 2002 ( P.L. 107-296 ). HSPD-7 maintained DHS as the lead agency for pipeline security, and instructed DOT to "collaborate in regulating the transportation of hazardous materials by all modes (including pipelines)." The Implementing Recommendations of the 9/11 Commission Act of 2007 ( P.L. 110-53 ) directs TSA to promulgate pipeline security regulations and carry out necessary inspection and enforcement if the agency determines that regulations are appropriate (§1557(d)). Thus, TSA has primary responsibility and regulatory authority for the security of natural gas and hazardous liquid (e.g., oil, refined products, and carbon dioxide) pipelines in the United States. Although DHS has regulatory authority for pipeline security, its activities to date have relied upon voluntary industry compliance with the agency's security guidance and best practice recommendations. Cybersecurity is also an element of voluntary security standards developed by the pipeline industry. Department of Transportation The Department of Transportation (DOT) regulates the safety of oil and natural gas pipelines under the Natural Gas Pipeline Safety Act of 1968 (P.L. 90-481) and the Hazardous Liquid Pipeline Act of 1979 ( P.L. 96-129 ). DOT's federal pipeline safety program is administered by the Pipeline and Hazardous Materials Safety Administration (PHMSA). Although DOT regulates safety, some aspects of its regulations, such as facility access requirements, can be related to pipeline security. In particular, the Pipeline Inspection, Protection, Enforcement, and Safety Act of 2006 ( P.L. 109-468 ) mandated new requirements for control room management—including human factors, response to SCADA alarms, and review of reportable incidents—which could have cybersecurity impacts. DOE's Energy Delivery Security Program As noted above, the DOE's energy delivery cybersecurity activities are led by its Office of Electricity Delivery and Energy Reliability (OE) within the Office of the Under Secretary for Science and Energy. A 2008 OE report stated that "OE's mission is to advance technology—in partnership with industry, government, academia, and the public—to meet America's need for a reliable, efficient, and resilient electric power grid." According to the agency's website, a current "top priority" for OE is: to make the nation's electric power grid and oil and natural gas infrastructure resilient to cyber threats.… The vision of OE's cybersecurity program is that, by 2020, resilient energy delivery systems are designed, installed, operated, and maintained to survive a cyber incident while sustaining critical functions. This vision and the OE programs supporting it are intended to align closely with the 2011 Roadmap to Achieve Energy Delivery Systems Cybersecurity with an apparent focus on electric power, as discussed below. OE Cybersecurity Program Structure The OE's cybersecurity program for energy delivery systems is structured around three areas: (1) cybersecurity preparedness; (2) cyber incident response and recovery; and (3) research, development, and demonstration. Cybersecurity Preparedness OE's activities in cybersecurity preparedness address situational awareness and information sharing (taken together) and risk analysis. For the former, OE works with energy sector companies "to better detect risks and mitigate them more rapidly by fostering industry assessment capabilities, developing operational threat analysis tools, and working with the intelligence community to better share actionable threat and intelligence information." A key component of these efforts is co-funding the Cybersecurity Risk Information Sharing Program (CRISP), a public-private partnership managed by the Electricity Information Sharing and Analysis Center (E-ISAC), to facilitate timely, two-way sharing of threat information and to develop situational awareness tools that enhance the sector's ability to identify, prioritize, and coordinate the protection of critical infrastructure and key resources. Another effort, OE's Cybersecurity for the Operational Technology Environment (CYOTE) pilot program, focuses on two-way data sharing and analysis for energy sector operational technology (OT). OE also supports the National Association of Regulatory Utility Commissioners in producing its cyber security primer for state utility regulators. With OE support, experts from national laboratories have trained over 2,300 employees from over 200 utilities in cybersecurity, including live test bed exercises. OE's risk activities seek to develop better cyber risk analysis tools, practices, and guidelines for energy sector infrastructure. To this end, OE has worked with industry to develop the Cybersecurity Capability Maturity Model (C2M2), which helps infrastructure operators evaluate their cybersecurity capabilities and prioritize improvements. OE has released an initial version for the electricity sector, and a derivative version for the oil and natural gas sector. The latter applies to "the exploration, gathering, production, processing, storage, and transportation of petroleum liquids and natural gas," including pipelines. The C2M2 model has been used for over 40 self-assessments among electricity, oil, and natural gas companies since its release in 2012. In 2015, the agency also published guidance to help energy sector companies align their cyber risk management efforts with the NIST Cybersecurity Framework. The NIST Framework is voluntary guidance (based on existing standards, guidelines, and practices) to reduce critical infrastructure cybersecurity risk. Working with NIST and NERC, OE has also developed a cybersecurity Risk Management Process (RMP) guideline for the electricity sector "to provide a consistent and repeatable approach to managing cybersecurity risk across the electricity subsector." Cyber Incident Response and Recovery In the event of a cyber incident, two documents outline the framework under which the federal government will respond. Presidential Policy Directive 41 (PPD-41) on "United States Cyber Incident Coordination" establishes the policy of concurrent lines of effort in response. In these lines of effort, DHS leads asset response, which focuses on restoring the victim entity; the Federal Bureau of Investigation (FBI) leads threat response, which seeks to identify and respond to the culprit of the attack; and the Intelligence Community leads a supporting line of effort to assist DHS and the FBI with intelligence support. PPD-41 provided the policy for the National Cyber Incident Response Plan (NCIRP) along with additional detail for how that response will work following incident response and emergency management doctrine in the National Response Framework. The NCIRP dictates that, in response to a cybersecurity incident, a Cyber Unified Coordination Group (Cyber UCG) will be established at the direction of the National Security Council to manage the incident and coordinate the delivery of federal resources and capabilities to victim entities. The Cyber UCG is a body consisting of federal, state and local, private sector, and other relevant parties with an appropriate role for the specific incident's response activities. The Cyber UCG is to form at DHS's National Cybersecurity and Communications Integration Center (NCCIC) and operate there or virtually, depending on the incident. In the event that such a significant cyber incident occurs in the energy sector, OE is likely to play a large role in the Cyber UCG, given its FAST Act authorities. However, CRS is not aware of any public record of a Cyber UCG standing up and operating for a cyber incident in the energy sector, so the concept of operations prescribed in the NCIRP appears still untested in real-world response. Specific to pipeline security, DOE works with TSA and PHMSA to monitor flows and throughput of pipelines and facilitate information sharing among the federal government and private sector entities. This is in accordance with the "Pipeline Security and Incident Recovery Protocol Plan" which TSA drafted in response to the Implementing Recommendations of the 9/11 Commission Act of 2001. However, the plan is from 2010 and has not been updated to conform to PPD-41 or the NCIRP for cyber incidents. Research, Development, and Demonstration OE administers a cybersecurity research, development, and demonstration (RD&D) program aligned with the 2011 Roadmap "to assist the energy sector asset owners by developing cybersecurity solutions for energy delivery systems." One of the program's principal activities is co-funding selected RD&D projects with National Laboratories, universities, and industry partners. The agency has invested over $210 million since 2010 on 35 projects and other efforts related to cybersecurity tools and technology (see Appendix ). These projects span many aspects of cybersecurity, including control system hardening, monitoring, software maintenance, cyber incident response, and overall system design. The OE-funded projects appear to be predominantly focused on electric power applications (based on the specific technologies involved, industry partners, or stated objectives) but a number of them could also involve oil, natural gas, or pipeline-specific applications. In addition to the focused RD&D projects, OE funds the National SCADA Test Bed (NSTB) in partnership with Idaho National Laboratory, Sandia National Laboratories, and other national laboratories to address control system security challenges in the energy sector. Among other things, the NSTB offers testing and research facilities and advanced visualization and modeling tools in facilities that recreate real-world energy delivery control systems, infrastructures, and networks. A key service of the NSTB has been the cyber security assessment of over 30 commercial SCADA systems in the electricity sector since 2003. The NSTB's FY2009 Work Plan listed several pipeline operators among its technical advisors for specific projects, although pipeline company participation more recently is not reported. OE is investing in an expansion of the power grid test bed at Idaho National Laboratory that is to increase its capabilities to support technology research, testing, and demonstration for electric transmission and substation cyber threats. In cooperation with the DHS Science and Technology Directorate (S&T), OE also funds collaborative teams of academic institutions to develop and implement multidisciplinary cybersecurity tools and technologies to be shared with the energy sector through academic outreach. For example, the Trustworthy Cyber Infrastructure for the Power Grid (TCIPG) focuses on the trustworthy operation of low-level devices, communications, and data systems in the power grid. OE's Pipeline-Related Cyber Activities Asset owners across the electricity, oil, natural gas, and pipeline sectors often have similar operational and network communication needs—in some cases using the same types of hardware and software systems (e.g., SCADA) to meet them. Thus, cybersecurity programs, tools, and technologies developed in one sector have potential applicability to the others. However, effectively transferring general cyber practices or technology across sectors typically requires consideration or adaptation of cyber capabilities to fit the distinctive needs of a particular sector—such as "smart grid" metering requirements in electric power, or providing real-time operating pressure data in refineries and pipelines. Such sector customization, in turn, usually involves program participation by asset owners in a given sector, and pilot projects or demonstration in sector-specific installations. Industry representatives have asserted that natural gas pipeline companies "work closely" in cybersecurity with DOE as the Energy SSA, which "actively engages with government and industry partners to develop cybersecurity practices, tools, and guidelines that address relevant cybersecurity risks and threats." Although OE's cybersecurity focus appears to be primarily on the electric power sector, CRS is aware of some OE-funded projects with explicit pipeline sector participation in development or application. As noted above, OE modified a version of its C2M2 model specifically for use in oil, gas, and pipeline operations. The Safe Active Scanning for Energy Delivery Systems (SASEDS) project included the pipeline sector in its literature survey. Pipeline companies have participated in certain SCADA projects at the NSTB. Other OE-funded projects (e.g., Chess Master , a research and development program to identify next generation cybersecurity tools) have been led by technology developers serving multiple energy delivery sectors or in collaboration with industry partners that own multiple types of assets (e.g., the San Diego Gas & Electric utility company). In such cases, new technology may be transferred from the electric sector to the oil and gas or pipeline sectors by the vendor as a commercial product or service, or could potentially be transferred from the electric side of a utility to its natural gas operations. Because references to pipelines in the OE-related published material are few and anecdotal, CRS is unable to better determine the extent of such transfer to the pipeline sector. Cybersecurity Collaboration with Other Agencies As discussed above, FERC and TSA have statutory authority to regulate cybersecurity in the bulk power and pipeline systems, respectively. Although OE participates in some of the same high-level groups as these two agencies (e.g., Energy Sector Government Coordinating Council), there is little discussion in published materials as to what extent OE collaborates directly with FERC or TSA on specific cybersecurity RD&D programs in their respective infrastructure sectors. OE's statement before FERC's 2016 Reliability Technical Conference does not mention RD&D collaboration, although it does discuss OE's leadership of electric grid emergency preparedness exercises, such as North American Electric Reliability Corporation's Grid Ex III. OE also stated that it views grid reliability standards, including security standards, as "a topic that is not ultimately part of OE's portfolio, and is best addressed by NERC and FERC." Although OE collaborates with DHS S&T on grid cybersecurity, the ongoing level of cooperation between OE and TSA in the area of pipeline security is difficult to determine from published materials. In 2016 testimony before a congressional committee regarding its cybersecurity activities, a TSA official did not specifically mention working with DOE (although the official did mention coordination with FERC). A 2014 presentation by TSA's pipeline security director mentioned coordination "with DHS and DOE to harmonize existing cybersecurity risk management programs" as well as TSA and DOE cooperative participation in security assessments of six cross-border pipelines. A 2010 Government Accountability Office (GAO) report stated that TSA and DOE "worked closely on pipeline security issues, programs, and activities, such as efforts to enhance reliability and resiliency." In 2007, GAO reported that the national laboratories coordinated activities funded through the DHS Control Systems Security Program with those funded by DOE through the NSTB, including vendor SCADA assessments and site assessments. The report states that the DOE-funded assessments were in the electricity sector, but provides no further information about the DHS-funded ones. In 2016, DOT issued an Advisory Bulletin recommending that pipeline companies monitor their SCADA systems for abnormal operations, unauthorized access, or interference with safe operations. DOT stated that it had "coordinated with several components within DHS and the Department of Energy" on the bulletin. CRS has not found more specific documentation of collaboration between OE and DOT. Although DOT administers its own pipeline safety RD&D program, its recent projects do not involve direct work in control systems, SCADA, or cybersecurity. Pending Legislation On July 27, 2017, the House passed the Defense, Military Construction, Veterans Affairs, Legislative Branch, and Energy and Water Development National Security Appropriations Act, 2018 ( H.R. 3219 ), providing appropriations for DOE for the fiscal year ending September 30, 2018. The bill would appropriate $218,500,000 for OE, available until expended, except for $27,500,000 to be available until September 30, 2019 for program direction (Title III). The corresponding Senate bill, the Energy and Water Development and Related Agencies Appropriations Act, 2018 ( S. 1609 ), reported by the Committee on Appropriations on July 20, 2017, would appropriate $213,141,000 for OE, available until expended, except for $27,000,000 to be available until September 30, 2019 for program direction (Title III). Cybersecurity of energy infrastructure is addressed in Title II of S. 1460 , the Energy and Natural Resources Act of 2017. Although titled "Enhanced Grid Security," Section 2002 of the bill also addresses security for other energy infrastructure. It would establish a program for energy sector cybersecurity RD&D to be carried out by DOE, in consultation with other agencies, states, and the energy sector, for advanced applications to identify and mitigate cyber vulnerabilities. A key focus would be on the interdependencies of critical infrastructure sectors. The bill would authorize appropriations of $65 million for each fiscal year from FY2018 through FY2026 for the program. The cybersecurity of devices and third-party control systems in the supply chain would also be a central focus of the proposed RD&D efforts. The bill would authorize appropriations of $65 million for each fiscal year from FY2018 through FY2026 for the program. Additionally, S. 1460 would require DOE to provide operational support for a cyber-resilience program, to enhance and periodically test the emergency response capabilities of DOE and the Electricity Sector Information Sharing and Analysis Center and their ability to monitor the status of the energy sector. The bill would authorize appropriations of $10 million for each fiscal year from FY2018 through FY2026 for this program. DOE would also develop modeling and risk assessment tools for a cyber-resilience program to secure energy networks, including electric, natural gas, and oil exploration, transmission, and delivery. The bill would authorize appropriations of $10 million for each fiscal year from FY2018 through FY2026 for the development of tools to advance energy sector security risk management and resiliency from human threats and natural hazards (including electromagnetic pulse and geomagnetic disturbances) programs. Under the provisions in S. 1460 , the proposed programs would need to leverage existing programs and be consistent with goals of the 2011 Roadmap to Achieve Energy Delivery Systems Cybersecurity for developing a resilient energy sector infrastructure by 2020. On July 18, 2017, the House passed the Enhancing State Energy Security Planning and Emergency Preparedness Act of 2017 ( H.R. 3050 ), which would authorize DOE to provide states $90 million in financial assistance annually through FY2022 to assess cybersecurity threats to energy infrastructure, among other possible uses of funding. The act would offer governors information and technical assistance in the development, implementation, or revision of a state energy security plan. Supporting such plans, especially with respect to cybersecurity, could fall under OE's purview. Possible Issues for Congress Several key issues related to OE's energy delivery cybersecurity program have been included in legislative proposals or have otherwise been the subject of congressional oversight and debate. These issues are summarized below. OE Cybersecurity Funding The Trump Administration's FY2018 budget request for OE appropriations was $123 million, approximately 41% less than the agency's estimated direct obligations of $208 million in FY2017. Within OE, the budget request would fund Cybersecurity for Energy Delivery Systems at $42 million compared to an estimated $62 million in FY2017, a reduction of approximately 32%. Given recent assertions by federal agencies (including DOE) and the private sector about an increase in energy sector cybersecurity risks, some analysts have expressed concern about this proposed reduction in OE's cybersecurity budget. As noted above, the House and Senate appropriations bills would fund OE at $218.5 million and $213.1 million, respectively, both an increase from FY2017 funding. If OE's appropriation is enacted above its current level, the agency presumably could continue its current cybersecurity program on its current trajectory—and potentially fund some additional cybersecurity activities if they emerge as agency priorities. Additional authorizations under S. 1460 and H.R. 3050 , if enacted and funded, would significantly expand resources for DOE's energy delivery cybersecurity initiatives beyond historical levels. Given the ever-changing cybersecurity environment in the energy sector, Congress may continue to examine OE's cybersecurity resources to ensure that they are adequate and being deployed appropriately to address the most important energy delivery risks. FAST Act Implementation As discussed earlier, the FAST Act includes a variety of provisions concerning the general security of energy systems. These provisions include considerations for cyber as well as physical attacks and electromagnetic pulse attacks. The provisions include requirements for the Secretary of Energy to examine the strategic transformer reserve, coordinate energy sector security as the SSA, and prepare for energy supply disruptions. Congress may consider how effectively DOE is implementing the law, and whether additional authorities or changes to the law may be needed. The FAST Act does not require the DOE Inspector General (IG), the Comptroller General, or another agency to review the implementation of DOE's authorities and its progress in carrying out the direction of Congress. However, Congress may still oversee DOE's efforts by holding hearings, requiring new reports from the IG or Comptroller General, or requesting specific reports or information from the agency itself. With DOE-provided or independently provided information, Congress may have a more-informed basis for considering whether to adjust the provisions of the FAST Act or clarify, expand, or contract the authorizations it contains. Gas-Electric Cyber Interdependency The operational interdependency of the electric power and natural gas sectors, especially with respect to reliability and cybersecurity, has been a growing concern among many federal agencies, Members of Congress, and industry groups. The second installment of DOE's Quadrennial Energy Review (QER), published in January 2017, states that the electricity sector's increasing reliance on natural gas raises serious concerns regarding the need to secure natural gas pipelines against emerging cybersecurity threats. Thus, the adequacy of cybersecurity protections for natural gas pipelines directly impacts the reliability and security of the electric system. Among its recommendations, the QER calls for assessment of natural gas and electricity infrastructure interdependencies to cybersecurity protection. Likewise, some Members of Congress have expressed concern about the increased interdependency of electric power and natural gas in the security context. The president of NERC reportedly also has expressed concern about the possibility of multiple natural gas facilities being intentionally disrupted, and the associated effects on the electric system. Executive Order 13636 (§9) directs DHS, in consultation with the SSAs (e.g., DOE) and other relevant agencies, to examine and identify critical infrastructure at risk of causing a catastrophic impact due to a cybersecurity incident. It is not clear, however, whether the required risk analysis would only account for direct impacts to an infrastructure experiencing a cyberattack, or would include impacts to infrastructure with which it is interdependent. While a single electric or natural gas facility may not meet the criteria to be considered critical and vulnerable to a catastrophic cyber disruption, it is possible that the combination of direct and indirect impacts could elevate the potential risks associated with that facility. How OE's cybersecurity programs and expertise in energy delivery systems could best be used to inform such analysis may be of interest to Congress. Energy Cybersecurity Coordination In addition to DOE, other federal agencies, notably FERC and DHS (particularly TSA), state regulators, and energy companies have roles and responsibilities for the cybersecurity of the energy sector. However, federal coordination for sector cybersecurity appears fragmented among these entities depending on the nature of a given scenario. For instance, DHS is the lead for overall critical infrastructure protection and national cybersecurity incident coordination; it also has statutory authority to regulate pipeline security. However, DOE is the SSA for the energy sector, part of which is regulated by FERC and state agencies. Additionally, it is the private sector which adopts trade practices for ICS technology and contracts with ICS vendors for cybersecurity products and services. The effect of the dispersed cybersecurity responsibility at the federal level has been the subject of congressional interest, but has not been studied to understand the effect on all energy cybersecurity stakeholders. Congress may examine how OE's cybersecurity activities fit in, and coordinate with, the other various roles in energy cybersecurity for electricity, oil and natural gas pipelines, and other related energy infrastructure. In particular, Congress may examine how OE's RD&D programs and other work with the National Labs in electric power sector cybersecurity supports federal and private sector efforts in pipeline cybersecurity. Appendix. Cybersecurity RD&D Projects

While physical threats to the U.S. power grid and pipelines have long worried policymakers, cyber threats to the computer systems that operate this critical infrastructure are an increasing concern. Cybersecurity risks against the power and pipeline sectors are similar, as both use similar control systems, and there appears to be a broad consensus that cyber threats to this infrastructure are on the rise. Furthermore, with ever-greater physical interdependency between electricity generators and the natural gas pipelines that supply their fuel, many in Congress recognize that grid and pipeline cybersecurity are intertwined. In 2015, the Fixing America's Surface Transportation Act (the FAST Act) provided the Secretary of Energy with new authority to protect or restore the power grid during a grid security emergency, including a cyber incident. Congress is considering additional legislation to fund and expand the Department of Energy's cybersecurity programs. The Department of Energy (DOE) is the lead agency for the protection of electric power, oil, and natural gas infrastructure—cooperating with the Department of Homeland Security, the lead agency for pipelines. DOE's cybersecurity activities are led by its Office of Electricity Delivery and Energy Reliability (OE) and structured around three areas: (1) cybersecurity preparedness, (2) cyber incident response and recovery, and (3) research, development, and demonstration. Although nominally applicable to energy delivery systems across the electric power, oil and natural gas, and pipeline sectors, OE's cybersecurity activities to date appear to have been focused primarily on the grid. Publicly available examples of DOE-supported activities specifically focused on pipeline cybersecurity are limited. Rather, pipeline cybersecurity efforts appear to be included as part of broader national cybersecurity efforts. Several bills potentially affecting DOE's cybersecurity activities for power grid and pipeline infrastructure have been introduced in the 115th Congress. These include the Defense, Military Construction, Veterans Affairs, Legislative Branch, and Energy and Water Development National Security Appropriations Act, 2018 (H.R. 3219) and the Energy and Water Development and Related Agencies Appropriations Act, 2018 (S. 1609), both of which would modestly increase funding for OE in FY2018. The Energy and Natural Resources Act of 2017 (S. 1460) would establish and fund a DOE program for energy sector cybersecurity research, development, and demonstration (RD&D) to be carried out for advanced applications to identify and mitigate cyber vulnerabilities. The Enhancing State Energy Security Planning and Emergency Preparedness Act of 2017 (H.R. 3050) would authorize DOE to provide financial and technical assistance to states for assessing cybersecurity threats to energy infrastructure. As federal cybersecurity oversight and legislative debate continue, Congress may focus on several key issues. Given the ever-changing cybersecurity environment in the energy sector, Congress may continue to examine OE's cybersecurity resources to ensure that they are adequate and being deployed appropriately to address the most important energy delivery risks. Congress may also seek a more-informed basis for considering whether to adjust the provisions of the FAST Act or clarify the authorizations it contains. How OE's programs and expertise could best be used to inform analysis of electric power and natural gas infrastructure interdependency from a cybersecurity perspective may also be of interest to Congress. Finally, Congress may examine how OE's cybersecurity activities fit in, and coordinate with, the other various roles in energy cybersecurity for electricity, oil and natural gas pipelines. In particular, Congress may examine how OE's RD&D programs and work with the National Labs in electric power sector cybersecurity supports federal and private sector efforts in pipeline cybersecurity.

Background Canada and the United States have open borders for waste shipments, and waste has flowed across the border in both directions for years. The federal government does not report data regarding such shipments, but information is available from Environment Canada, the Ontario Ministry of the Environment, and from some U.S. states. According to these sources, the United States appears to be a net exporter to Canada of hazardous waste; but, because of plentiful landfill capacity, low-cost disposal options, and existing contractual arrangements, the United States is a much larger net importer from Canada of non -hazardous solid waste. The latter category can include municipal solid waste (MSW), construction and demolition (C&D) waste, medical waste, and non-hazardous industrial waste. U.S. Canada Bilateral Agreement Under a 1986 agreement between the United States and Canada, shipments of hazardous waste require notification to the importing country and that country's consent before waste may be shipped. The notification must include the exporter's identity; a description of the waste; the frequency or rate at which the waste will be imported; the total quantity of the waste; the point of entry; the identity of the transporter, means of transport, and type of containers; the identity of the consignee; a description of the manner in which the waste will be treated, stored, or disposed; and the approximate date of the first shipment. The receiving country is given 30 days from the date it receives notice to indicate its consent (conditional or not) or its objection to the shipment. If no response is received within the 30-day period, the importing country is considered to have no objection. Consent is not irrevocable: whether express, tacit, or conditional, the importing country's consent may be withdrawn or modified for good cause. The bilateral hazardous waste agreement was amended in 1992 to establish similar requirements for municipal solid waste, but, for lack of legislative authority, the amendment was never implemented. It is these unregulated shipments of non-hazardous waste, principally municipal solid waste, that have proven controversial. Lacking notification or consent requirements for MSW, many state governments do require the operators of solid waste management facilities to report the origin of waste they have received for disposal after the fact, on a quarterly or an annual basis. According to these data, entities in the Canadian province of Ontario have shipped major quantities of waste (principally MSW and C&D waste) to the United States in recent years. Waste Import Data State waste reporting requirements are not uniform: the reporting periods vary, as do the methods used by states to collect the data; some states don't collect data at all, although one can often find a knowledgeable official willing to provide an estimate. Using these sources, CRS has from time to time compiled the existing state data, in an attempt to provide comprehensive and comparable estimates. Our latest survey, published in June 2007, indicated that Michigan received 3,781,171 tons of municipal solid waste from Ontario in FY2005 (October 2004-September 2005). New York, the second largest recipient, received 195,228 tons from Ontario in calendar year 2005. The only other recipient we identified was the state of Washington, which received 101,834 tons from the Canadian province of British Columbia in 2005. The proportions are consistent with amounts reported in earlier years. Thus, it appears that more than 90% of the solid waste that Canada ships to the United States has gone to Michigan. The remainder has generally gone to the states of New York and Washington. While somewhat controversial throughout the 1990s, Canadian waste imports have received much greater attention since late 2002, when the city of Toronto—Canada's largest city—announced that it would close its last landfill and begin shipping all of its waste to Michigan. Canada's shipments of waste to Michigan increased 83% between then and fiscal year 2006. In FY2006, Michigan reported that it received 12,084,907 cubic yards (an estimated 4.03 million tons) of non-hazardous waste from Canada. Canada accounted for 19.5% of all the waste disposed in Michigan landfills in that year. Canadian waste imports decreased 9% in FY2007, to 10,982,984 cubic yards (about 3.66 million tons), but still accounted for 18.9% of the waste disposed in Michigan landfills. The Fort Gratiot Case Since the late 1980s, Michigan has attempted to restrict imports of waste. In 1992, however, in Fort Gratiot Sanitary Landfill v. Michigan DNR , waste import restrictions authorized by the state were held unconstitutional by the U.S. Supreme Court. Under Article I, Section 8 of the U.S. Constitution, Congress is given power to regulate interstate and foreign commerce; in a long series of cases beginning in the 1800s the Court has held that this grant of authority to Congress implies a prohibition of state actions to discriminate against interstate and foreign commerce, absent the consent of Congress. Recent Developments Providing congressional consent is the goal of numerous bills that have been introduced in Congress. H.R. 2491/H.R. 518 In the 109 th Congress, the most prominent of these bills was H.R. 2491 (Gillmor), which was reported by the House Energy and Commerce Committee on September 27, 2005, and passed the House by voice vote, September 6, 2006. Similar legislation ( H.R. 518 ) was introduced by Representative Dingell in the 110 th Congress, was reported by the Energy and Commerce Committee ( H.Rept. 110-81 ) March 29, 2007, and passed the House by voice vote, April 24, 2007. As of January 2008, there has been no action on the bill in the Senate. H.R. 518 would implement the bilateral U.S.-Canada waste trade agreement, as amended in 1992 to deal with municipal solid waste shipments between the two countries. It would require the EPA Administrator to perform the functions of the Designated Authority under the agreement and require him to implement and enforce the agreement's notice and consent requirements. In considering whether to consent to waste importation, the EPA Administrator would be required, in the words of the bill, to "give substantial weight to the views of the State or States into which the municipal solid waste is to be imported, and consider the views of the local government with jurisdiction over the location where the waste is to be disposed." The Administrator would also be required to consider the impact of the importation on continued public support for and adherence to state and local recycling programs, landfill capacity, and air emissions and road deterioration from increased vehicular traffic, and to consider the impact of the importation on homeland security, public health, and the environment. The bill would also authorize states to restrict imports of foreign MSW, provided they do so prior to the bilateral agreement's implementation. Under the latter provision, states would have a window of up to 24 months after the bill's enactment to impose restrictions of their choosing on the receipt of foreign MSW, and those regulations could remain in effect as long as the state desires. Michigan H.B. 5176 Michigan has already enacted legislation that would go into effect if this provision of H.R. 518 were enacted. On March 9, 2006, the Governor signed H.B. 5176, which prohibits the delivery and acceptance for disposal in Michigan of MSW generated outside of the United States, once Congress authorizes such prohibitions. DHS Appropriations Bill In the 109 th Congress, H.R. 5441 , the Department of Homeland Security (DHS) FY2007 Appropriations bill, as amended by the Senate July 13, 2006, also contained provisions that would have discouraged Canadian waste imports. An amendment submitted by Senator Stabenow (for herself, Senator Levin, and Senator Baucus) provided for inspections of international shipments of MSW, and required the Secretary of Homeland Security to levy a fee to cover the approximate cost of such inspections. In a floor statement, Senator Stabenow explained the effect of the amendment as follows: Based on information provided by the inspector general [of the Department of Homeland Security], we know that it will take four Customs agents about 4 hours for each trash truck inspection. Based on personnel and administrative costs, we estimate that the fee for each trash truck will be approximately $420. A separate amendment, introduced by Senator Levin (with the co-sponsorship of Senators Stabenow and Voinovich) and also approved in the Senate by unanimous consent, would have required that the Secretary of Homeland Security deny entry into the United States to trucks carrying MSW unless he certifies to Congress that the methodologies and technologies used by the Bureau of Customs and Border Protection to detect the presence of chemical, nuclear, biological, and radiological weapons in municipal solid waste are as effective as those used to screen for such materials in other items of commerce entering the United States in commercial motor vehicles. Exchange of Letters with Ontario Following passage of the Stabenow and Levin amendments, on August 30, 2006, the Ontario Ministry of the Environment reached an agreement with the two Senators, under which Ontario will eliminate shipments of municipally managed waste to Michigan by the end of 2010. In return, the Senators agreed not to pursue passage of the inspection fee and certification provisions in the Homeland Security Appropriations bill or to "pursue similar current or future measures." The inspection fee and certification provisions were deleted in conference, and the bill was signed by the President October 4, 2006. On September 19, 2006, Toronto's City Council approved a letter of intent to purchase a landfill near London, Ontario, where it is expected to ship its waste as it phases out shipments to Michigan. In FY2007, shipments of solid waste from Ontario to Michigan declined for the first time since FY1999. The steps taken by Congress in beginning to move legislation, as well as the separate legislation enacted by the state of Michigan, clearly played a role in bringing about the exchange of letters with Ontario. But large issues remain. Remaining Issues Issues remaining to be addressed include some posed by the exchange of letters and others posed by H.R. 518 . Issues Posed by the Exchange of Letters The agreement reached by the two Michigan Senators in their exchange of letters with Ontario's Minister of the Environment would address a portion of the waste shipped from Ontario to Michigan, but it would not eliminate the majority of it. The letters refer to "municipally managed waste," and specifically use a 2005 baseline amount of 1.34 million tonnes of municipal waste shipped. Accompanying materials from the Ministry of the Environment, however, note that in 2005, "4 million tonnes of waste were exported to the U.S., with 90% of this waste being sent to Michigan landfills." Thus, Ontario's commitment appears to cover only one-third of the waste shipped from the province to the United States, or 37% of the waste it shipped to Michigan. The reason for excluding the majority of the waste is that it is not "municipally managed"—it is waste collected by private haulers and shipped to Michigan landfills under private contracts. These wastes are shipped to Michigan either because it provides lower cost disposal options or because the landfills in Michigan are controlled by the same company that collects the waste in Canada. The provincial government and the local governments within the province have no authority to prevent these private waste shipments from leaving Ontario. Thus, the province has committed to eliminate what it can, i.e., that portion of the waste that is municipally managed. Second, the exchange of letters addresses the shipment of these wastes to Michigan, but not to other U.S. states. Given the subsequent action by the Toronto City Council, it would appear that when the waste is diverted from Michigan, it will be shipped to a site in Ontario; but nothing in the letters would prevent the waste being shipped to other U.S. landfills instead of those in Michigan. Third, the exchange of letters represents voluntary, good faith commitments by the parties. It is not a treaty or an international agreement and does not provide the enforcement provisions or penalties that legislation might offer. To summarize, those who continue to be concerned about Canadian waste shipments are likely to note that the exchange of letters does not address two-thirds of the waste being shipped, does not protect states other than Michigan, and contains no enforcement provisions. Addressing these issues would require congressional action. Issues Posed by H.R. 518 H.R. 518 , by contrast, would apply to private contracts, would apply to all 50 states, and would provide for enforcement. The bill would clarify that actions taken under its authority shall not be considered to impose an undue burden on interstate or foreign commerce, and thus would be immune to challenge under the Commerce Clause of the Constitution. But the effect of the bill might still be uncertain. In Section 4011(a)(3), it states, "Nothing in this section affects, replaces, or amends prior law relating to the need for consistency with international trade obligations." The bill, thus, appears to recognize that U.S. trade agreements would have a role to play in defining the scope of the states' authority to act pursuant to the legislation. It is not clear how these obligations and the bill's grant of authority to the states to restrict waste imports would ultimately be reconciled. Opponents of the bill, including the National Solid Wastes Management Association (which represents the U.S. waste management industry), have already made clear their intention to challenge its provisions in court if it is enacted; this issue would presumably be among the provisions litigated.

Private waste haulers and Canadian cities—including the city of Toronto—ship large quantities of waste to the United States. About four million tons (as many as 400 truckloads a day) have been shipped annually since 2004, according to receiving states. Nearly three-quarters of this waste has gone to two large landfills near Detroit. The influx of waste has been highly controversial, in part because the ability of state and local governments to restrict it is limited. Under court rulings concerning the U.S. Constitution's Commerce Clause, only Congress can authorize restrictions that discriminate against foreign waste. Thus, for several years, the state of Michigan and the Michigan congressional delegation have pressed Congress for action. Legislation to provide limited authority to restrict waste imports, H.R. 518, was introduced early in the 110th Congress by Representative Dingell, with the co-sponsorship of the entire Michigan delegation. The bill was reported by the Energy and Commerce Committee March 29, and passed the House, by voice vote, April 24, 2007. Congress began to focus on this issue in the summer of 2006. In July of that year, in the Department of Homeland Security appropriations bill (H.R. 5441), the Senate approved the establishment of an inspection program for waste imports that might have added more than $400 in fees to the cost of importing a truckload of waste. In early September, the House passed legislation similar to H.R. 518 (H.R. 2491 in the 109th Congress), which would have given states limited authority to restrict waste imports. In between these actions, an agreement was reached between Michigan's two Senators and the Ontario Ministry of the Environment, under which Ontario will eliminate shipments of municipally managed waste to Michigan by the end of 2010. The steps taken by Congress in beginning to move legislation, as well as separate legislation enacted by the state of Michigan, clearly played a role in bringing about the voluntary agreement between Michigan's two Senators and Ontario. But large issues remain. The agreement is not a treaty or an international agreement, so it does not formally bind the United States or Canada or the parties shipping and receiving the waste. Assuming that its provisions are adhered to by Ontario's waste managers, it still would not address two-thirds of the waste being shipped to Michigan (i.e., the waste being managed by private waste management firms), and it would not affect waste shipments to states other than Michigan. This report provides background information on the history of Canadian waste imports, reviews congressional developments, and discusses issues raised by the voluntary agreement and legislation.

Introduction The Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq., henceforth the Stafford Act) confers upon the President a broad set of authorities "to alleviate the suffering and damage" of affected tribal, state, and local governments, as well as individual citizens, from disasters. The Federal Emergency Management Agency (FEMA) of the Department of Homeland Security (DHS) has been given the responsibility of administering almost all of the President's Stafford Act authorities through other law, a series of Executive Orders, and a DHS delegation. FEMA has established the Public Assistance (PA) Grant Program by combining the authority of multiple sections of the Stafford Act. The PA Program provides financial grant assistance to states, tribes, and local communities both in the response to and recovery from significant disasters. Between FY2000-FY2013, the PA Program has provided $52.6 billion in grant assistance to help communities pay for an array of eligible response and recovery activities, including debris removal, emergency protective measures, and the repair, replacement, or restoration of disaster-damaged, publicly owned facilities and the facilities of certain private nonprofit (PNP) organizations. The authorities of the PA Program were most recently significantly amended by the Sandy Recovery Improvement Act (Division B of P.L. 113-2 , the Disaster Relief Appropriations Act, 2013; henceforth SRIA). For a brief legislative history of PA Program authorities, see Appendix A . This report provides background on key elements of the PA Program, such as the eligibility of applicants, the types of assistance available, and the methods FEMA uses for awarding grant assistance. Summary analysis of federal obligations for PA Program assistance is also provided along important variables, such as the distribution of federal obligations across the PA Program eligible categories of work assistance. The report concludes with discussion of several policy issues that Congress may wish to consider when evaluating the PA Program in the future, including considerations of significant prospective changes to the PA Program and the role of the PA Program in the context of other federal agency disaster assistance authorities. It is beyond the scope of this report to describe in full how FEMA administers the PA Program. FEMA has many publicly available resources that explain the complexity of the PA Program in greater detail than is provided in this report. Key Elements of the PA Program This section of the report describes key elements of the PA Program, such as major eligibility considerations, the types of grant assistance provided, and the methods for disbursing grant funding. Eligible Applicants In order to be eligible for PA grants, an applicant's respective state or tribal government must first receive a major or emergency disaster declaration from the President through Stafford Act procedures. The key condition for receiving a declaration is that the disaster has consequences "beyond the capacity" of the affected state/tribe and local communities to manage. In a more limited fashion, PA grants are available to those areas receiving Fire Management Assistance Grants (often colloquially called FMAG or fire "declarations"). In addition, PA grants are only available in the localities of the state (or the tribal associated lands) specified in the Stafford Act declaration. Once the President has issued a disaster declaration, the primary grantee for all PA grants is the state or tribal government receiving the declaration. However, as subgrantees (or, by another name, applicants) PA grants are available to any tribal government, state, and local government entity in the affected area. Local government is broadly defined in the Stafford Act, and therefore grant assistance may be provided to local governmental bodies ranging from general purpose municipal city governments, school districts, public hospitals, public water and sewage authorities, to transportation districts. PA grants are not available to private citizens or private companies, but they are available to certain owners of private nonprofit facilities (PNPs).The Stafford Act provides a full definition, with examples, of what constitutes an eligible PNP facility. The major condition of eligibility of a PNP is whether it falls into a specific set of facilities named in law, or if it otherwise provides an "essential service of a governmental nature to the general public." This condition is included in the PNP definition in the law, and is expanded on in FEMA's regulations and policy guidance. The PNP must also be considered a nonprofit under the terms of the U.S. Internal Revenue Service or under state law. The eligibility of PNPs for PA assistance changes based on whether the PNP is determined to provide a critical service, which is a smaller subset of PNPs providing essential governmental services. Critical services include power, water, sewer, education, emergency medical facilities, and more. If the PNP provides a critical service, it may apply directly to the PA Program for grant assistance to repair and restore its facilities as if it were a tribal, state, or local governmental entity. If it does not provide such a critical service, but does provide an essential service of a governmental nature, the PNP is first required to apply for assistance from the Small Business Administration's (SBA's) Disaster Loan Program. If the PNP is denied assistance from SBA or the total amount of loan assistance is less than the PA eligible damage, the eligible PNP providing non-critical governmental services may then apply for assistance from the PA Program. Both critical and non-critical PNPs may receive emergency work assistance, as described later in the report. Of recent interest to Congress, FEMA's policy guidance instructs that PNP facilities are ineligible for assistance when their space is "dedicated to or primarily used for religious, political, athletic, recreational, or vocational purposes." Currently, facilities owned by a religious entity are only eligible to the extent that the facility primarily provides an eligible, essential governmental service. For example, the school facilities of a church are generally eligible, so long as the primary purpose of the facilities is for secular education. Congress has considered legislation to allow for the inclusion of "houses of worship" as an eligible category of PNP facilities, though doing so may present constitutional legal issues. Eligible Types of Assistance (Categories of Work) To administer the PA Program and describe the PA Program's many eligible types of assistance, FEMA combines the authorities of multiple sections of the Stafford Act into "categories of work." As shown in Table 1 , FEMA has two major groups of assistance: emergency work assistance, and permanent work assistance. Within these groups, there are categories of assistance labeled A through G. Neither the Stafford Act nor FEMA's implementing regulations specifically identify these categories of work; rather these distinctions have been developed by FEMA in policy as a means of managing and implementing the PA Program. While a generally useful tool to classify the types of assistance available through the PA Program, the categories are not completely distinct and similar projects could be subjectively classified under different categories in different incidents (i.e., there is some "gray area" between the categories). Emergency Work FEMA regulations define emergency work as "work which must be done immediately to save lives and to protect improved property and public health and safety, or to avert or lessen the threat of a major disaster." The authorizing statute for emergency work is found in multiple provisions of the Stafford Act, primarily in Section 403. Emergency work assistance is available to communities identified in both major and emergency disaster declarations. More limited emergency work assistance is also provided for areas receiving Fire Management Assistance Grants (FMAGs). As subdivided by FEMA, it includes two categories of assistance, debris removal and emergency protective measures, which are described below. As shown later in Table 5 , CRS analysis of project data from FY2000 to FY2013 indicates that approximately 35% of all PA projects were for emergency work. These emergency work projects accounted for 41%, or $21.2 billion, of the total federal obligations for assistance in the PA Program during the time period. Debris Removal21 When a disaster strikes a community, it can produce a large volume of debris ranging from tree limbs, destroyed cars, chemicals and other hazardous materials, building materials, etc. Debris can have immediate impacts such as blocking emergency routes, and can also inhibit a community's overall recovery and prevent the safe return of residents to their homes if they were evacuated. Managing the debris removal process is a fundamental challenge in responding to any disaster, and is guided by a number of regulatory requirements. So long as it is in the public interest, FEMA provides grant assistance to communities for both the actual removal of the debris and the management of the process writ large, as authorized by Section 403(a)(3)(A) and Section 407 of the Stafford Act. This assistance, under Category A of the PA Program, is available both for emergency and major disaster declarations. Working with the applicant, FEMA will estimate the amount of debris following a disaster in order to provide eligible grantees expedited payments of 50% of the initial estimate for full anticipated debris removal costs. Eligible PNPs may receive assistance for the removal of debris on their eligible facilities. FEMA has established extensive policy guidance specifically on debris removal assistance, as the process for debris removal is relatively distinct from much of the rest of PA Program assistance. The Sandy Recovery Improvement Act (SRIA) established a set of alternative procedures for debris removal assistance provided by the Stafford Act. This new section of the Stafford Act reauthorizes similar authorities to those granted by the PA Pilot Program established by the Post-Katrina Emergency Management Reform Act (PKEMRA), and as have been recommended in the past by the DHS Inspector General (IG). The alternative procedures are intended to incentivize the faster completion of projects while saving local and federal monies. As implemented currently by FEMA in pilot program guidance, the alternative procedures for debris removal allow: Use of a sliding scale for the federal share of debris removal based on the time it takes to finish debris removal. FEMA is to provide a larger federal share of the eligible cost the quicker an applicant removes the debris. For debris removed by a subgrantee within 30 days of the disaster, the federal share is 85% (a 10% increase from the minimum 75%); and within the next 60 days (i.e., days 30-90 post-disaster), 80% of the federal share. Applicants to recycle debris and use the proceeds from such recycling without reducing the awarded amount of grant assistance. FEMA has created several eligible uses for the proceeds, including using it to meet the grantee cost share requirement and to improve future debris removal operations. Reimbursement of state, tribal, and local governments or owner/operators of private nonprofits for the base and overtime wages of their own employees that are performing or administering debris removal projects. Provision of financial incentives for applicants with a FEMA-approved debris removal plan and one or more prequalified debris removal contracts prior to a disaster. FEMA is providing a one-time 2% cost share adjustment for a single disaster declaration for all debris removal work completed within 90 days if the applicants have a debris removal plan and at least one prequalified debris removal contract in place. Emergency Protective Measures Emergency protective measures (Category B) is perhaps the broadest eligible form of assistance in the PA Program, as it includes all activities that are "undertaken by a community before, during, and following a disaster that are necessary to ... eliminate or reduce an immediate threat to life, public health, or safety; or eliminate or reduce an immediate threat of significant damage to improved public or private property through cost-effective measures." Examples of eligible activities include the establishment of temporary shelters and community service facilities, critical power generation, demolition of unsafe buildings, operation of emergency communications systems, and more. In addition to assistance that applicants, including PNPs, may receive for the emergency protection of their own eligible facilities, applicants may also receive grant assistance to provide emergency protective measures for the general public during the preparedness for or response to a disaster, such as volunteer fire departments for search and rescue operations. Regulations on emergency protective measures are expanded upon considerably by numerous policy documents, ranging from policies on the eligibility of building inspection costs to the eligibility of removing hazardous stumps. SRIA specified that the President may reimburse both the base and overtime pay and benefits of permanent employees of state, tribal, and local governments for emergency protective measures. FEMA anticipates implementing this legislative change through the regulatory process, but has not done so as of the date of publication of this report. Under past regulations and policy directives, FEMA determined that, in general, only the overtime wages of permanent employees working for the state and local governments were eligible for reimbursement (that is, not the base pay and benefits or "straight time" of an employee). In contrast, FEMA had determined that the full cost of contract labor for this work is eligible for reimbursement. This change made by SRIA did not impact the treatment of wages for private nonprofits, and it continues to allow the reimbursement of overtime and hazardous duty pay of all state and local permanent employees conducting emergency protective measures, consistent with past FEMA policy. FEMA implemented a novel use of emergency protective measures authority during the response to Hurricane Sandy. Emblematic of the potentially flexible nature of the underlying statute, FEMA designed the Sheltering and Temporary Essential Power (STEP) Pilot Program to restore the basic habitability of individual residences, thereby allowing people to "shelter" in their own homes as opposed to using other government-funded temporary facilities or receiving rental assistance for hotels and hotel-like accommodations. However, consistent with other PA assistance, the grant assistance provided by FEMA (a maximum of $10,000 per residence) was not provided directly to individuals, but rather was provided to eligible PA applicants such as local governments to reimburse them for the emergency protective measure work done on residences. In other words, the grant was provided to local governments, who in turn used the funding for essential repair to private residences (essentially passing through the assistance). In a rapid response audit of the STEP Pilot Program, the DHS IG found that the program was innovative but consistent with the authorities of the Stafford Act and "may substantially reduce the overall long-term costs associated with sheltering and disaster housing." However, the IG also noted that by the very nature of it being a pilot program, the STEP Pilot Program was more vulnerable to waste, fraud, and abuse. GAO reiterated these concerns, noting that FEMA did not require sufficient collection of data on recipients of STEP assistance that would enable FEMA to determine if these same recipients were receiving assistance through other FEMA programs in violation of program guidance and restrictions on the duplication of benefits. GAO, reporting on FEMA-provided data, found that as much as $418 million was spent through the STEP Pilot Program in the aftermath of Hurricane Sandy. FEMA is conducting its own internal review of the STEP Pilot. Direct Federal Assistance Given that a disaster can significantly exceed the management capabilities of communities, the Stafford Act grants the President broad authority to direct any Federal agency, with or without reimbursement, to utilize its authorities and the resources granted to it under Federal law (including personnel, equipment, supplies, facilities, and managerial, technical and advisory services) in support of State and local emergency assistance efforts to save lives, protect property and public health and safety, and lessen or avert the threat of a catastrophe, including precautionary evacuations. In addition, at the request of the governor or tribal chief executive, federal government agencies may be tasked with providing emergency work assistance whenever states, tribes, and local governments cannot provide the assistance themselves or through contract support. Collectively, this type of assistance is generally referred to as direct federal assistance . Prior to providing this assistance, FEMA requires grantees and applicants to agree to a number of conditions, including that the federal government is indemnified from damages and any claims against the federal government arising from the assistance provided. Permanent Work In the section of the Stafford Act authorizing permanent work assistance, it states that the President may provide financial assistance to grantees to help to restore eligible facilities on the basis of the design of such facility as it existed immediately prior to the major disaster and in conformity with current applicable codes, specifications, and standards (including floodplain management and hazard mitigation criteria required by the President or by the Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.)) shall, at a minimum, be treated as the net eligible cost of such repair, restoration, reconstruction, or replacement [italics added]. Therefore, eligible federal costs associated with restoring permanent facilities generally fall into three groups: Costs associated with restoring the facility to its predisaster design. In regulations and implementing policy, FEMA has expanded the definition of predisaster design to mean that the repaired/replaced facility should have the same function and relative capacity of the previous facility. Costs associated with improvements made to the facility to bring it into conformity with current codes, specifications, and standards. These codes and standards must also be found to be "reasonable" by FEMA, be in effect at the time of the disaster, and be applied uniformly across the community prior to the disaster, among other requirements. Prior to 1999, FEMA considered eligible the costs associated with repairing/replacing facilities to meet a new building code, adopted after a disaster, so long as the project had not yet been approved by FEMA. This allowed grantees to adopt new standards and have the cost of meeting those standards shared by the PA Program. However, this policy was reformed and restricted by regulation when FEMA reassessed its legal interpretation of the statute. Costs associated with complying with the President's floodplain and hazard mitigation criteria or other federal laws, as explained later in the report. Permanent work assistance is only available in areas receiving a major disaster declaration, and is not available to communities receiving emergency declarations or FMAGs. In order to receive permanent work assistance, eligible grantees must also have a FEMA-approved state or tribal mitigation plan in accordance with regulatory requirements. This restriction does not affect receipt of emergency work assistance through the PA Program. The subcategories of permanent work (Categories C through G) refer to the types of facilities eligible for restoration. For example, utilities (Category F) can include water treatment plants and delivery systems; power generation and distribution facilities, including natural gas systems, wind turbines, generators, substations, and power lines; sewage collection systems and treatment plants; and communications. As shown later in Table 5 , CRS analysis of project data from FY2000-FY2013 indicates that approximately 65% of all PA projects were for permanent work. This accounted for 59%, or $30.2 billion, of the total federal obligations for assistance in the PA Program. Hazard Mitigation Assistance for Permanent Work Hazard mitigation, as defined in FEMA regulations, is "any cost effective measure which will reduce the potential for damage to a facility from a disaster event." Through its administration of the PA Program, FEMA has issued regulations stipulating that Regional Administrators have the authority to require certain hazard mitigation measures in addition to those required by local building codes and standards. The "hazard mitigation criteria required by the President" allowed by law is principally formulated by policy guidance issued by FEMA. This policy guidance explains the conditions by which FEMA will approve assistance for hazard mitigation measures (with examples provided). The criteria do not establish any fixed set of requirements on facility design in the manner of a supplement to local or state building codes. FEMA's criteria were updated in 2010 to reflect an increased emphasis by Administrator Craig Fugate to "maximize section 406 mitigation so as to reduce the risk of damage to the same facilities in future disasters." As shown later in Figure 6 , FEMA-supplied data indicate that $3.7 billion has been obligated for PA hazard mitigation assistance between FY2000-FY2013. FEMA considers the authority to include hazard mitigation measures on projects to be discretionary, meaning in essence that "only FEMA has the authority to determine which hazard mitigation measures it will fund" and that "The Stafford Act and applicable regulations do not authorize State or local building officials or agencies to determine the amount of hazard mitigation funding FEMA will contribute to a project." With this discretion, FEMA has determined that additional hazard mitigation measures can only be applied to facilities that are being repaired (not replaced in full) and only to areas of the building that are damaged by the disaster. In addition to the hazard mitigation measures required and allowed under FEMA's criteria, there are other forms of assistance provided by the PA Program that may have the effect of mitigating future disaster risks. First, there are those costs that are eligible to comply with federal floodplain management standards, namely building code standards related to the National Flood Insurance Program (NFIP) and Executive Order 11988, Floodplain Management , as most recently amended by Executive Order 13690, Establishing a Federal Flood Risk Management Standard and a Process for Further Soliciting and Considering Stakeholder Inpu t . For example, all facilities in the special flood hazard area that are being replaced or substantially improved with federal assistance must be elevated to or above the base flood elevation level. Second, there are those costs associated with bringing the undamaged parts of a facility into compliance with applicable codes and standards are generally referred to as "triggered costs" by FEMA. These triggered costs are eligible costs under the PA Program, so long as they are found reasonable, and could be considered as a hazard mitigation obligation through permanent work assistance as they may assist in improving the facility's design in a manner that will "reduce the potential for damage to a facility." Not all triggered costs may have this hazard mitigation benefit. For example, some triggered costs may be associated with increasing the accessibility of facility, which, though a potentially valuable improvement, may or may not reduce future risk. Insurance Requirements for Permanent Work Section 311 of the Stafford Act requires that applicants receiving assistance for permanent work projects obtain and maintain insurance on the facility to the extent that insurance is "reasonably available, adequate, and necessary to protect against future loss to such property," as determined by the President. This insurance requirement is implemented further through regulations and FEMA policy guidance. In order to determine whether insurance is "reasonably available," FEMA is required to defer to the appropriate state insurance commissioner to certify the type and extent of insurance that is reasonable for the facility and region. At a minimum, FEMA requires that facility owners obtain and maintain insurance that provides coverage equal to the amount of assistance being provided by the PA Program (i.e., equal to the cost of eligible damage to the facility) for the hazard type responsible for the damage (e.g., earthquake insurance for damage caused by earthquakes). Generally, a state insurance commissioner only becomes involved at the request of the applicant in certifying what is "reasonable" other than the standard set by FEMA. If facility owners fail to obtain and maintain insurance as required by FEMA, the facility is ineligible for permanent work assistance in a future disaster of the same hazard type (this restriction does not apply to emergency work assistance). In all circumstances, the dollar amount of PA grant assistance provided by FEMA is reduced by the amount of eligible insurance coverage in force at the time of the disaster. This is required by legal restrictions against the duplication of benefits, where an applicant cannot receive assistance from the PA Program if an insurance policy will provide the same benefit. Therefore, in theory, proper implementation of the "obtain and maintain" insurance requirement reduces future PA Program costs by increasing the financial risk transfer to the insurance market (either public or private insurance). However, the DHS IG recently found past situations where this requirement has not been implemented adequately by FEMA and grantees. The legal requirements related to insurance for facilities that are in an identified special flood hazard area are further increased in Section 406(d) of the Stafford Act. For these facilities, the dollar amount of permanent work assistance provided by the PA Program may be reduced by the maximum amount of available flood insurance, regardless of whether the facility had previously obtained that insurance. Generally, the amount of flood insurance available is limited to the maximum coverage amounts of a policy through the National Flood Insurance Program (NFIP). Thus, owners of facilities in these special flood hazard areas are strongly incentivized to obtain flood insurance pre-disaster, and essentially are penalized if they do not. Facility owners at risk of other types of disasters are not similarly incentivized to obtain their respective forms of insurance (e.g., facilities at risk of earthquake damage are not penalized for failing to carry earthquake insurance if not previously required to do so because of a past disaster). FEMA has proposed a revision to existing policies on the insurance requirement. Among other changes, if implemented as proposed, the new policy would formally allow applicants (i.e., local governments, PNPs, etc.), to retain some or all of their risk through a self-insurance plan at the approval of FEMA, not just states. As of the date of this report, the new policy had yet to be implemented, though FEMA had already solicited public comment on the policy. Administrative Cost Assistance The Disaster Mitigation Act of 2000 (DMA 2000) revised the Stafford Act to direct the President to establish regulations for providing grant assistance to cover the management expenses of grantees and applicants. Since this directive, FEMA has had two distinct processes for providing this assistance for both the PA Program and the Hazard Mitigation Grant Program. For disasters declared before November 2007, grantees and applicants received a "sliding scale" reimbursement model, whereby they were given an extra amount of grant assistance for management costs based on a small percentage of the total assistance provided by FEMA. After November 2007 (essentially starting in FY2008), FEMA established a new procedure. The costs for applicants and grantees are grouped into two categories: Direct administrative costs (often referred to as DAC) are costs incurred by the grantee or applicant that "can be identified separately and assigned to a specific project." Indirect, management costs that a grantee or applicant "reasonably incurs in administering and managing the PA grant that are not directly chargeable to a specific project." Eligible direct administrative costs are provided by FEMA directly on the grant award for activities such as travel expenses and preparing documentation related to the specific project. The amount provided is based on the actual cost of these activities, or an estimate of their cost. GAO recently audited the past and current process for providing assistance for these costs, and found that the change made in 2007 may have had several unintended consequences, including increasing the workload of grantees and applicants/subgrantees because of the complexity of DAC procedures. In GAO's recent analysis of FEMA data from FY2008 to FY2012, GAO found that direct administrative costs totaled approximately $107 million, about 0.77% of the total spending for the PA Program. Management costs (or indirect costs) are provided directly to the grantee (the state or tribal government with the disaster declaration), not to the individual applicants in the communities. For indirect management costs, FEMA has established that it will provided a maximum of 3.34% of the federal share of projected eligible PA Program costs for major disaster declarations and 3.9% of the federal share of projected eligible program costs for emergency declarations. FEMA, through the Chief Financial Officer, works with the grantees to develop a "lock-in" amount of management costs within 12 months of the declaration, and that amount cannot exceed $20 million unless specifically exempted by FEMA. The amount "locked-in" may be less than the 3.34% or 3.9% cap for major disaster and emergencies, respectively. FEMA has produced guidance to applicants on examples of activities that should be classified as direct versus management costs. Grantee Cost-Shares There are no legal or regulatory limits on the amount of money that can be awarded through PA grants for any one project, applicant, or disaster declaration. So long as the project is otherwise eligible, FEMA will award funding (subject to sufficient funds being available in the Disaster Relief Fund for the project). The PA Program has a minimum federal cost-share of 75%, meaning that the maximum a grantee is responsible for is 25% of the total eligible amount of grant assistance, for both emergency and permanent work. The President may decide to increase this cost-share, often on the recommendation of FEMA under a regulatory assessment. The cost-share can also be adjusted by separate laws specifying the cost-share for specific disaster declarations. Under regulatory procedures, FEMA may recommend that the President increase the federal share up to 90% of the eligible costs for emergency and permanent work if the assessed damage from the disaster exceeds certain per capita damage thresholds. In addition, FEMA may recommend that the federal cost-share be increased to 100% for emergency work for a limited period of time after an incident, regardless of any per capita damage assessment. FEMA also has a specific policy for providing 100% cost-share on direct federal assistance. Cost-shares for individual disasters are established in the FEMA/state agreement which is completed as early as possible following an incident (and amended thereafter). A full discussion of cost-share adjustments for all Stafford Act assistance programs, including the PA Program, is provided in a separate CRS report. In DMA 2000, the President was directed to establish regulations by which the federal cost-share for permanent work assistance (restoring facilities) could be reduced for facilities damaged on more than one occasion over a ten-year period by the same type of event (e.g., a flood, tornado, or earthquake) and only if the owner of the facility had failed to properly mitigate the facility to prevent repetitive damages. By law, the federal cost-share could be reduced to not less than 25% (meaning the federal share would be a minimum of 25%, and the grantee share no more than 75%). FEMA proposed a regulation for this reduction in 2009, but the regulation has yet to be finalized so the legal requirement is not in effect. In the proposed rulemaking, FEMA has interpreted the language of the statute as meaning that the cost share would be reduced on the third occasion that a facility is damaged by the same event within a ten-year window, not the second. FEMA has suggested that their current means of tracking projects and applicants across these multiple disasters and years does not allow the ready identification of these types of facilities, thereby preventing easy implementation of the cost-share reduction requirement. There is no reliable estimate for how many facilities—if any at all—would ultimately have their cost-share reduced because of this unenforced requirement. Appeal Rights The Stafford Act specifically provides a "right of appeal" to all grantees and applicants regarding any decision on the "eligibility for, from, or amount of assistance under this title [the Stafford Act]." The statute also establishes a timeline for the appeals process. Appeals must be filed within 60 days of being notified of the decision in question, and the federal official responsible for administering the appeal has 90 days to reach a decision after it is filed. This statute on an appeals process applies for every Stafford Act assistance program, and the PA Program in particular has expanded on it in regulations and administrative policies. The traditional PA appeal process has two stages of appeal; the initial appeal goes to the FEMA Regional Administrator where the disaster occurred and the second appeal goes to FEMA's Assistant Administrator for Recovery for a decision, which is final. SRIA established a new alternative dispute resolution (ADR) procedure for PA Program assistance decisions related to a major disaster declaration. The history of this provision and possible rationale are described in another CRS report. Since SRIA, FEMA has implemented the ADR procedure in regulations, and created a new manual on the appeals process to explain the procedure. FEMA also maintains a database of appeals online, and has created a new Public Assistance Appeals Branch to centrally manage the appeals process. Methods for Awarding and Disbursing Grant Funding There are two general methods FEMA currently uses to determine the amount of, and award, grant assistance for both emergency and permanent work under the PA Program. FEMA will either award grants based on the estimated federal share of the total eligible cost for the project, or it will award grants on the federal share of actual eligible costs evidenced through documentation by the applicant/grantee. Succinctly, when a grant is provided by estimate, the applicant receives the full amount of assistance at the time the project is approved. The actual cost basis method reimburses the applicant for eligible expenses only as actual costs are documented by the applicant. When and how these methods are applied is described briefly below. Estimated Cost Basis Under current practice, FEMA issues grants based on the estimated federal share of eligible costs for PA projects when: The project is eligible for simplified procedures as authorized in Section 422 of the Stafford Act (a "small project" in FEMA terminology); An applicant has decided to receive an in-lieu contribution through Section 406(c) of the Stafford Act (an "alternate project" in FEMA terminology); Certain projects that include significant improvements for the facility (an "improved project" in FEMA terminology); or An applicant chooses to use the alternative procedure for a permeant work, large project grant to be based on a fixed estimate. These types of PA projects are described in greater detail below. Simplified Procedure "Small" Projects Section 422 of the Stafford Act allows applicants to request that FEMA provide PA grants based on the federal share of the estimated total eligible cost of the project, as opposed to reimbursing on eligible actual costs. The statute establishes a cap on the size of projects allowed to use this method at $35,000, adjusted annually for inflation. For the period FY2000 through FY2013 this threshold ranged between $48,900 and $68,500. Providing this assistance via a federal estimate, as opposed to actual cost, is deemed a simplified procedure, though projects under this ceiling and using this method are often referred to by FEMA as small projects. The simplified procedure can be applied for any category of work assistance in the PA Program. In general, the simplified procedures are intended to reduce administrative expenses, for both FEMA and the applicant, and to speed up the delivery of assistance to the affected communities. SRIA revised Section 422 to require the Administrator of FEMA to analyze and report whether it would be appropriate to raise the estimated cost ceiling on small projects, based on a number of considerations including how the threshold impacts "cost-effectiveness, speed of recovery, capacity of grantees, past performance, and accountability measures." FEMA produced a report analyzing this issue on January 29, 2014, one year after enactment of SRIA and in fulfillment of the legislative deadline. In addition to reviewing the size of the maximum estimated cost threshold for simplified procedures, FEMA also reviewed its minimum estimated cost threshold to receive grant assistance—currently set at $1,000. Through an analysis of past legislative intent on the size of small projects and a benefit-cost analysis, among other factors, FEMA recommended raising the eligibility for simplified Procedures to $120,000 for the maximum estimated cost threshold and $3,000 for the minimum estimated cost threshold. Based on past data from the PA Program, FEMA believes that the new small project thresholds will capture approximately 93% of all PA projects, though only 20% of the total costs of assistance in the PA Program. CRS analysis of project data from FY2000-FY2013 indicates that approximately 87% of all PA projects were small projects, and 9% of the total federal obligations for assistance in the PA Program. Therefore, the new thresholds may increase the number of small projects by roughly 6 percentage points, and the amount of assistance provided through simplified procedures by 11 percentage points. As required by law, following their analysis of the cost thresholds, FEMA established the new floor for the minimum project amount and a ceiling for small project eligibility by regulation. Thus, these new thresholds of $3,000 for a minimum project size, and $120,000 for the simplified procedure maximum, are effective as of February 26, 2014. By law, FEMA is also required to adjust the thresholds annually by the Consumer Price Index and to review the thresholds no later than every three years. Validation Process for Small Project Estimates As explained above, small projects are based on the federal estimate for the cost of the project. However, applicants are encouraged to produce their own estimates on the cost of small projects and provide them on project worksheets to FEMA for validation. This process is established in FEMA policy, not law or regulation, and is designed to "confirm the eligibility, compliance, accuracy and reasonableness of small projects formulated by an applicant." FEMA will review a 20% sample size of all small projects submitted by the applicant under a particular disaster declaration, but will individually review any that have identified special considerations, such as residing in the floodplain or historical preservation issues. FEMA does not have an established process to review whether the estimated cost of small projects ultimately reflects the final cost for completing the project. In-Lieu "Alternate" Projects The Stafford Act authorizes the President to provide certain applicants, at their request, an "in-lieu" contribution based on the amount of estimated cost of the eligible damage for the eligible facility. Under current law, this authority only applies to permanent work projects, and the in-lieu contribution/grant can be used to repair or build an existing or new alternate facility. An applicant may also use the in-lieu contribution to fund mitigation measures on another facility. Thus, FEMA refers to grants using this authority as "alternate" projects (not to be confused with alternative procedures). For example, if an elementary school was substantially destroyed after a disaster, a local government may decide that instead of rebuilding that particular school (and having FEMA reimburse them for the federal share of the eligible cost of doing so), the community may be better served by using that money to build a new high school or to better protect a nearby police station (perhaps because of shifting demographic needs in their population). The decision by an applicant to receive an in-lieu contribution for a different project needs to be in the interest of the public welfare, as determined by the applicant, and the new project should serve the "same general area that was being served by the originally funded project." In order to estimate the size of the in-lieu contribution, FEMA uses a cost-estimating process called the Cost Estimating Format, or CEF, to estimate the eligible damages on the original project. In other words, for in-lieu contributions, the CEF helps identify the amount of assistance that would have been provided to the applicant had they elected to repair or replace the existing facility. The CEF tool was initially developed following the 1994 Northridge Earthquake in California, and was most recently revised in 2009. The CEF is not used to estimate the costs of small projects described previously. Once the original project cost is estimated using the CEF, FEMA is obligated by law to reduce the amount of assistance contributed in-lieu to the applicant for the new project. For governmental applicants, the reduction is 10% of the federal share of eligible costs for repairing the existing facility (meaning FEMA provides 90% of the amount it would otherwise have provided), for private nonprofit applicants, the reduction is 25% of the federal share (meaning FEMA provides 75% of the amount it otherwise would have provided). The reduction of the federal share of assistance for public facility in-lieu projects was lowered from 25% of the eligible costs to the current 10% by P.L. 109-347 . FEMA applies the reduction to the federal share of the estimated eligible cost of repairing the current facility, not the estimated costs of new project or mitigation activities. This penalty on the in-lieu contribution can be considered a deterrent to applicants from recovering facilities in innovative ways as opposed to rebuilding and repairing the facility back to the way it was prior to the disaster. Under the alternative procedures for the PA Program established by SRIA, the in-lieu contributions for different projects are not reduced by 10% for public facilities or 25% for private nonprofit facilities. In order to receive this benefit, FEMA requires that an applicant first accept and negotiate a grant based on fixed estimate of cost (this process is described later in the report). FEMA reported to CRS that the authority for in-lieu contributions is used very rarely by grantees as a percent of the number of total permanent work projects (fluctuating year to year, ranging from 0.02% of permanent work projects in 2005 to 0.53% in 2008). FEMA also reports that certain types of facilities eligible for permanent work assistance are more likely to receive in-lieu contributions than others. For example, approximately 0.09% of roads and bridge projects (Category C) used in-lieu contribution authority versus 0.33% of building projects (Category E) from FY2000 to FY2014. Improved Projects Improved projects for permanent work assistance allow the applicant to significantly alter the pre-disaster design of the facility when repairing or replacing an eligible facility. So long as the facility serves the same intended purpose and function (e.g., it was a police station and remains a police station afterwards), an improved project does not have a reduced federal cost share as is required with an in-lieu contribution. However, FEMA only provides the federal share of estimated eligible costs for repairing/replacing the facility as it was designed originally, not for the additional "improvements" of the project. An improved project uses an estimated cost basis if it is either a small project or the costs for the improvement cannot by distinguished from repairing or replacing the facility to pre-existing design. If the improved project is estimated, the estimate of the original project, minus improvements, is developed using the CEF. Thus, for example, if an applicant wishes to significantly expand the capacity of a fire station by building it with three truck bays instead of its original two bays, FEMA will not provide assistance for the additional cost of the third bay. In this example, one assumes the costs for the third truck bay cannot be isolated from repairing the original two bays. Alternative Procedure Fixed-Estimate Grants As part of the new SRIA alternative procedures for the PA Program, FEMA is directed to issue grants to applicants for large, permanent work projects (facility repair and restoration) based on estimates of the eligible cost. By law, SRIA required the estimation procedure to include methods for: Using a "fixed" estimate, meaning that after the estimate is agreed upon and set, the estimate will not change due to changes in the project or other factors. As implemented by FEMA, these estimated grants function much in the same way as an in-lieu contribution does, as once the amount is agreed upon, the grants "provide [applicants] with flexibility to repair or rebuild a facility as it deems necessary for its operations with no requirement to rebuild to pre-disaster design, capacity or function." Accepting the estimates of professionally licensed engineers provided by the applicant, so long as the estimate complies with FEMA regulations, policy, and guidance. As implemented, FEMA uses the CEF whenever the applicant does not provide an estimate. It also requires the applicant's professional engineer to either use "the CEF or a methodology and format consistent in the CEF's level of detail." Using an independent expert panel, at the applicant's request, to review and validate the cost estimate where the estimated cost is over $5 million. As implemented, FEMA has determined that it will pay for all expenses of the panel and the reviews. SRIA also provided guidance on what happens if the estimated grant amount does not equal the final actual cost of the applicant's project. In other words, SRIA dictates what happens if the grant approved by fixed estimate provides more or less assistance than was ultimately determined to be eligible costs—often many years later. In instances where the amount provided by grant is less than the actual cost of the project, the applicant will pay the overages. In instances where the estimated grant amount is more than the actual project cost, FEMA will allow the applicant to use the extra funds for PA hazard mitigation activities or other activities improving future PA operations. Actual Cost Basis FEMA's policies state they currently use an actual cost basis for reimbursing grantees for large projects (currently over the $120,000 threshold) that are either emergency or permanent work. As with in-lieu contributions, the CEF tool is used by FEMA for actual cost projects to help anticipate the end expenditure for the project . This enables FEMA to anticipate future costs and outlays for PA projects, and obligate in advance the expected cost of the project. Though funds are obligated by FEMA at project approval, the funds are only incrementally disbursed as actual costs are documented by the applicant. Therefore, FEMA provides the full assistance amount to the applicant only after all eligible work on a PA project has been completed in its entirety. The process for reimbursing by actual costs is governed by regulations, and allows for the scope of the project to evolve as the project is commenced, so long as these changes are approved by FEMA. Changes to the scope of work are generally not allowed when FEMA issues a grant based on estimates of eligible costs. Possible DMA 2000 Grant Estimating Procedure As described above, large, permanent work project grants are currently awarded on an actual cost basis. Section 205(d) of DMA 2000 required the President to develop and implement a procedure for awarding these grants based on the estimates of the eligible cost. The President was directed to convene an expert panel on how costs should be estimated by FEMA, and to issue regulations implementing these cost estimation procedures. Although the expert panel convened twice and issued a report with recommendations for how the estimating procedure should be developed, final regulations implementing the statute have not been issued. However, in October 2013, FEMA proposed a final rule to implement the grant estimating procedure required by DMA 2000. As shown later in Table 5 , the impact on the PA Program of this proposed change in procedure is significant. CRS analysis of project data from FY2000 to FY2013 indicates that large, permanent work projects accounted for approximately 7% of all PA projects between FY2000-FY2013, but 53%, or $27.2 billion, of total federal obligations for assistance. If and when this regulation becomes final, the only remaining category of PA projects that would be reimbursed on an actual cost basis is large, emergency work projects. CRS analysis of project data from FY2000-FY2013 indicates that large, emergency work projects accounted for approximately 6% of all PA projects, but 38%, or $19.6 billion, of total federal obligations for assistance. In addition, any large, permanent work project that is more than 90% complete at the time of estimation would still be reimbursed on an actual cost basis. See the text box on how the status of the statutory changes made by DMA 2000 only become effective after these regulations are finalized. If and when the DMA 2000 grant estimation regulation is finalized by FEMA, the possibility exists that there may be two different options available to applicants to receive grants based on estimates for large, permanent work projects. There could be the new, DMA 2000 method, and the alternative procedure method. The two options would only be available if FEMA were continuing the alternative procedures pilot, or had implemented the alternative procedure permanently, after the DMA 2000 grant estimation rulemaking is finalized. Likewise, FEMA may decide to incorporate some of the processes of the alternative procedures into the DMA 2000 grant estimation final regulation (or vice versa), eliminating some of the possible differences between the two methods. Table 2 provides a summary comparison of the two methods as they are currently designed. Public Assistance Alternative Procedures Created by the Sandy Recovery Improvement Act The Sandy Recovery Improvement Act (SRIA) reformed numerous Stafford Act assistance authorities, including the PA Program. The foremost change of SRIA to the PA Program was to create a new section of the Stafford Act, Section 428, establishing "alternative procedures" for the PA Program. Many of the changes made by SRIA were initially piloted under Section 689j of P.L. 109-295 , the Post-Katrina Emergency Management Reform Act of 2006 (PKEMRA). This section describes how FEMA chose to implement the SRIA alternative procedures and discusses some of the decisions made in this implementation process that may be of interest to Congress. The changes made by SRIA to the PA Program are discussed in detail in the prior sections of this report and in a separate report by CRS. Pilot Program Guidance In SRIA, Congress specifically granted FEMA the authority to carry out the alternative procedures as a pilot program, and allowed FEMA to waive having to go through the normal rulemaking process so that it could expeditiously implement the procedures. Consequently, FEMA has established the Public Assistance Alternative Procedures (PAAP) Pilot Program, and provided the policies it uses to administer the PAAP Pilot Program through a series of guides and supplementary documents made available on its website. FEMA has generally split the PAAP Pilot Program into those new rules it is applying for alternative procedures on debris removal projects in emergency work (Category A projects) and large, permanent work projects (Categories C-G). It is unclear when, or if, FEMA intends to revise regulations on the PA Program, namely 44 C.F.R §206, to formally adopt the alternative procedures pilot program. SRIA suggests, but does not require, that FEMA ultimately adopt these policies in regulation. It is beyond the scope of this report to analyze the PAAP Pilot Program guidance provided by FEMA in full. However, a few issues that may be of interest to Congress are discussed below. Fixed Estimate Grants for Debris Removal FEMA is not yet issuing grants by fixed-estimate for debris removal emergency work projects, as noted in PAAP guidance. This fixed-estimate procedure is being provided for large, permanent work projects. Though SRIA requires the Administrator to provide such a method as a condition of the alternative procedures, FEMA indicated to CRS that there is not currently an accurate enough method available to estimate the amount of debris following a disaster, and therefore the cost of removing the debris. FEMA also suggested that they have not received sufficient interest from grantees or applicants in using this alternative procedure. However, FEMA does currently use methods to estimate the amount of debris following a disaster in order to provide eligible grantees expedited payments of 50% of the initial estimate for full anticipated debris removal costs, as required by current law. Presumably, these estimation methods are considered insufficient for the purposes of making grants based on fixed estimates. In addition, in a past pilot program for debris removal procedures authorized by PKEMRA, FEMA did pilot a fixed grant estimating procedure for debris removal projects under $500,000. However, FEMA indicated that too few applicants used the grant estimating procedure to determine what impact, if any, it would have had on the efficacy of the assistance. Selective Availability of Alternative Procedures for Applicants SRIA did not directly specify how an applicant may choose to participate in the alternative procedures, only that it was at their discretion. Generally, FEMA has determined that an applicant may choose among some or all of the alternative procedures on a project-by-project basis, with certain limitations. This approach is more flexible than other methods FEMA could have used. FEMA could have, for example, decided that if an applicant wished to use alternative procedures on one of their projects, the applicant would need to use the same procedure on all of their projects, or decided that an applicant must use all features of the alternative procedures for a project instead of just some of them. Not unexpectedly, early statistics provided to CRS by FEMA on the usage of alternative procedures by December 2014 indicate that some alternative procedures are considerably more popular with applicants than others (e.g., relatively few applicants are recycling debris while many more are using the sliding scale for accelerated debris removal). Applicability of Alternative Procedures to Past Disasters SRIA explicitly provided that FEMA may approve alternative procedures for PA projects for disasters declared after date of enactment, and that it may apply alternative procedures for PA projects "for which construction ha[d] not yet begun on the date of enactment." In its PAAP Pilot Program guidance for permanent work projects, FEMA makes available alternative procedures for any major disaster declared on or after May 20, 2013, and states it may also approve subgrants before then if construction has not begun. FEMA does not specify further how one defines when construction begins (e.g., before or after any demolition occurs, before or after the metaphoric first shovel of dirt, etc.). However, FEMA has approved alternative procedures for permanent work projects in Louisiana for major disaster declarations issued for Hurricanes Katrina and Gustav (in August 2005 and September 2008, respectively). More recently, many more projects have been approved or are under review with alternative procedures stemming from Hurricane Sandy, especially in New York, all of which pre-date the start of the pilot on May 20, 2013. In its PAAP Pilot Program guidance for emergency work debris removal projects, FEMA has established a pilot "performance period" for disaster declarations between June 28, 2013, and June 27, 2015, when the pilot would end. Notably, this period does not include disaster declarations for Hurricane Sandy (made around the end of October, 2012), and began approximately six months following enactment of SRIA. FEMA states that it will conduct an analysis of the effectiveness of the alternative procedures after the end of the pilot and determine whether to discontinue the pilot, extend it, or issue regulations making it more permanent. The PAAP Pilot Program guidance for permanent work does not contain an explicit end date for the pilot. Summary Analysis of Obligations for the Public Assistance Program The following section provides analysis of PA Program spending for major disasters in the period FY2000 through FY2013. FY2014, and early data from FY2015, were excluded from this analysis because these more recent data are subject to considerable modification as the recovery from major disasters advances and more PA projects are approved or have their obligations revised. This could also affect actual obligation levels for early fiscal years to a lesser degree. The data for this analysis were derived from FEMA datasets, including publicly available data that can be accessed through the OpenFEMA website. Additional information on these data, as well as important considerations regarding their reliability, is available in Appendix B . Appropriations for the Public Assistance Program The PA Program is financed from the Disaster Relief Fund (DRF), which typically receives no-year appropriations and is the primary funding source for Stafford Act disaster assistance authorities. Appropriations to the DRF do not separately identify funding amounts for the varied programs authorized by the Stafford Act, thus the PA Program has not historically received a distinct appropriation. Appropriations to the DRF as a whole, from FY2000 through FY2013, are shown in Table 3 . Aggregate Spending on Public Assistance The PA Program has consistently been the largest source of federal obligations from the DRF. For the period FY2000 through FY2013, more than 90% of all major disaster declarations made through the Stafford Act included provision of assistance through the PA Program. In addition, obligations for PA grants accounted for 47% of total DRF obligations for major disaster declarations. As shown in Figure 1 , this is the largest activity funded from the DRF during that time. During this time period, the percent of overall DRF obligations attributable to PA grants ranged from a low of 36% in FY2005 to a high of 66% in FY2013. Figure 2 displays both total federal obligations for PA grants during this period, as well as the percentage of all DRF obligations spent on these grants. Federal obligations for PA grants for major disaster declarations ranged between $0.37 billion and $17.1 billion per fiscal year, for an average annual obligation of $3.9 billion. This obligation total does not include the funding provided by state and local governments as part of their cost-share requirement. For most of the declarations during this period, the federal government funded 75% of PA costs; however, for certain declarations the cost-share was increased through either FEMA's administrative discretion or through statute. During this period, FY2005 had the largest amount of PA obligations in a single FY. This is largely the result of Hurricane Katrina, which accounted for more than $14.8 billion in PA grants for Louisiana and Mississippi alone. In addition, current figures for FY2013 are projected to increase as additional projects are processed for disaster declarations, especially for the declarations for Hurricane Sandy. While major incidents like Hurricanes Katrina or Sandy can lead to PA obligations in the billions, the average amount of assistance provided per major disaster declaration for PA grants is roughly $69.8 million. For more than half of the major disasters declarations in this time period, the federal obligation for PA grants was less than $10 million. Public Assistance Spending by Type of Work, Category, and Project Size Individual project worksheets for the PA Program are made publically available by FEMA, with data beginning in FY1998. These worksheets provide information related to both the total project amount, which is an estimate developed early in the process, and the amount that was ultimately obligated from the DRF. In addition, these worksheets identify the category of the projects (e.g., Category A: Debris Removal) and whether the project is classified as large or small, which has implications for administering the grant. Due to the data entry process used by FEMA and the increasingly prevalent practice of grouping many projects on one worksheet, each worksheet in this dataset does not necessarily equate to a discrete project in a lay sense of the word. Nonetheless, these data can be used to measure obligations within the program along key variables of interest. Total spending in the PA Program for major disaster declarations can be divided into three broad groups: emergency work, permanent work, and grantee management costs. For the period FY2000-FY2013, permanent work accounted for more than 57% of all federal obligations for the PA Program. Emergency work was 40% of the total and grantee management costs were 2%. Figure 3 displays these three groups, as well as the subcategories identified by FEMA. Federal obligations for permanent work have varied greatly over time. In FY2005, obligations for subcategories C through G exceeded $11 billion, while for 10 of the 14 fiscal years during this period obligations were below $2 billion each year. Within this group, obligations for public buildings were the largest. In FY2005, FY2008, and FY2013, obligations for public buildings (Category E) alone were in excess of $1 billion each year. Obligations for emergency work were closely divided between debris removal (Category A) and emergency protective measures (Category B). Category A accounted for $9.8 billion between FY2000 and FY2013, while Category B accounted for 11.3 billion. The annual federal obligation for permanent work and emergency work projects is presented in Figure 4 . The data in this figure are derived entirely from the publically available project worksheet data and have not been adjusted for inflation. As discussed previously, PA Program obligations vary considerably from one declaration to the next. Many of the most well-known disasters, such as Hurricanes Katrina and Sandy, have federal PA Program obligations in the billions of dollars. Conversely, more than half of all major declarations had obligations less than $10 million per disaster. Table 4 below demonstrates this difference for each category of work. In this table, all declarations have been divided into quartiles based upon the total amount of PA Program obligations for emergency and permanent work (costs for grantee management were excluded). As the table shows, there is a significant decline in obligation amounts for every category between the most costly disasters and the next quartile. Therefore, the largest 25% of disasters account for 91.3% of the federal obligations for the PA Program. Figure 5 displays the distribution of obligations between large and small project worksheets across the PA Program. Within the PA Program, the vast majority of federal obligations are for large projects, which are currently those projects above $120,000. For the period FY2000 through FY2013 the small project threshold ranged between $48,900 and $68,500. During this time, more than 91% of all federal obligations for PA projects were for large projects. Within each category, small projects accounted for no more than 10% of all federal PA obligations, with the exception of Category C. For this category, which includes repairs to non-federally owned roads and bridges, 34% of all federal obligations were for small projects. While federal obligations for the PA Program are primarily for large projects, small projects account for a much higher number of individual project worksheets. The FEMA dataset includes more than 450,000 individual project worksheets for small projects from FY2000 to FY2013. As shown in Table 5 , small projects account for 87% of the total number of project worksheets. Further, there are more individual projects for permanent work then for emergency work during this period. Obligations for Private Nonprofit Facilities As discussed previously, many different types of private nonprofit (PNP) facilities are eligible for assistance within the PA Program. For the period FY2000-FY2013, $6.6 billion was obligated by FEMA to PNPs, with the highest spending in FY2005 ($2.0 billion) and FY2013 ($1.4 billion). During this time, more than 77% of all PA obligations for PNPs were for public buildings and public utilities (Categories E and F). More than 8,400 different PNPs received PA grant assistance between FY2000 and FY2013. Many of the largest individual projects for PNPs involved universities, hospitals, and electrical cooperatives. For example, Midwest Energy, Inc. received close to $60 million in federal PA Program funding following severe winter storms in Kansas in 2007 and the Memorial Hermann hospital system in Texas received more than $100 million following Tropical Storm Allison in 2001. In addition, many volunteer fire departments receive federal grants under the PA Program to carry out emergency protective measures (Category B) after an incident. These grants are often less than $10,000. Overall, the average obligation per PNP, per disaster, was $566,000. Many applicants received grant assistance under multiple declarations during this period and many of the PNPs received assistance for more than one project worksheet within a disaster declaration. Obligations for Hazard Mitigation within the PA Program Section 406(e) of the Stafford Act provides FEMA with the discretionary authority to fund hazard mitigation activities on permanent work projects as part of the PA Program. For every year between FY2000 and FY2012, the amount of mitigation funding provided with this authority was less than $300 million, often much lower. However, spending increased greatly in FY2013 as the result of two major disaster declarations following Hurricane Sandy: DR-4085 (New York) and DR-4086 (New Jersey). These two disasters alone account for more than $2 billion in PA mitigation expenses. The vast majority of this funding was used for public building and public utility projects (Categories E and F, respectively). Excluding the Hurricane Sandy declarations for New York and New Jersey, federal obligations for PA mitigation assistance between FY2000 and FY2013 was $1.7 billion. Figure 6 below displays total PA mitigation expenses over time, with the two largest declarations for Hurricane Sandy in light blue. For projects that included funding for PA mitigation, these expenses accounted for nearly 38% of the total costs of the PA project on average. However, this figure was largely driven by PA mitigation expenses in New York and New Jersey following Hurricane Sandy. For these projects, PA mitigation expenses accounted for approximately 50% of total project cost. When these two declarations are excluded, the overall project cost attributable to PA mitigation falls to 29% of the total. Due to limitations with the data provided, the above analysis does not include costs associated with bringing facilities into compliance with existing standards; "triggered" costs bringing undamaged portions of the facility into compliance with standards; or costs associated with complying with floodplain management standards. Inclusion of these costs may increase the amount of general hazard mitigation assistance provided by the PA Program considerably if accounted for in other analysis. Considerations for Congress There are numerous policy issues that Congress may consider when evaluating the PA Program. The following sections of this report discuss select issues that may arise in congressional oversight of the PA Program. Balancing the Level of Statutory Versus Executive Branch Guidance for the PA Program The provisions of the Stafford Act that grant the PA Program's authorities are, in many respects, broadly worded statutes that allow the President, and FEMA as the delegated agency, to define the conditions of disaster assistance. It is reasonable for FEMA to develop complex policies and procedures for implementing the program when the law is silent on key definitions (such as what constitutes a re pair or replacement project) or has left it to the administration's discretion when to provide assistance (such as when debris removal assistance can be provided on private properties). For more on these examples of how FEMA has interpreted Stafford Act provisions through regulation and policy, see the Text Box . That Congress has granted this responsibility is not unique to the Stafford Act or FEMA, but such administrative discretion to implement the statute has resulted in policies and regulations that were revised or reversed by Congress. Most recently, for example, Congress enacted in SRIA a change to the treatment of eligible labor costs for emergency protective measures, revising previous policies established by FEMA. Also in SRIA, Congress directed that FEMA review, update, and revise its regulations in totality for when FEMA recommends to the President that assistance is provided to individuals and households through Section 408 authority of the Stafford Act. Congress has also passed laws, such as P.L. 109-308 , the Pets Evacuation and Transportation Standards Act (PETS Act) of 2006, that further specified the scope of Stafford Act authorities when FEMA's existing interpretation of its authorities limited the possibility of providing that assistance. Consistent with past precedents, Congress may review current FEMA policies and procedures for the PA Program, and, when desired, override the policies through further clarification in law or submit formal legislative recommendations on policies in committee or conference report language. Likewise, Congress may also decide to codify existing policies without revising them, thereby assuring that they cannot be changed without legislative action. Evaluating Key Prospective Changes to the PA Program The PA Program is constantly evolving through revisions to administrative policies for the program. These policy documents, generally referred to as the 9500 Policy Series by FEMA, supplement interpretations of the Stafford Act made in PA Program regulations. As established by Section 325 of the Stafford Act, these policies are required to be shared for public comment. In practice, FEMA provides the policies on their website and posts a notice in the Federal Register identifying that they are considering creating a new PA policy, or revising an existing policy, that clarifies its regulations. FEMA will also solicit feedback through outreach mechanisms such as weekly external affairs newsletters and through various emergency management associations. FEMA's review of these policies does not always include certain characteristics, such as cost-benefit analysis and paperwork reduction reviews, that is common for federal agencies, as outlined in the Administrative Procedure Act (APA). Within FEMA's existing policy revision process, Congress may wish to comment on and evaluate the proposed policy changes, hold oversight hearings and briefings on the changes, or provide input directly through other communications. Congress may also consider changing the policy revision process itself, possibly by amending Section 325 of the Stafford Act, to (among other options): Create a formal reporting requirement to Congress prior to the finalization of PA policies, possibly to include requirements for explanatory briefings regarding the nature and intent of the planned policy; Revise the existing requirements in law to expand the types of interim policies FEMA is required to seek consultation from stakeholders; Establish conditions for whether a policy should undergo a more extensive APA or APA-like procedure. Conversely, Congress may determine the existing PA Program policy revision process is unnecessarily cumbersome and inhibits rapid and necessary changes to the administrative practices of FEMA. If so, Congress may consider eliminating some or all of the existing requirements. In addition to the generally constant evolution of FEMA PA Program policies described above, there are two major potential changes currently underway for the PA Program. These are discussed below. SRIA Alternative Procedures Pilot Program SRIA reformed the PA Program primarily through the creation a new section of the Stafford Act establishing alternative procedures for the PA Program. As described earlier in this report, FEMA created the Public Assistance Alternative Procedures (PAAP) Pilot Program to implement these alternative procedures. As described in law, the purpose of the PA alternative procedures is to: (1) reduc[e] the costs to the Federal Government of providing such assistance; (2) increas[e] flexibility in the administration of such assistance; (3) expedit[e] the provision of such assistance to a State, tribal or local government, or owner or operator of a private nonprofit facility; and (4) provid[e] financial incentives and disincentives for a State, tribal or local government, or owner or operator of a private nonprofit facility for the timely and cost-effective completion of projects with such assistance reducing federal costs for providing assistance. SRIA also requires the DHS IG to assess the effectiveness of the alternative procedures for permanent work projects. Of note, the IG's report is not specifically required to assess the portion of the alternative procedures for debris removal assistance, though the IG retains the standing authority to review and audit these grants. By law, among other elements, the IG's report is required to contain assessments of whether the alternative procedures: Increased the speed of disaster recovery for the community; Used estimates that were accurate (presumably to mean accurate to actual costs); and Should be continued, with any recommendations for changes to them in future legislation. The report is to be issued three to five years following enactment of SRIA (so between January 2016 and January 2018) and is to be provided to the committees of jurisdiction for the Stafford Act (the Committee on Transportation and Infrastructure in the House, and the Committee on Homeland Security and Governmental Affairs in the Senate). In a committee report requirement accompanying the Department of Homeland Security Appropriations Act, 2015 ( P.L. 114-4 ), Congress has also directed FEMA to produce quarterly reports on implementation of the PAAP Pilot Program, especially for permanent work. These quarterly reports are instructed to include FEMA's assessment of "challenges and recommendations, including proposed authority modifications" to help the Pilot Program achieve its legislative objectives. In addition, the quarterly reports are to contain, among other items, a financial summary of all permanent work projects in the PAAP Pilot Program and descriptions of projects over $50 million. The issuances of the IG's report and FEMA's quarterly reports on the PAAP Pilot Program may provide Congress with direction on how it could further revise the Stafford Act to improve the PA Program. Prior to or after the issuances of these reports, congressional oversight of the implementation of the alternative procedures may focus on a number of factors, including whether The PAAP Pilot Program has accomplished the four goals of the procedures as intended in law; The Pilot Program guidance produced by FEMA has properly construed the policy intentions of Congress in the enacting legislation, or any new intentions of the current Congress; Communities are receiving enough information and assistance from FEMA to participate fully in the Pilot Program, and if the participation period for the Pilot is long enough; and Both the federal government and applicants have similar initial opinions on the benefits/costs of the alternative procedures. For example, parties may disagree on the quality of fixed-estimates for large, permanent work grants, or the effectiveness of incentives for increasing the speed of debris removal. Grants Based on Estimates for Large, Permanent Work Projects FEMA is in the process of finalizing a rulemaking that would require grants based on estimates for large, permanent work projects, in fulfillment of a legal requirement of DMA 2000. The DMA 2000 grant estimation procedures were originally developed and approved by an expert panel in 2002. Conservatively, if FEMA had adopted a final rule by October 2006 implementing the estimating procedure, a full four years after the expert panel released its final recommendations (and six since passage of the law), the President would have been required to submit a review of the estimating procedures and the CEF in October 2008, and the expert panel would have submitted a review of the "appropriateness" of the cost estimating procedures in October 2007, 2009, 2011, and 2013. In short, had the rule been implemented in a timelier manner, the DMA 2000 grant estimation procedures may have evolved through the legally required reviews in ways that are currently unaccounted for by FEMA. FEMA notes this possible issue in their proposed rulemaking, stating that they "contacted individual panel members to re-validate the 10 percent threshold recommendation" but did not "request that the Panel validate any other portion of its recommendation, as the other portions of the recommendation are not meaningfully effected [sic] by the time that has elapsed." However, given the length of time since the passage of the initial DMA 2000 legal requirement and the expert panel's recommendations, Congress may consider whether to request or require the President to reengage with the expert panel before finalizing the CEF rulemaking. In addition, Congress may broadly consider whether it still agrees with the development of the DMA 2000 grant estimation procedure. Since passage of DMA 2000, Congress enacted SRIA which also established alternative procedures for the issuance of fixed-estimate grants for large, permanent work projects. Table 2 highlights the some of the major differences between the SRIA alternative procedure methods and the DMA 2000 methods. Congress may consider if some of the differences applied in law for SRIA's grant estimating alternative procedures should apply to the DMA 2000 grant estimating procedures, and vice versa, and whether either estimation method remains necessary to be authorized in the presence of the other. For example, Congress may evaluate whether large, permanent work grants should be issued as fixed estimates, as with the alternative procedure, or with a floor and ceiling threshold, as with the DMA 2000 procedure. As a reminder, the DMA 2000 procedure is not currently active or available to applicants, and would not be available until after FEMA implements a final rulemaking. Thus, if Congress wishes to do so, Congress could prevent, delay, reform, or endorse the implementation of the DMA 2000 grant estimating procedure before it is implemented. Improper Payments, Fraud, Waste, and Abuse in PA Program As with any grant program, the PA Program is at risk for making improper payments, and experiencing fraud, waste, and abuse. The DHS IG has a dedicated component office called the Office of Emergency Management Oversight (EMO) that frequently produces, among other products, audits with recommendations for recouping improperly provided funds for the PA Program. The IG's audits also make recommendations for improving PA Program management, and generally help ensure funds are appropriately provided and spent. These audits are summarized annually in "capping reports" on the PA Program and HMGP assistance. The IG reported to CRS that for FY2009 to FY2013 they questioned the expenditure of over $1.9 billion in PA assistance, and recommended that over $387 million of these funds be put to better use. However, of those amounts, FEMA recovered only 13% of questioned costs (about $245 million), and 64% of the funds that could be put to better use (about $249 million). FEMA has recently established a new "Recovery Audits Unit" within its Recovery Directorate (the element responsible for managing the PA Program) that may improve future performance. This new unit was established as a result of an internal FEMA review of all IG and GAO audits issued between 2011 and 2014. According to FEMA's internal review, "an overwhelming majority of the audits and recommendations applied to the PA Program. Of the 202 audits analyzed, 188 (93.1%) applied to PA, and 659 recommendations out of 680 (96.9%) also applied to PA." In addition, DHS IG has recently begun conducting more "proactive" audits of the PA Program by deploying in the initial phase of a disaster to prevent misuse of funds. This approach has already resulted in several published audits that help applicants by giving them "the opportunity to correct noncompliance with Federal regulations before they spend the majority of their funding." Congress may evaluate both FEMA's new Recovery Audits Unit and DHS IG's more proactive approach to determine if these changes will have an appreciable effect on the management of the PA Program. In addition to other recommendations produced by the IG, GAO, and other entities, Congress may also consider the following issues for improving PA Program assistance. Management Cost Assistance As discussed previously, the Stafford Act authorizes assistance to help pay for expenses a grantee "reasonably incurs in administering and managing the PA grant that are not directly chargeable to a specific project." The amount of assistance provided is set by FEMA regulations and policies. Under policy guidance, FEMA has not "established any minimum or maximum for what constitutes a reasonable amount" that a grantee should pass through of the management award to subgrantees/applicants (i.e., how much should be shared by the state/tribe to a local government/PNP). In an audit, GAO found that few, if any, grantees passed through any amount of the management assistance to subgrantees, a finding confirmed by FEMA to CRS. In theory, funds for administrative expenses can be used to improve the overall management of PA projects, eliminating some improper usage of the overall assistance. Congress may consider whether Existing or additional assistance for administrative costs could be provided to grantees with the specific requirement that the assistance be used to prevent misuse of PA Program funds; Existing or additional management assistance should be given directly to subgrantees, regardless of grantee decisions as to whether or not assistance should be passed through to applicants; FEMA should reestablish its earlier, pre-2009 method of providing management cost assistance, or if FEMA should be directed to develop a new method irrespective the current and past models. Limitations of Current PA Program Data for Congressional Oversight One of the challenges revealed during CRS's research on the PA Program was the limitations of existing data on PA projects. Some of these limitations are described in Appendix B . For example, as noted earlier in the report, FEMA does not have a ready method of implementing legal requirements to reduce cost-shares on repetitively damaged facilities, as established by DMA 2000, due to the quality of data retained and tracked from disaster to disaster, project to project. In addition, GAO noted that the emergency protective measures Sheltering and Temporary Essential Power (STEP) Pilot Program implemented after Hurricane Sandy may have inadequately collected data on recipients to prevent duplication of benefits. More holistically, CRS research into the program indicates that certain policy issues may be difficult, if not impossible, to evaluate properly because of project data limitations. For example, FEMA is unable to readily identify or determine how many PNPs first apply to the SBA loan program before applying for grant assistance from the PA Program, and the amount of assistance they receive from SBA. This information would be useful, for instance, in determining the financial assistance needs of PNPs following disasters and whether both (or either) assistance programs are required. As another example, it would be difficult, if not impossible, to identify if facilities that had received PA mitigation assistance in the past had their damage reduced in a future disaster per the intended purpose. Congress may consider overseeing current and future initiatives of FEMA to improve the quality and use of program data collected and maintained by FEMA. For example, in 2011, FEMA established a program called "FEMAStat" to provide empirical, data-based reviews of FEMA's performance. FEMAStat, and other data-based initiatives, may lead to improvements in the quality of data collected by the PA Program, and in turn the effective use of that data in policy analysis. Congress may wish to oversee the extent to which initiatives such as FEMAStat are being implemented, their effectiveness, and whether they are improving, or perhaps worsening, the PA Program. Congress may also wish to evaluate the quality of FEMA's database systems for PA Program and other grant program information. Congressional oversight could involve, for instance, a review of the funding for these databases, and whether additional funding is required to improve or develop new database systems. As a cautionary note, FEMA has a number of legacy database systems in addition to its current system, called the Emergency Management Mission Integrated Environment (EMMIE) which was deployed full-time in 2008. As highlighted by the IG, the existence of multiple database systems can inhibit the tracking of information, such as insurance requirements, across disasters. Therefore, a new database system may not necessarily be beneficial if not properly designed. The existing system may be able to be improved (or used more effectively by field staff) to account for issues Congress may reveal in oversight of FEMA's database systems. Expanding or Restricting Permanent Work Program Eligibility As has been done in past legislation, Congress may wish to evaluate the types of applicants that are currently eligible for the PA Program. In doing so, it may consider expanding or restricting the scope of eligibility in a number of ways, possibly through the expansion/restriction of eligibility for certain nonprofit facility types, or the expansion of the PA Program to include private sector facilities. Private Nonprofit Eligibility As authorized in the Disaster Relief Act of 1970, the PA Program was only allowed to provide permanent work assistance to public facilities. P.L. 92-209 was passed quickly thereafter, in 1971, to provide limited assistance beyond public facilities, allowing for assistance to be provided for private nonprofit medical facilities. When considering P.L. 92-209, Congress recognized that the need to protect our national medical care delivery systems requires that the same assistance should be authorized for privately owned, nonprofit medical care facilities—and their related administrative and support facilities—as present law provides for those which are publically owned. Since then, namely in the Disaster Relief Act of 1974 and in the Disaster Relief and Emergency Assistance Amendments of 1988, permanent work assistance has expanded to include certain PNPs with similar reasoning. DMA 2000 restricted this eligibility somewhat by establishing that a subset of eligible PNPs must first apply to the SBA for assistance before getting assistance from the PA Program. As described earlier in the report, the PA Program currently provides assistance only to governmental entities and certain PNPs. Congress may consider whether the eligibility of PNPs is appropriately scoped, or if it could be more restricted/expanded. For example, Congress may evaluate whether the current standards are too inclusive/exclusive for the types of PNPs that Provide an "essential service of a governmental nature to the general public," and therefore meet minimum requirements of eligibility. For example, entities such cemeteries may be excluded by this definition, while community arts centers are included; Are allowed to apply directly to the PA Program for immediate grant assistance instead of first applying to the SBA loan program; and Can receive assistance if their facilities are "dedicated to or primarily used for religious, political, athletic, recreational, or vocational purposes ... " such as houses of worship. Privately Owned Facilities Under past and current law, private entities, such as owners of private infrastructure facilities and individual homeowners, are excluded from PA Program assistance for both emergency work and permanent work. For emergency work, some assistance is granted indirectly to private entities, via eligible public sector or PNP applicants, namely for debris removal that is in the public interest and for emergency protective measures for the immediate preservation of life and property. For permanent work, there is a restriction against repairing and restoring private facilities, though private homeowners may receive grant assistance through separate provisions of the Stafford Act. Congress may wish to evaluate whether it is appropriate to continue the exclusion of private infrastructure facilities for permanent work assistance. Following completion of this potential evaluation, revisions to the PA Program may not be necessary if Congress determines that It is appropriate to continue to exclude private facilities from PA Program assistance for a variety of policy reasons (e.g., concerns over the moral hazards produced by the assistance, concerns that it would unduly influence capital markets, concerns that it assistance is too costly, etc.); or Any unique needs of private infrastructure can be provided by other governmental assistance programs (e.g., SBA disaster loans or assistance from the Economic Development Agency); or Any necessary private infrastructure assistance can be provided for in situational-dependent authorizations either immediately before or after disasters, in the PA Program or other assistance programs, primarily HUD's Community Development Block Grant (CDBG) Program. However, in an evaluation of PA Program eligibility, Congress may determine that the existing eligibility should be expanded to authorize assistance to private facilities. If so, Congress may then consider whether private facilities require grant or loan assistance, or some combination of the two (for example, providing grant assistance up to a certain amount, and then loan assistance thereafter). As has been done for PNPs, Congress may also consider whether only certain private facilities should receive PA Program assistance, such as those determined by the President or Secretary of DHS to be critical infrastructure. Here, the policy argument for providing assistance through the PA Program is perhaps strongest. As defined by statute, infrastructure is considered critical if the "incapacity or destruction of such systems and assets would have a debilitating impact on security, national economic security, national public health or safety, or any combination of those matters." However, Congress may consider the definition of critical infrastructure to be not inclusive enough, as what is critical to any one community may not be critical to the nation (e.g., a local factory). Additional restrictions on the assistance to private infrastructure may also be considered, such as mandating that owners and operators commit to obtaining and maintaining sufficient insurance or structurally mitigating all of their facilities from similar consequences in future disasters. Hazard Mitigation Within the PA Program As discussed earlier, hazard mitigation assistance can be provided as part of a permanent work project to repair an eligible facility in the PA Program. This assistance is provided to reduce future risk to the facility, and is provided in addition to repairing the facility to current codes and standards. As shown earlier in Figure 6 , between FY2000 and FY2013, FEMA obligated approximately $3.7 billion in PA hazard mitigation assistance. Following Hurricane Sandy, for example, FEMA has approved over $2 billion in PA hazard mitigation assistance, including $589 million for the NYU Langone Medical Center. Other programs authorized by the Stafford Act, notably the Hazard Mitigation Grant Program (HMGP) authorized by Section 404, also specifically allow the President to provide assistance for hazard mitigation measures that are cost effective and substantially reduce future risk. See Table 6 for a summary regarding the differences between the assistance provided by the HMGP and PA hazard mitigation assistance. Of note, every dollar of PA hazard mitigation assistance subsequently increases the amount of federal assistance provided through the formula described in statute for HMGP assistance. Additional HMGP assistance provided as a result of PA hazard mitigation expenditures between FY2000 and FY2013 could be as low as $555 million, but could be as high as $647 million or more. Other Stafford Act programs, such as the Predisaster Mitigation Grant Program, are also independently authorized and appropriated for by Congress. Therefore, Congress may consider whether there is a separate policy need for assistance in the PA Program given these other programs, or if the various mitigation authorities can be more closely aligned in statute or through FEMA's administrative policies. Separately, Congress may also wish to review the current criteria and policy FEMA uses to provide hazard mitigation assistance. Congress may evaluate numerous issues, including whether The methods used under FEMA's criteria for determining if mitigation measures will lessen the costs (societal and financial) of future disasters; A reform to PA mitigation assistance made for the SRIA alternative procedures should be made permanent or revoked. For normal projects , PA mitigation funds are not available for alternate projects or improved projects that involve relocation or facility replacement at same site . In SRIA alternative procedures , FEMA is allowing PA mitigation assistance on these projects, so long as it is approved and included in the fixed-estimate grant; and There should be a cap on the total amount of PA mitigation assistance that can be provided per project. Current policy does not formally cap the amount of mitigation assistance, though there are additional restrictions on PA mitigation assistance over 15% of the total project cost, and then again over 100% of the project amount. As previously discussed, CRS analysis of data provided by FEMA indicates that PA mitigation assistance accounts for 38% of the total federal obligation for projects with any mitigation assistance. Congress may also wish to evaluate if assistance should be provided and/or required by the PA Program for mitigation measures not otherwise required by the local and state building codes and standards (i.e., in effect, boosting those standards specifically only for the PA project). It could be argued, for instance, that if a hazard mitigation measure is considered necessary by FEMA's criteria, it could be a requirement of the community's standards. Correspondingly, Congress may consider whether the PA Program should begin allowing as an eligible cost those measures associated with repairing/replacing facilities to improved codes and standards implemented post-disaster by grantees, as was done pre-1999. Implementing Executive Order 13960 for the PA Program As described in another CRS product, the President recently revised E.O. 11988, Floodplain Management , with the issuance of Executive Order 13960 , Establishing a Federal Flood Risk Management Standard and a Process for Further Soliciting and Considering Stakeholder Input . Implementation of E.O. 13960 will primarily involve the development and application across the federal government of a new Federal Flood Risk Management Standard (FFRMS). Succinctly, E.O. 13960 and the FFRMS could ultimately revise federal regulations on federal investment in floodplains, and the amount of hazard mitigation that is required to protect those investments from future flooding. In the context of the PA Program, the current requirements that may be revised are found in regulations on floodplain management. It is too early to know exactly how the PA Program will be affected by the FFRMS, but it seems likely that the FFRMS will, at a minimum, increase existing requirements by requiring additional "freeboard" for any facility that is being replaced as a permanent work project (one that exceeds the 50% threshold of damage). Freeboard is the height of the facility above base flood elevation (BFE) in the 1 in 100 year flood hazard area (1% flood zone). These requirements would increase the total cost of the project, and therefore the federal and applicant obligations as cost-shared under normal procedures. As it is further refined and as FEMA proposes regulations to implement the FFRMS, Congress may consider the effects of E.O. 13960 and the FFRMS on the PA Program to determine if it is in alignment with current Congressional intentions. For example, Congress may choose to increase or decrease the number of circumstances in which the proposed FFRMS freeboard requirements are imposed for PA permanent work projects (i.e., apply the FFRMS to all PA permanent work projects instead of just replacement projects, or conversely, apply it only to projects that are damaged by 75% or more instead of 50%, etc.). Congress may also choose to change the freeboard requirement writ large, such as requiring +1 foot, or +3 feet, above BFE for facilities (instead of the proposed +2 for most types of facilities). Clarifying the Role of the PA Program with Other Federal Agencies' Disaster Assistance Authorities The broad eligibility of the PA Program frequently overlaps with other federal agencies' disaster assistance authorities. As a result, there are numerous circumstances where emergency work activities and permanent work on certain types of public facilities could be eligible for federal assistance through other federal programs. In compliance with specific legal restrictions in the Stafford Act against the duplication of benefits, grantees can only receive assistance for the same activity from one federal program. Further, FEMA contends that it is bound by legal prohibitions against augmentation of appropriations from providing assistance for an activity under the broad authority of the Stafford Act when there is a more specifically authorized federal program for that purpose. FEMA also contends, for the same augmentation of appropriations reason, that this restriction applies even when the other more specific federal program does not have sufficient (or any) appropriations to provide assistance. Therefore, FEMA and other federal agencies have sought to eliminate redundancies by delineating the circumstances under which the PA Program will defer to another agency's more specific assistance authorities. FEMA believes there is a firm legal restriction against providing permanent work assistance when another agency has more specific authority. However, in FEMA's regulations on the subject, it suggests that FEMA is only "generally" prevented from providing such assistance, not legally restricted. For example, FEMA, in conjunction with the U.S. Army Corps of Engineers (USACE) and the Natural Resources Conservation Service (NRCS), has issued policy guidance delineating the circumstances where the more specific authorities of these agencies to provide rehabilitation assistance for watershed developments, levees, and other flood control works takes precedence over the PA Program authorities. Both flood control and watershed development are included in the definition of what a public facility is in the Stafford Act. Therefore, restoration of these types of facilities may otherwise be eligible for assistance under Stafford Act authority were USACE and NRCS authority not more specific. FEMA acknowledges that the eligibility of each activity is not necessarily distinguishable through existing policy guidance or regulation, and therefore FEMA will make assessments of eligibility on a "case-by-case" basis when other federal authorities may be more specific than the Stafford Act (and thereby, take precedent over the Stafford Act). The overlap between the PA Program authorities and other federal agencies' assistance authorities can be a general source of confusion and frustration for many grantees, as they are frequently unsure which federal program will provide assistance to fulfill their post-disaster needs. In addition, different programs have different cost shares and cost eligibility regulations, so the eligibility decision between one federal program or the PA Program may affect the ultimate amount of spending required by the grantee. For example, the USACE's Rehabilitation and Improvement Program (RIP) generally has a cost-share of 80% federal, 20% grantee for non-federal projects; whereas the PA Program has a minimum of 75% federal share that can increase to 90% in regulation for a more severe disaster. Therefore, depending on the PA Program's cost share for a declared major disaster, it can be fiscally beneficial to the grantee if a project is eligible under the PA Program and not the RIP, and vice versa. However, the greatest challenge is presented when FEMA determines another agency's assistance program is more specific than the PA Program, and that other program does not have appropriations sufficient to cover the expense of assisting the applicant. In these situations, an activity that may otherwise be eligible for aid under the Stafford Act through the PA Program can be denied assistance because the agency with more specific authority takes legal precedence. FEMA has argued that it cannot provide assistance in these situations because doing so would augment the appropriation from Congress for the other agency's program, even if the appropriation from Congress was zero. FEMA cited several Comptroller General Opinions for CRS on appropriations law in explaining its legal interpretation. However, no record could be found of a Comptroller General opinion specifically on the overlapping of PA Program authorities in the Stafford Act with other federal agencies' more specific disaster authorities. In the Stafford Act, Congress has helped clarify the potential redundancy of PA Program assistance and the SBA's disaster loan program assistance. For permanent work, the law allows PNPs that provide critical services to apply first to FEMA for permanent work assistance, whereas all other PNPs must apply first to SBA's disaster loan program. In other cases, Congress has rescinded the disaster assistance authorities of other federal agencies and as a result eliminated any potential redundancy with the other authority and the Stafford Act. For example, Congress revoked an authority the Department of Housing and Urban Development (HUD) had to repair public housing facilities and repealed an authority the U.S. Department of Education had to provide disaster assistance to schools. In other circumstances, FEMA interprets existing legal provisions as permitting the PA program to pay for activities authorized by other federal assistance programs. As an example, FEMA interprets a provision found in the authorization for the Emergency Federal Law Enforcement Assistance (EFLEA) Program as allowing FEMA to reimburse the Department of Justice for the deployment of federal law enforcement officers, if the officers are providing PA emergency protective measures authorized by the Stafford Act. Congress has also enacted new disaster assistance authorities, and revised old authorities, to specifically clarify the role of the Stafford Act and PA Program with regard to the other federal agency authority. For example, in the creation of the new Public Transportation Emergency Relief Program in MAP-21, Congress provides that the new program did not "affect the ability of any other agency of the Government, including the Federal Emergency Management Agency, or a State agency, a local governmental entity, organization, or person, to provide any other funds otherwise authorized by law." FEMA believes this provision allows it to provide assistance to public transit agencies through the PA Program without augmenting appropriations for the new transit program. Also in MAP-21, Congress amended the Federal Highway Administration's Emergency Relief Program to specifically allow for the program to provide debris removal assistance only in incidents that have not been declared major disasters under the Stafford Act. Therefore, the PA Program is now the primary source of debris removal assistance, though not permanent repairs, for federal-aid roads when there is a disaster declaration. Congress may wish to evaluate the role of the PA Program in consideration of the potential redundancies in eligibility presented by the broadly scoped PA Program and other federal authorities. To do so, Congress could consider several options, including, but not limited to, Requiring the President or FEMA to issue further regulations on the circumstances that Stafford Act authorities will provide assistance in the presence of more specific federal authorities, to possibly include revision of FEMA's regulation for permanent work on the matter; Requesting a formal opinion from the Comptroller General on FEMA's legal interpretation of augmentations of appropriations law to determine if Stafford Act authorities can be used to provide assistance when another federal agency with more specific authority does not have sufficient appropriations to fund an activity; Giving further direction through law or report language to the executive branch regarding the conditions it should to defer to more specific authorities in lieu of the more broadly scoped Stafford Act, perhaps in the form of a delivery sequence outlining the order of precedence of federal programs for assistance; and Revising the Stafford Act to explicitly identify whether Stafford Act authorities may or may not provide assistance in substitution, or at grantee preference, for more specific federal disaster assistance authorities. Ultimately, Congress may evaluate holistically whether the PA Program should be a backstop source of funding for disaster assistance (i.e., only available when other programs do not apply to the activity) or if it should be the principal, ascendant source of funding for disaster assistance (i.e., always eligible to provide assistance for all eligible activities under Stafford Act authority, regardless of other federal agency authorities). Appendix A. Brief Legislative History of the Public Assistance Grant Program For the first half of the twentieth century, the federal government did not have an overall legal framework for disaster relief and emergency management. Instead, federal involvement was typically reactive and isolated to single large events, such as the Great Mississippi Flood of 1927. Since that time, the legal framework has been gradually expanding. In 1950, Congress passed the Federal Disaster Relief Act (P.L. 81-875), establishing permanent authority for federal disaster relief activities and codifying an intergovernmental model for assistance. Additionally, this statute provided the President with the authority to determine when assistance would be provided through the first national disaster declaration process. It also authorized the basic tenets of what has evolved into emergency work assistance under the current PA Program, especially emergency protective measures. The Disaster Relief Act of 1970 (P.L. 91-606) first authorized a form of permanent work assistance grants for the repair and restoration of public facilities. It also formally authorized debris removal assistance separately from emergency work assistance. The Disaster Relief Act of 1974 ( P.L. 93-288 ) authorized the expansion of permanent work assistance grants for the repair and restoration of certain nonprofit facilities, and added features such as the in-lieu contribution and simplified procedures. More than a decade later, the Disaster Relief and Emergency Assistance Amendments of 1988 altered this legislation to, among many other reforms, set minimum federal cost-shares for PA Program assistance, create an insurance requirement for facilities receiving assistance, and authorize the appeal process for PA assistance decisions. Following the passage of the 1988 amendments, the PA Program had many of the same core authorities and requirements as it does today. However, there have been a number of statutes since 1988 that have impacted the administration of the program. The main report discusses the notable changes made to the PA Program by the Disaster Mitigation Act of 2000 ( P.L. 106-390 , DMA 2000), the Post-Katrina Emergency Reform Act (Title VI of P.L. 109-295 , PKEMRA) and the Sandy Recovery Improvement Act of 2013 (Division B of P.L. 113-2 , SRIA). Appendix B. Worksheet Dataset Considerations This Appendix highlights concerns CRS identified with the data that FEMA makes available to the public related to individual worksheets for PA grants. This information is intended to provide context for the analysis provided in this report and to identify potential caveats that should be considered when reviewing the results. The analysis found throughout the report was primarily completed using two datasets: a publicly available dataset of PA Program project worksheets and a DRF obligation dataset provided directly by FEMA. The data that CRS received privately from FEMA included both projected and actual obligations for many programs funded through the DRF, including infrastructure-related spending for PA grants and Technical Assistance Contracts (TAC). These contracts are used to hire the necessary contract staff to manage and operate the PA Program. The actual obligations within each program for FY2000 through FY2013, provided by FEMA in January of 2015, were used to complete all analysis in the section entitled "Aggregate Spending on Public Assistance." For the section " Public Assistance Spending by Type of Work, Category, and Project Size " all figures were derived from publicly available data on the OpenFEMA website, accessed in December 2014. Obligation totals were based on the federal share obligated, with declarations being sorted into fiscal years by declaration date. For the additional sections related to obligations for private nonprofit facilities and hazard mitigation expenses within the PA Program, FEMA provided CRS with separate datasets. In each of these datasets, obligations were divided by declaration and funding category (A through Z), with totals based on the federal obligation through January 2015. Scope of Project Worksheets The method FEMA uses to characterize and administer discrete projects creates difficulties in understanding the number of actual "projects" within a given disaster. FEMA defines a project as "a logical method of performing work as a result of a declared event." In determining the parameters of a project, an applicant has the ability to combine work items into a single project as long as the resulting project is considered logical and consistent with FEMA criteria. FEMA provides applicants with a list of generally accepted methods for consolidating projects. For instance, an applicant may combine work items that relate to the same broad infrastructure system or the same type of facility. In addition, a single "project" could be all the work for an applicant that falls within one geographic boundary or was awarded to one contractor. While the ability to consolidate eligible activities onto a single project worksheet has administrative benefits for both FEMA and applicants, it makes it difficult to capture discrete work items and compare across disasters in aggregate. For example, FEMA may assign individual project worksheets to each gravel road damaged in one disaster, but group all gravel roads onto one worksheet in a different disaster, depending on the situation. As a result, any comparison of total projects within a disaster would necessarily be impacted by the project consolidation decisions made by the applicant and FEMA. Data Entries That Represent Financial Reconciliations Instead of Projects The public project worksheet dataset used by CRS includes over 621,000 individual project worksheets. However, a number of project worksheets appear not to represent a project in the lay sense of the word, but a financial reconciliation for the grantee (or subgrantee) for other project worksheets that did represent real projects. First, there are a substantial number of worksheets for which the total project amount of federal obligation is either negative or below the threshold for a PA grant ($1,000). In discussions with FEMA, these entries were characterized as the result of adjustments that are made to an applicant for the purpose of financial reconciliation. These adjustments often led to the creation of a new worksheet to correct issues that were identified for a project that was currently listed under a separate worksheet. Second, the individual project worksheet data include a number of obligations, both positive and negative, that were made to reconcile issues for a grantee in the aggregate. Each of these was made in Category Z, State Management. For this reason, there could be obligations included in Category Z that would be more properly assigned to categories A though G. Third, the data include disaster declarations for which the obligation total was negative for an entire category. As described by FEMA, these instances occurred when a system-generated reconciliation was performed across all applicable categories, possibly as a result of a change in the cost-share between the federal and state government. While there were not many instances of this in the data, it is possible that similar reconciliations were performed to adjust costs that were not identified because the total for the category within the declaration remained positive. For the above reasons, CRS limited the` analysis on the number of projects or the average cost per project, as a project worksheet may not actually represent a separate discrete project. Table 5 provides the only analysis based on numbers of project worksheets. As project worksheets for financial reconciliations are not systematically identifiable across the data, CRS was not able to adequately control for or eliminate all financial data entries. However, CRS did restrict the data for the most obvious of these entries, those project worksheets with reported obligations between $-1 and 1. Even with this restriction, the data on the number of project worksheets likely inflate the number of real projects in a lay sense of the word. Data Requiring Proper Manual Categorization or Characterization The analysis provided in the report includes multiple categorizations that are not available in the publicly available data, including obligations for hazard mitigation, private nonprofit facilities, and projects using alternative procedures. To identify project worksheets that met these criteria, FEMA staff relied on text searches of FEMA data or other descriptors in their internal data. There could be inconsistencies in tracking these data across time, region, or declaration because the entry relies upon individual users including information in the text. As a result, the analysis addressing these topics cannot be recreated using the publicly available dataset or verified by CRS.

The Public Assistance Grant Program (PA Program) is administered by the Federal Emergency Management Agency (FEMA) and combines the authorities of multiple sections of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 93-288, as amended, the Stafford Act). The PA Program is only available for states and communities that have received a major or emergency disaster declaration through the Stafford Act (and in a more limited fashion, Fire Management Assistance Grants). The PA Program provides grant assistance for eligible purposes, including Emergency work, as authorized by Sections 403, 407, and 502 of the Stafford Act, which provide for the removal of debris and emergency protective measures, such as the establishment of temporary shelters and emergency power generation. Permanent work, as authorized by Section 406, which provides for the repair, replacement, or restoration of disaster-damaged, publicly owned facilities and the facilities of certain private nonprofit organizations (PNPs). PNPs are generally eligible for permanent work assistance if they provide a governmental type of service, though PNPs not providing a "critical" service must first apply to the Small Business Administration for loan assistance for facility projects. At its discretion, FEMA may provide assistance for hazard mitigation measures that are not required by applicable codes and standards. As a condition of PA assistance, applicants must obtain and maintain insurance on their facilities for similar future disasters. Management costs, as authorized by Section 324, which reimburses some of the applicant's administrative expenses incurred managing the totality of the PA Program's projects and grants. FEMA will either award PA grants based on the estimated federal share of the total eligible cost of the project or award grants on the federal share of actual eligible costs evidenced through documentation from the applicant/grantee. The federal government provides a minimum of 75% of the cost of eligible assistance, and this cost-share can rise if certain criteria are met. The PA Program is appropriated for in the Disaster Relief Fund (DRF). Between FY2000 and FY2013, PA accounted for approximately 47% of all federal spending from the DRF. During this period, the PA Program provided approximately $21.2 billion in federal grants for emergency work assistance, $30.2 billion in permanent work assistance, and $1.2 billion in management assistance. Approximately $6.6 billion of these grant amounts was provided to PNPs for both emergency and permanent work. The PA Program authorities were most recently significantly amended by the Sandy Recovery Improvement Act (Division B of P.L. 113-2, SRIA). SRIA established "alternative procedures" for PA Program assistance, which has allowed FEMA to implement a Public Assistance Alternative Procedures (PAAP) Pilot Program. These procedures revise a number of elements of the PA Program, such as allowing grants for large, permanent work projects (facility restoration projects over $120,000) to be based on fixed estimates, as opposed to actual cost basis; and increasing the federal share of eligible costs when debris is removed more quickly by applicants. Given the importance of PA Program assistance to communities recovering from disasters, and the amount of federal dollars spent on the assistance, Congress may consider several policy issues related to the PA Program. For example, Congress may consider Reviewing current FEMA policies implementing the authorizing statute and, when desired, codifying or overriding the policies through further clarification in law; Evaluating major forthcoming changes to the PA Program authorized by SRIA and an earlier law, the Disaster Mitigation Act of 2000 (P.L. 106-390); Weighing options for decreasing the improper use of PA assistance by applicants, perhaps by revising the conditions of management cost assistance or improving the collection of data in the PA Program; Expanding or restricting the eligibility of the PA Program, possibly to exclude certain PNPs from assistance or to grant assistance to privately owned facilities; Deciding if and how the PA Program should provide hazard mitigation assistance on facility restoration projects; and Defining the role of PA Program as it potentially overlaps with the disaster assistance authorities of other federal agencies.

Refundable Tax Credits Tax credits reduce a taxpayer's tax liability dollar-for-dollar, up to the value of the credit. Refundable credits, unlike nonrefundable credits, can be larger than a taxpayer's income tax liability, with the taxpayer receiving the difference as a cash payment from the IRS in the form of a tax refund. Table 1 lists the current and recently expired refundable tax credits. A list of CRS reports that provide information on these credits can be found in the Appendix to this report. Eligibility Under the IRC The first question in determining whether unlawfully present aliens may claim refundable tax credits is whether this is permitted under the Internal Revenue Code (IRC). There is no general rule in the IRC that prohibits unlawfully present aliens from claiming refundable tax credits. Rather, the restrictions that exist are established on a credit-by-credit basis. As discussed below, there are three types of restrictions: (1) prohibitions on nonresident aliens (defined below) from claiming a credit; (2) requirements that taxpayers provide Social Security numbers (SSNs) in order to claim a credit; and (3) a restriction that only aliens who are "lawfully present" may claim a credit. Prohibitions on Nonresident Aliens Some credits are denied to nonresident aliens, and thus any unlawfully present alien who is a nonresident alien would be ineligible to claim them. For purposes of federal income tax law, individuals who are not U.S. citizens are classified as being either a resident or nonresident alien. In general, an individual is a resident alien if he or she is a lawful permanent resident (LPR) at any time during the year or is present in the United States for a significant period of time during the current and previous two years ("substantial presence test"). In general, other noncitizens are nonresident aliens. Unlawfully present aliens are categorized as either a resident or nonresident alien under these same rules. As shown in Table 2 , only two existing credits—the EITC and American Opportunity tax credit—contain provisions denying the credit to nonresident aliens. Two recently expired credits—the Making Work Pay credit and the 2008 stimulus credit—were denied to nonresident aliens, and the now-expired First-Time Homebuyer credit was not available for purchases by nonresident aliens. SSN Requirement Some credits are denied to taxpayers without Social Security numbers (SSNs). Credits With an SSN Requirement As shown in Table 2 , only the EITC currently contains an SSN requirement. In order to claim the EITC, taxpayers must provide SSNs for themselves, a spouse if filing a joint return, and any qualifying children. The SSNs must be valid for work purposes (i.e., the SSN holder is authorized to work in the United States). Some aliens have SSNs that are issued for non-work purposes, but individuals with these types of SSNs may not claim the EITC. The now-expired Making Work Pay and 2008 stimulus credits contained SSN requirements, although they did not specify that the SSN be valid for work purposes. Also, for the 2008 stimulus credit, the SSN requirement did not apply to a joint return if at least one spouse was a member of the Armed Forces during the taxable year. One issue that arises with SSN requirements for tax credits is that some resident aliens who are currently not lawfully present may have once lawfully received an SSN and could attempt to use the SSN to claim a credit. While the statutory language is silent on this matter, it appears Congress intended to limit the EITC and 2008 stimulus credit to taxpayers currently authorized to work in the United States. Credits Without an SSN Requirement For the other refundable credits, such as the additional child tax credit, taxpayers may claim the credit using an SSN or an individual taxable identification number (ITIN). ITINs are issued by the IRS to taxpayers who are not eligible for SSNs. ITINs are unique identifying numbers that these individuals use to file tax returns and otherwise comply with their federal tax law responsibilities. Being assigned an ITIN does not affect an individual's immigration status, and unlawfully present aliens may receive ITINs. SSNs and Residency Status A legal requirement that a taxpayer provide an SSN in order to claim a credit is not duplicative of a restriction that denies nonresident aliens from claiming the credit. Having an SSN or ITIN does not denote whether an individual is a resident or nonresident alien. Some resident aliens are ineligible for SSNs and therefore have ITINs, while some nonresident aliens have SSNs. Requirement that Aliens Be "Lawfully Present" Under the Patient Protection and Affordable Care Act ( P.L. 111-148 , ACA), individuals who buy health insurance through an exchange are eligible for a refundable premium assistance tax credit. Aliens who are not "lawfully present," as that term is defined in regulations implementing ACA, are ineligible for the credit. This is because the credit is only available for months during which a person purchases health insurance through the ACA exchanges, and aliens who are not "lawfully present" are prohibited from buying insurance through an exchange. However, an individual who is not "lawfully present" may claim the credit for an eligible family member (for example, a parent who is not "lawfully present" may file a tax return claiming the credit if he or she has children who meet the credit's qualifications). Eligibility Under PRWORA The second question is whether any refundable tax credits are subject to Section 401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), which generally bars unlawfully present aliens from receiving any "Federal public benefit." If any refundable tax credit is such a benefit, it could be argued that aliens subject to Section 401's restrictions may not claim the credit, regardless of whether the IRC contains such a prohibition. "Federal public benefit" is defined in Section 401(c)(1) as, (A) any grant, contract, loan, professional license, or commercial license provided by an agency of the United States or by appropriated funds of the United States; and (B) any retirement, welfare, health, disability, public or assisted housing, postsecondary education, food assistance, unemployment benefit, or any other similar benefit for which payments or assistance are provided to an individual, household, or family eligibility unit by an agency of the United States or by appropriated funds of the United States. It appears the IRS permits unlawfully present aliens to claim any refundable tax credit that is not restricted under the IRC. In other words, while the IRS has not released a public statement or guidance on this issue, it appears the agency does not consider any refundable tax credits to be subject to Section 401. No court has examined the issue of whether refundable tax credits are federal public benefits under PRWORA. So long as the IRS permits unlawfully present aliens to claim any credit without an IRC restriction, there is a question as to whether that position could be challenged in court. This is because it appears doubtful that anyone would be personally injured—a necessary prerequisite to have standing to sue —by the IRS's decision to allow the credit. Thus, if the IRS does not interpret Section 401 to include refundable tax credits, this could be a de facto permissible interpretation by the agency, unless Congress were to address the matter legislatively. If the issue were to come before a court, there appears to be support for the IRS's apparent determination that refundable credits are not federal public benefits. For example, Section 401 does not expressly include refundable tax credits, and it could therefore be argued that Congress did not include them in the list of federal public benefits because it understood them to be excluded. One could also argue that refundable tax credits are not federal public benefits because tax benefits are not traditionally thought of as the types of "grants" or qualifying "benefits" referred to in Section 401, and there is no clear evidence in the legislative history that Congress intended such credits to be treated as such. Additional support could be found in PRWORA Section 432(a), which directs the Attorney General to consult with the Secretary of Health and Human Services when promulgating regulations for verifying the immigration status of applicants for federal benefits, but does not require consultation with the Treasury Department, thus arguably suggesting tax benefits were understood not to be affected. Support might also be found in other congressional action: Congress included in PRWORA an SSN requirement for the EITC and subsequently enacted legislation to impose an SSN requirement for the 2008 stimulus and Making Work Pay credits and to deny the premium assistance credit to unlawfully present aliens. These actions would arguably be unnecessary had Congress believed that PRWORA Section 401 applied to refundable tax credits. On the other hand, it might be argued that at least some refundable tax credits could be a "grant" under Section 401(c)(1)(A) or a "benefit" under Section 401(c)(1)(B). Since the key terms are not defined statutorily nor do they appear to be terms of art (i.e., have a generally accepted meaning in law), a court might look to their customary and ordinary meanings. In general, "grant" is defined as "a sum of money given by an organization, especially a government, for a particular purpose"; "benefit" is "a payment made by the state or an insurance scheme to someone entitled to receive it"; and "assistance" is "the provision of money, resources, or information to help someone." Furthermore, in other contexts, courts have interpreted "other similar benefits" in PRWORA to mean services that "assist people with economic hardship" or could potentially "create [an] incentive for illegal immigration." These definitions might support the argument that some refundable tax credits could be federal public benefits due to their refundable nature and purpose. Such a determination would likely depend on the specific characteristics of each credit. For example, in other contexts, courts have held the EITC to be public assistance for purposes of state law because of its refundable, grant-like nature and purpose of assisting low-income families. However, some courts have held that the child tax credit is not such a benefit since, unlike the EITC, it is not limited to assisting low-income families. As these cases illustrate, a court might not reach the same conclusion for each credit, concluding that some would meet the criteria while others would not, depending on the specific characteristics of each credit. There appears to be justification for concluding that refundable tax credits are not federal public benefits under PRWORA Section 401, but there is also arguably support for determining that some might be, depending on their characteristics and purpose. Until the IRS, a court, or Congress addresses whether any refundable credits are federal public benefits, the only clear restrictions on the ability of aliens to claim them are those found in the IRC (see Table 2 ). CRS Reports on Refundable Tax Credits The following CRS reports provide information on specific refundable tax credits: Earned Income Tax Credit: CRS Report R43805, The Earned Income Tax Credit (EITC): An Overview , by [author name scrubbed] and [author name scrubbed]. Additional Child Tax Credit: CRS Report R41873, The Child Tax Credit: Current Law and Legislative History , by [author name scrubbed]. American Opportunity Tax Credit: CRS Report R41967, Higher Education Tax Benefits: Brief Overview and Budgetary Effects , by [author name scrubbed]. Health Coverage Tax Credit: CRS Report RL32620, Health Coverage Tax Credit , by [author name scrubbed]. Making Work Pay Credit: CRS Report R40969, Withholding of Income Taxes and the Making Work Pay Tax Credit , by [author name scrubbed]. Adoption Tax Credit: CRS Report RL33633, Tax Benefits for Families: Adoption , by [author name scrubbed] First-Time Homebuyer Tax Credit: CRS Report RL34664, The First-Time Homebuyer Tax Credit , by [author name scrubbed].

The question is frequently asked whether aliens who enter or remain in the United States in violation of federal immigration law (called unlawfully present aliens for purposes of this report) are permitted to claim refundable tax credits. There is no general provision in the Internal Revenue Code (IRC) prohibiting unlawfully present aliens from claiming refundable tax credits. Rather, the restrictions that exist are established on a credit-by-credit basis. For example, one credit—the earned income tax credit (EITC)—requires that taxpayers provide work-authorized Social Security numbers (SSNs) for themselves, a spouse if filing a joint return, and any qualifying children. Because of this requirement, aliens who are not authorized to work in the United States are ineligible for the credit. This treatment can be contrasted with another credit, the additional child tax credit, which does not have an SSN requirement and can be claimed by taxpayers regardless of their immigration or work authorization status. A related issue is whether any refundable tax credits are "Federal public benefits" under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). Section 401 of that act disallows such benefits to unlawfully present aliens. If any refundable tax credits were federal public benefits, it could be argued the credits should be disallowed to these aliens, even if the IRC does not contain such a restriction. It appears the IRS does not interpret PRWORA to apply to refundable tax credits. No court has examined this issue, and Congress has not taken any action to address it legislatively. Thus, at this time, the only clear restrictions on the ability of unlawfully present aliens to claim refundable tax credits are those found in the IRC.

Introduction Over the past 15 years, the U.S. current account has moved from a small surplus to a deficit that in 2005 was nearly $800 billion. The final tally for 2006 has not been completed, but preliminary data suggests the deficit will grow to near $900 billion. The current account deficit has increased also as a share of gross domestic product (GDP), climbing from near zero to a record 6.2% in 2005. Because a current account deficit is a reflection of a concurrent net inflow of borrowed funds from the rest of the world, the accumulation of debt from a long succession of large annual deficits has caused the United States to move from being a small net creditor to the rest of the world to being a large net debtor. The net accumulation of liabilities through 2005 is $2.7 trillion, which is equivalent to about 22% of U.S. GDP. There is, however, an apparent paradox in U.S. international transactions in this period. Despite the huge increase in U.S. external debt, the investment income component of the current account has remained in surplus. The size of this surplus has varied, hitting a low of $4 billion in 1998 and a high of $37 billion in 2003, but over the past 25 years, the surplus has remained between $15 billion and $30 billion. Since 2003, the surplus has fallen, reaching $28 billion in 2004 and $11 billion in 2005. The significance of this enduring surplus of investment income is that the United States, although a large net debtor, has been borrowing free of any economically meaningful debt service cost. The investment income balance is a tally of U.S. earnings on its foreign investments net of foreigners' earnings on their investments in the United States. It is reported as a component of the current account balance—the nation's most comprehensive measure of international transactions. A surplus in the investment income balance (the U.S. earns more than it pays) means that the United States, despite being a large net debtor on an accounting basis (value of foreign liabilities exceeds value of foreign assets), is on an economic basis a net creditor. An economically significant debt would generate net capital income payments to the rest of the world, that is, a debt burden in the form of real resources being transferred to the rest of the world. Because the United States is generating net capital income receipts suggests that it is an economic net creditor to the rest of the world and is bearing no debt service cost on its large external debt. This would also suggest that the large trade deficits generating that debt could be much less onerous than typically portrayed. Resolving the Paradox Why is there this paradox? Does it suggest there is no reason for concern about U.S. international imbalances because its accumulated debt is economically costless? Several explanations have recently been put forward. Attenuating Factors A 2005 study by economist William Cline provides an explanation for the external debt paradox as well as an assessment of the need for concern about U.S. external imbalances by policy makers. It argues that two factors have worked to limit the impact of large current account deficits on the nation's economic debt service payments. First is the effect of valuation changes that have caused the magnitude of United States net indebtedness to grow much more slowly than the size of the current account deficits would indicate. Second is the effect of asymmetrical capital returns —the United States earns a higher rate of return on its foreign investments than foreigners earn on their U.S. investments. Valuation Effects Over time, valuation effects have worked to increase the price of U.S. assets relative to the price of U.S. liabilities for two reasons. First, U.S. foreign assets have a higher incidence of equities (58%), such as foreign direct investment and portfolio investment, than do U.S. liabilities (37%). In contrast, U.S. liabilities have a higher incidence of debt obligations(51%), such as bonds and bank loans, than do U.S. assets (31%). The differential valuation effect occurs because equities appreciate with inflation and stock market booms, but debt obligations most often do not. Second, to a far greater degree than other countries, U.S. external liabilities are denominated in dollars, whereas U.S. external assets are heavily denominated in foreign currencies. Therefore, when the dollar depreciates against major currencies, the dollar value of U.S. foreign assets rises relative to the value of U.S. foreign liabilities. How significant have valuation changes been for the U.S. net asset position? Based on Bureau of Economic Analysis (BEA) data, Cline reports that from 1991 through 2004, the cumulative current deficits amounted to $3.6 trillion. The actual increase in the U.S. net asset position over this period was only $2.4 trillion. Therefore valuation effects erased $1.2 trillion or 53% of the U.S. current account deficits. This effect was found to be particularly strong in the 2002-2004 period when the dollar depreciated substantially, erasing seven-eights of the cumulative current account deficit's impact on the U.S. net asset position for this period. Asymmetric Capital Returns The United States has, on average, consistently earned higher returns on its foreign investments than foreign investors earned on their U.S. investments. This overall rate of return advantage has fluctuated narrowly but steadily between 1 to 2 percentage points. There is likely a structural bias in world capital markets that contributes to this outcome. Prudent investment portfolio management calls for holding a diversified collection of assets that strike a reasonable balance between risk and reward. That balance would entail holding some assets offering higher return but also higher risk and other assets offering a lower return, but also lower risk. In light of this, an argument can be made that the large and highly liquid U.S. asset market, with its transparency and legal safeguards, offers a bountiful array of low-yield and low-risk assets. U.S. Treasury securities are a particularly attractive element of this array of low-risk assets. For this reason, great numbers of foreign investors come to the U.S. asset market to fill out the low-risk tier of their investment portfolios. Currently, foreigners hold more than $2 trillion in U.S. Treasury securities or about 53% of all U.S. Treasury securities held by the public. Conversely, U.S. investors are more likely to buy foreign assets that offer high return and high risk. How significant this bias is in causing the asymmetric returns is not known. The United States' rate of return advantage on its foreign assets is not common to all types of foreign investments, however. It is almost exclusively an outcome associated with foreign direct investment (FDI) in the United States. The rate of return on U.S. FDI averages 7.1% and the rate of return on FDI in the United States averages only 2.5%. In contrast, rates of return on bank and non-bank claims and corporate bonds have been similar for both assets and liabilities. The rates of return on portfolio equities have shifted over the past 15 years, favoring U.S. equities in the early part of the period and in recent years favoring foreign equities. The advantage in this case is much smaller than the $128 billion net earnings on U.S. FDI in 2004, adding only $20 billion to U.S. investment income. The significance of the rate of return advantage of U.S. FDI for investment income is substantial. Cline estimates that if the rates of return on all foreign assets and liabilities were the same, the U.S. investment income balance in 2004 would not have been a surplus of $36 billion, but a deficit of $102 billion. Cline cannot give a conclusive reason or reasons why U.S. FDI earns a higher return than FDI in the United States. Implications Clearly the burden of the massive external borrowing by the United States has been relatively painless to this point, but, as Cline argues, future prospects are unlikely to be as benign. The sheer size of prospective U.S. current account deficits will soon overtake the several mitigating forces and cause the real debt burden to grow substantially. The high incidence of fixed income obligations in U.S. foreign liabilities is a characteristic that could greatly accelerate the growth of that burden. Fixed income obligations, which include bank and non-bank claims as well as government and corporate bonds, tend to be sensitive to the level of interest rates. In the past, the extremely low interest rates have made this structural characteristic relatively benign. But global interest rates have now begun to rise and because the United States will have to sell new debt instruments as well as turn over a large share of existing debt, the total interest payments to foreigners holding these liabilities will increase. Cline estimates that an increase in interest rates of only 1 or 2 percentage points would increase U.S. net interest payments to foreigners by $30 billion to $70 billion. Added net interest payments of this size would soon swing the investment income balance from surplus to deficit and cause U.S. debt service costs to become very real. The United States was able to avoid this effect in 2005 because interest rate increases were in short-term yields that generated equally large increases in interest receipts and payments. If, however, long-term yields also begin to rise, the effect will be more one-sided because there will be substantial increases in payments on U.S. Treasury securities held abroad with no compensating increase in similar foreign payments. The Presence of "Dark Matter"? A more controversial interpretation of the paradox of the United States having large net external liabilities paired with an investment income surplus has been provided by economists Hausmann and Sturzenegger. They maintain that the official current account data have failed to record a large volume of service exports, so large that the United States has in truth remained a large net external creditor. These service exports are not measured in export data because they are hidden within various U.S. capital outflows, and they are not measured there either. Nevertheless, once abroad, these services produce earnings that show up as foreign investment income. The name they give to these invisible assets is "dark matter," for, like the astronomical phenomenon, they have a visible effect (generating investment income) but stem from a source that cannot be seen (hidden service exports). The imputed effect of "dark matter" on the U.S. net asset position is huge, transforming a deficit of $2.5 trillion into a surplus of $600 billion. This would suggest that the accumulated dark matter has an economic value of $3.1 trillion. The Sources of Dark Matter Hausmann and Sturzenegger name three classes of invisible U.S. exports: global liquidity services, insurance services, and knowledge services, attached, respectively, to three types of capital outflows—U.S. currency, U.S. sovereign debt, and U.S. FDI. Liquidity Services Dollars holds a special global status, with the currency being widely held as an asset to meet the liquidity needs of the world economy. It is a matter of controversy as to what is the scale of foreign holdings of dollars. The estimates of the share of the $700 billion Federal Reserve notes in circulation that are held abroad range from as low as 30% to as much as 70%. BEA's own tally of currency held abroad was $333 billion in 2004, or about 48% of the total in circulation. Much of this demand comes from foreign governments whose own currencies are unstable or have acute problems with inflation. Also, some of the international demand for dollar currency may be tied to black market and criminal transactions. Such holdings are effectively an interest free and irredeemable loan to the United States, and although recorded as a liability in the U.S. international investment position, they are not performing as a U.S. liability. If the proceeds from this interest free loan are invested in assets earning a positive rate of return, there will occur an inflow of investment income with no visible asset generating it—dark matter. Because there is uncertainty about how much dollar currency is actually held abroad, there is a range of estimates of potential dark matter from liquidity services. It is unlikely that the amount is less than $200 billion or exceeds $500 billion. If invested in assets with a 5% return, the range for the income flow from this form of dark matter would be from about $10 billion to about $25 billion annually. Insurance Services This source of dark matter is in concept similar to liquidity services, but applied to low-risk U.S. Treasury bonds. As noted in the Cline study examined above, the world economy has an apparent strong demand for a low-risk asset to fill out its investment portfolio and the holding of U.S. Treasury bonds is the preferred way of meeting this demand. The United States, on the other hand, can use these proceeds to fill out the high-risk, high-yield tier of its investment portfolio with much higher yielding bonds from emerging economies, Hausmann and Sturzenegger argue. Moreover, this yield difference will not be compressed by competitive forces and will persist because the world is exchanging a safe asset for a risky asset and the difference is, in effect, an insurance premium the world pays the United States for lowering its risk. Knowledge Services Hausmann and Sturzenegger argue that current accounting practices are greatly understating the stock of U.S. FDI assets because they fail to account for embodied knowledge services. These unmeasured assets do, however, generate an inflow of revenue that is measured as investment income. This would lead to a higher apparent rate of return on the FDI assets that are measured. This occurs because U.S. FDI has embodied in it extremely valuable but unmeasured assets exported in the form of know-how, brand recognition, expertise, and research and development. Hausmann and Sturzenegger maintain that knowledge services is the most important source of dark matter. Implications of Dark Matter Taking dark matter into consideration, the global imbalances that countless observers have found so troubling would be eliminated. The United States would be a net creditor, not a net debtor. Japan is a large creditor, whereas the euro area and the rest of the world are net debtors. Overall the world economy is generally balanced with the exception of Japan, having no large net positions. Dark matter would also suggest the United States is far more of a saver than indicated by official statistics. Moreover, so long as dark matter continues to be largely based on knowledge exported abroad it should lead to a steady net creditor position for the United States and fairly stable international economy. Evaluation The dark matter hypothesis has met with criticism. In the case of liquidity services (or external seigniorage), the argument is valid in concept but the magnitude of the associated earnings inflow is probably moderate in size, probably no more than $25 billion and perhaps as little as $10 billion. In the case of insurance services, the argument seems highly improbable if the high risk of default on the sovereign debt of emerging economies is taken into consideration. Default is hardly unlikely. Just since 1998, there have been debt defaults by Argentina, Uruguay, Russia, Pakistan, Venezuela, Ukraine, Ecuador, and Peru. Further, the yields on U.S. Treasury bonds are not unusually low, often being higher than the yield on the sovereign debt of other advanced economies. This suggests that the markets are not conferring any preferred market status on U.S. Treasury bonds. In the end, the observed spread in interest rates between U.S. Treasury bonds and emerging market sovereign debt is often not large, seeming only minimally sufficient to cover default risk and leaving little left over for the alleged insurance services premium. In the case of knowledge services, dark matter may exist, but it is also reasonable to conjecture that it is likewise embodied in FDI in the United States, causing these investments to be similarly undervalued in the U.S. net international investment position (NIIP) calculations. In fact, a ratio of the NIIP data on market value and book value of FDI, which should be an indicator of expected profitability of an investment, shows no significant difference in expected profitability between FDI in the United States and U.S. FDI. In general, it is likely that there are important valuation problems on both the asset and liability side of FDI making it unclear whether there is systematic overstatement or understatement on either the foreign or the United States side. A Bias in Data Collection? Looking at the sizable gap between the rate of return on U.S. FDI and that on FDI in the United States, the argument can be made that the anomaly is not the high U.S. yield (7.5%) but the suspiciously low foreign yield (2.5%). Why pour hundreds of billions of investment into the United States for a yield below that available from holding virtually risk free U.S. Treasury bonds? Or, given the high yield on U.S. FDI, it would seem likely that there are superior investment opportunities elsewhere. This apparent violation of rational economic behavior suggests there could be something wrong with the reported FDI earnings data from foreign firms operating in the United States. Another indicator of FDI data problems is that there is no yield gap between U.S. portfolio assets and liabilities. FDI is distinguished from portfolio investment by being a transaction that leads to the acquisition of 10% or more of the capital of an enterprise. Why would owning less than 10% of an enterprise be an investment in which foreign investors are competitive with U.S. investors, but owning more than 10% be one in which they are not? These observations prompt the hypothesis that because U.S. corporate taxes are often higher than those of other countries, foreign multi-national companies in the United States systematically shift profits from their U.S. affiliates to the parent company or to another affiliate in a lower tax jurisdiction with the purpose of reducing their U.S. tax liabilities. Funds are not actually crossing any border, rather they are being disguised by the use of certain business practices or accounting devices. These practices, of course, distort the investment income data by undervaluing foreign income in the United States. The significance of this practice is suggested by the stark asymmetry of the retained earnings component of the investment income balance. Foreign affiliates in the United States report virtually no retained earnings, whereas U.S. firms report substantial retained earnings in their foreign affiliates. The cumulative profits reported on U.S. FDI from 1999 through 2004 was $984 billion of which $620 billion, or 65%, was reported as retained earnings. In comparison, during this same period, the cumulative profits reported on FDI in the United States were $233 billion of which only $41 billion, or 18%, was reported as retained earnings. There is no obvious reason for this different performance. The strength of tax incentives on where profits are reported by multi-national corporations is evident in the case of Ireland, a very low tax country. Foreign firms report profit rates of about 20% on FDI in Ireland. This is 10 times higher than the yield reported on FDI in the United States and seemingly far greater than a credible difference in true profit opportunities. Another piece of evidence is afforded by the response of U.S. multinational companies to the one-time tax incentives provided by the American Jobs Creation Act of 2004. In 2005, the year the tax incentives were in effect, there was a sharp redistribution of retained earnings from abroad to U.S. parents, as retained earnings from foreign operations abruptly fell to near zero from $177 billion in 2004 and retained earnings reported by U.S. parents increased to $244 billion from $50 billion in 2004. The cloaking of the U.S. earnings of foreign multi-national companies can be accomplished by the use of what economists call "transfer pricing." This occurs through the manipulation of the price the company charges for a product or service it supplies to its foreign affiliate. Tax codes usually require that parents and affiliates conduct transactions using "arms-length" pricing but deviation from this standard can be very hard to detect, particularly if, as is common, the good or service exchanged does not have a market determined price for reference. Paying higher prices for goods or services provided by the parent or another affiliate will increase the recorded operating costs of the U.S. affiliate and, in turn, decrease its recorded profits, and thereby decrease its U.S. tax liability. The transfer price transaction can be with other foreign affiliates operating in a different jurisdictions as well as with the parent. There is at present no conclusive evidence of the extent of profit shifting by multi-national corporations through transfer pricing, but as already suggested it is likely to be very difficult to detect. Conclusion It is probably true that the valuation of U.S. external assets and liabilities is subject to measurement error. However, the magnitude of error, even if several hundred billion dollars, is unlikely to be large enough to greatly alter the basic shape of U.S. international transactions: large current account deficits and a deteriorating external net asset position. The tremendous size of prospective current account deficits will mean that if the United States is not now a net external debtor it soon will be. Even ignoring the likely bias associated with the reporting of retained earnings to compute the investment income balance, the likely pace of debt accumulation by the United States in conjunction with a likely future of higher world interest rates, suggests that the current investment income surplus will soon turn to deficit. This would put the United States in the position of having to then incur net economic debt service costs on its large borrowings from abroad. Preliminary data indicates that the investment income balance may post a small deficit for 2006. This cost could grow large quickly, however. Therefore, the U.S. trade deficit and its consequences will continue to be legitimate matters of concern for economic policy makers.

Despite the huge increase in U.S. external debt, the investment income component of the current account has remained in surplus. The size of this surplus has varied, hitting a low of $4 billion in 1998 and a high of $37 billion in 2003, but over the past 25 years, the surplus has remained between $15 billion and $30 billion. Since 2003, the surplus has fallen, reaching $28 billion in 2004 and $11 billion in 2005. This means that the United States, although a large net debtor, has been borrowing free of any economically meaningful debt service cost. What is behind this apparent paradox? Attempts to resolve this paradox have considered special factors that tend to mitigate the effects of the current account deficit on the value of foreign debt, the role of unmeasured U.S. exports, and bias in data collection. A 2005 study by economist William Cline argues that two factors have worked to limit the impact of large current account deficits on the nation's economic debt service payments. First is the effect of valuation changes that have caused the magnitude of U.S. net indebtedness to grow much more slowly than the size of the current account deficits would indicate. Second is the effect of asymmetrical capital returns—the United States earns a higher rate of return on its foreign investments than foreigners earn on their U.S. investments. A more controversial interpretation of the paradox of the United States having large net external liabilities along with an investment income surplus has been provided by economists Hausmann and Sturzenegger. They maintain that the official current account data have failed to record a large volume of service exports, so large that the United States has in truth remained a large net external creditor. The name they give to these invisible assets is "dark matter," for, like the astronomical phenomenon, they have a visible effect (generating investment income) but stem from a source that cannot be seen (hidden service exports). Looking at the sizable gap between the rate of return on U.S. foreign direct investment (FDI ) and that on FDI in the United States, the anomaly is not the high U.S. yield (7.5%) but the suspiciously low foreign yield (2.5%). Why pour hundreds of billions of investment into the United States for a yield below that available from holding virtually risk free U.S. Treasury bonds? Or, given the high yield on U.S. FDI, it would seem likely that there are superior investment opportunities elsewhere. This apparent violation of rational economic behavior suggests that there could be something wrong with the FDI earnings data reported by foreign firms operating in the United States. While the rate of past debt accumulation may have been smaller than what the size of U.S. current account deficits would indicate, and while the size of the U.S. net debt position and investment income balance may be subject to significant measurement error, the sheer size of prospective trade deficits will mean that, if not now, the United States will soon be a net debtor and will also soon have a sizable deficit in investment income—incurring a true debt burden. This report will be updated as events warrant.

Major Developments in 20081 June 2008 Summit Against a backdrop of the expanding and deepening of U.S.-Vietnam relations, in late June, Vietnamese Prime Minister Nguyen Tan Dung traveled to Washington, DC, to meet with President Bush. Since 2005, the United States and Vietnam have held annual visits between President Bush and either the Vietnamese President (the official head of state) or the Prime Minister (the head of government). The White House appears to be using these top-level meetings to try to encourage economic and political reforms inside Vietnam. Dung also became the highest level Vietnamese official since the Vietnam War to visit the Pentagon, where he met with Secretary of Defense Robert Gates. Dung's trip was notable for the number and range of agreements the two governments came to, as well as the new steps they took to deepen their level of engagement. Major developments included: the announcement of a formal "Security Dialogue" on political-military issues, a process that the United States has with four other Southeast Asian countries; the launch of bilateral investment treaty (BIT) negotiations; the Bush Administration's announcement that it would begin the process of exploring whether to add Vietnam to the Generalized System of Payments (GSP) program, which extends duty-free treatment to certain products that are imported from designated developing countries; an agreement in principle to introduce a Peace Corps program in Vietnam; the launch of a "high-level" bilateral Education Task Force; the announcement of new initiatives on adoptions, nuclear safety, aviation, climate change, food safety, and other issues. In another high-level visit, Deputy Secretary of State John Negroponte traveled to Vietnam from September 11-14, 2008. It was his first trip to Vietnam since the signing of the Paris Peace Accords in 1973 that ended direct U.S. military actions in Indochina. GSP and Other Bilateral Economic Developments Obtaining GSP status from the United States has become a major objective for Vietnam. The week before Dung's visit, the Bush Administration announced it would begin a review of whether Vietnam meets the eligibility criteria for designation as a beneficiary country under the GSP program. The primary purpose of the program, which the United States and other industrial countries initiated in the 1970s, is to promote economic growth and development in developing countries by stimulating their exports. S. 3678 , the Senate version of the Vietnam Human Rights Act, would prohibit Vietnam's entry into the GSP program unless Vietnam's labor rights regime is certified as making improvements in certain areas, particularly the right of association. In March 2008, United States and Vietnamese trade officials held their second meeting under the bilateral Trade and Investment Framework Agreement (TIFA) that was signed in June 2007. In the first TIFA meeting, in December 2007, the two sides reportedly discussed Vietnam's compliance with its WTO commitments in distribution and other service sectors, as well as other issues. The U.S. urged Vietnam to improve enforcement of intellectual property protection, a perennial point of friction. These diplomatic initiatives have occurred against a backdrop of rapidly expanding bilateral trade and investment flows. In the year after Vietnam joined the World Trade Organization (WTO) in January 2007, U.S.-Vietnam trade rose more than 30%, to over $12.3 billion. For the first eight months of 2008, year-on-year trade was up by 30%. U.S. firms continue to be among the largest sources of foreign direct investment in Vietnam, as symbolized by Intel Corp's $1 million manufacturing plant, due to open in 2010. Many Vietnamese are concerned about reports that the United States will renew its "import monitoring program" for certain clothing and textiles from Vietnam which allows the Commerce Department to self-initiate antidumping investigations when warranted. The current program is scheduled to expire with the end of the Bush Administration. The U.S. imported about $4.3 billion in clothing items from Vietnam in 2007. Vietnamese officials also are concerned that the implementation of certain provisions of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ), passed in June 2008, may reduce Vietnamese fish farmers' catfish exports to the United States. Among other items, the law will effectively transfer catfish inspection from the Food and Drug Administration to the U.S. Department of Agriculture, which currently is drafting regulations to implement the provision. These regulations conceivably could require a formal USDA determination that Vietnamese safety standards are equivalent to U.S. standards, before such catfish could be imported into the United States, which might at least temporarily disrupt such shipments. Catfish exports account for about one-quarter of the exports by Vietnam's aquatic industry, an important sector in Vietnam. In 2007, Vietnamese fish farmers exported approximately 21,200 MT of catfish (worth about $67.6 million) to the United States, up from 14,800 MT ($35.3 million) in 2005. Vietnam's Economic Troubles Since late 2007, Vietnam's economy has been buffeted by economic difficulties that have increased social strife and raised concerns about the country's economic stability. In 2007 and the first half of 2008, the country experienced soaring inflation and acute, downward pressure on the country's currency, the dong. The problems caused by inflation were particularly onerous, as the prices of some food items rose by over 50%, leading workers in a number of factories to go on strike demanding higher wages. Although the increase in the inflation rate has halted and perhaps reversed, the year-on-year rise in prices is still over 20% (it was 26.7% in October). Some economists have said Vietnam's still-developing institutional and financial infrastructure has contributed to or even caused many of the problems. Vietnam's growing trade and budget deficits continue to cause concern, including among credit agencies, which in 2008 have downgraded the outlook on Vietnam's sovereign rating from stable to negative. Although restrictions on international financial transactions have limited Vietnam's direct exposure to the global financial and credit crises, the secondary effects have created new pressures on Vietnam, which is heavily dependent on trade and foreign direct investment inflows. Some selected figures illustrate Vietnam's vulnerability to the global slowdown and collapse in commodity prices: exports are equivalent to 80% of GDP; about 60% of Vietnamese exports go to the United States, the European Union, and Japan; and oil revenue accounts for 30% of the government's revenue. For 2008, GDP growth is expected to be just over 6%. Many forecasters expect growth to be even lower in 2009, perhaps in the 4%-6% level. Nominal GDP growth of 7% is a key threshold in the minds of many Vietnamese policymakers for creating the jobs necessary for the VCP and the government to maintain social stability. To spur economic growth, the Vietnamese government took a number of steps in the fall and winter of 2008, including announcing a $6 billion stimulus package, lowering some corporate tax rates, cutting interest rates, and allowing the dong to depreciate against the U.S. dollar. In March 2008, Vietnam, the world's second-largest exporter of rice, imposed restrictions on rice exports in order to lower prices in its domestic market. The U.S. Secretary of Agriculture criticized this move by Vietnam and other commodity exporters, saying they were exacerbating the global rise in food prices. In June, Vietnam relaxed the export restrictions. Expanding Security Ties In October 2008, the United States and Vietnam held their first Security Dialogue on Political, Security, and Defense Issues. At the Hanoi meeting, the Vietnamese military reportedly asked the United States to supply spare parts for its American-made Huey helicopters that are leftovers from the Vietnam War. The two governments also discussed integrating Vietnamese soldiers into United Nations peacekeeping operations, and American military help with disaster relief in Vietnam. The Bush Administration's FY2009 budget request included a request for $500,000 in foreign military financing (FMF) for Vietnam, the first time Hanoi would be included in this program. Shifting Political Winds in Hanoi? Over the past several months, some Vietnam watchers have seen signs that Prime Minister Dung and other reform-minded leaders are losing ground in the ongoing battles they reputedly have with more conservative minded officials. The reformers are generally thought to have been ascendant since 2000, when a prolonged logjam over the future of economic reform was broken in favor of a new consensus to deepen Vietnam's integration with the global economy and to push through a new series of market-oriented economic reforms. Additionally, the ascendancy of the reformers has coincided with Hanoi's moves to upgrade relations with the United States, its increased willingness to discuss human rights disagreements, its loosening of restrictions on the Vietnamese press, and its more aggressive drive to root out corruption, which the Vietnamese Communist Party (VCP) sees as one of the greatest threats to its legitimacy. Among the indicators that the conservatives may be pushing back: the arrest and sentencing of Thanh Nien journalist Nguyen Viet Chien for "abusing" his position by reporting on corruption at high levels in the government; a decision by the 160-person VCP Central Committee in May 2008 to give greater authority over the economy to the 14-member Politburo (presumably diminishing the prime minister's role); and an escalating land dispute between the Catholic archdiocese of Hanoi and the Hanoi People's Committee (Hanoi's communist party organ), in which the Hanoi authorities have broken up sit-ins by Catholics protesting the city's plans to redevelop land that the church was forced to turn over to the government decades ago. Much of the Western speculation has pitted the reportedly growth-oriented Dung against the more conservative VCP General Secretary, Nong Duc Manh, who may place a higher priority on social and political stability. Human Rights Developments Vietnam's human rights record continues to be a persistent thorn in the side of the relationship. Vietnam is a one-party, authoritarian state ruled by the Vietnamese Communist Party (VCP). For the past several years, the VCP appears to have followed a strategy of permitting 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. Although since 2004 Vietnam generally has been more willing to discuss and take action on some U.S. criticisms of human rights conditions inside Vietnam, many contend that since early 2007, Vietnamese authorities have adopted a policy of cracking down upon signs of dissent—including criticisms of the government that formerly were tolerated—more quickly and more aggressively than had been the case for much of in the mid-2000s. Vietnamese Americans have been among those arrested for aiding groups that have called for peaceful democratic change. Sino-Vietnam Relations Vietnam's ambivalence toward China's rising influence could provide an opportunity for expanding U.S.-Vietnamese cooperation, albeit in subtle and low-key ways. Many Vietnamese are believed to be wary of China's increased influence in Southeast Asia. That said, Sino-Vietnam relations are Vietnam's most important bilateral relationship, and Vietnamese leaders must tiptoe carefully along the tightrope between Washington and Beijing, such that improved relations with one capital not be perceived as a threat in the other. On the United Nations Security Council, Vietnam generally has taken positions that match China's stances. In late May, VCP General Secretary Manh made a four-day visit to China. In October, Prime Minister Dung made a week-long trip. The summitry led to agreements to set up a hotline and to complete the demarcation of their land border, a task that was accomplished in late December 2008. Hanoi and Beijing continue to deal with resurfacing disputes over the Paracel and Spratly Islands. Most notably, in December 2007, the Vietnamese government allowed anti-Chinese demonstrations outside the Chinese embassy in Hanoi and consulate in Ho Chi Minh City. The protestors were angered by reports that Beijing had created a new municipality in Hainan Province that would have jurisdiction over three islets claimed by Vietnam. China also has told international oil companies -- including ExxonMobil -- they will be excluded from the Chinese market if they fulfill contracts to participate in Vietnamese exploration projects in or near the disputed waters. During Dung's visit to China in October, the two sides agreed to try to resolve their maritime disputes. Vietnam's Security Council Membership In the fall of 2007, the U.N. General Assembly elected Vietnam to be the Asian group's non-permanent representative on the U.N. Security Council (UNSC) for the 2008-2009 term. Vietnam chaired the UNSC during the month of July. After Cyclone Nargis slammed into Burma in early May, killing tens of thousands, Vietnam reportedly joined fellow UNSC members China, Russia, and South Africa in opposing calls for the Council to invoke a "responsibility to protect" that would have permitted the international community to bypass Burma's ruling junta in providing humanitarian assistance. Vietnam traditionally has taken a supportive public stance toward the Burmese regime. In other UNSC issues, Vietnam has argued that Kosovo's declaration of independence—which was recognized by the United States—was a breach of international law that could encourage other secessionist movements around the world. Also, in March 2008 Vietnam voted to impose new and tighten existing sanctions on Iran, though the Vietnamese representative expressed reservations, including calling for the "…cessation of hostile policies against Iran. . .." In July, Vietnam voted with China, Russia, Libya, and South Africa to oppose a U.S.-supported Security Council measure intended to impose sanctions against Zimbabwe's President Robert Mugabe and many of his senior associates. Introduction Since the early 1990s, U.S.-Vietnam relations have gradually been normalizing, as the end of the Cold War erased the need for the United States to attempt to isolate the communist government that defeated the U.S.-backed South Vietnam in 1975. Currently, factors generating interest in the relationship include growing trade and investment flows, the large ethnic Vietnamese community in the United States, the legacy of the Vietnam War, increasing interaction through multilateral institutions, and shared concern over the rising strength of China. U.S. goals with respect to Vietnam include developing more amicable relations, bringing the country more into the mainstream of nations, opening markets for U.S. trade and investment, furthering human rights and democracy within the country, and maintaining U.S. influence in Southeast Asia. The array of policy instruments the United States employs in relations with Vietnam includes trade incentives, foreign assistance, cooperation in international organizations, diplomatic pressures, and educational outreach. For Vietnam's part, since the mid-1980s, Hanoi essentially has pursued a three-pronged national strategy, in which the United States has loomed large: (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) repair and deepen its relationship with China, while simultaneously buttressing this by seeking a great power counterweight to Chinese ambition. There are a number of strategic and tactical reasons behind Vietnam's efforts to upgrade its relationship with the United States. Some speculate that Vietnamese policymakers seek counterweights to Chinese ambitions in Southeast Asia. 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. Additionally, the Vietnamese undoubtedly hoped to smooth the way for President Bush's trip to Hanoi in 2006, when Vietnam hosted the Asia Pacific Economic Cooperation (APEC) forum summit. Finally, Vietnam had an interest in facilitating its application to join the World Trade Organization (WTO), a move that required U.S. approval. Vietnam joined the WTO in January 2007. The 2005-2006 period also marked a time of positive bilateral discussions of human rights issues. Ultimately, the pace and extent of the improvement in bilateral relations likely is limited by several factors, including Hanoi's concerns about upsetting Beijing, U.S. scrutiny of Vietnam's human rights record, Vietnamese conservatives' historical wariness of working with the United States, and Vietnamese suspicions that the United States' long-term goal is to end the Vietnamese Communist Party's (VCP) monopoly on power through a "peaceful evolution" strategy. Throughout the process of normalizing relations with Vietnam, Congress has played a significant role. Not only has Congress provided oversight and guidance, but it has shaped the interaction by imposing constraints, providing relevant funding, or by its approval process for agreements. This report provides an overview of U.S. relations with Vietnam, including policy issues, the economic and political situation in Vietnam, and a list of pertinent legislation. The key issues in the relationship include how far to pursue strategic and military-to-military ties; whether to impose curbs on surges in imports of certain items from Vietnam; how much and what types of bilateral economic assistance to provide; whether and how to try to improve the human rights situation in Vietnam; and how to clear up legacy issues from the Vietnam war. U.S.-Vietnam Relations, 1975-2000 U.S.-Vietnam diplomatic and economic relations were virtually nonexistent for more than 15 years following communist North Vietnam's victory in 1975 over U.S. ally South Vietnam. During that time, the United States maintained a trade embargo and suspended foreign assistance to unified Vietnam. Policy Initiatives During the Carter Administration Early in his term, President Carter's Administration took several steps to improve relations with Vietnam. In 1977, the United States dropped its veto of Vietnam's application for U.N. membership, and the United States proposed that diplomatic relations quickly be established between the United States and Vietnam, after which the United States would lift export and asset controls on Vietnam. The Vietnamese responded that they would neither agree to establish relations nor furnish information on U.S. POW/MIAs until the United States pledged to provide several billion dollars in postwar reconstruction aid, which they claimed had been promised by the Nixon Administration. Subsequently, they modified this position and provided some limited information on MIAs, even though the United States provided no aid. In 1977, both houses of Congress went on record as strongly opposing U.S. aid to Vietnam. Vietnamese actions in 1978 in particular had a long-term negative effect on U.S.-Vietnamese relations. Vietnam expelled hundreds of thousands of its citizens (many of Chinese origin) who then became refugees throughout Southeast Asia; aligned itself economically and militarily with the USSR; and invaded Cambodia, deposing the pro-Chinese Khmer Rouge regime and imposing a puppet Cambodian government backed by 200,000 Vietnamese troops. China conducted a one month military incursion along Vietnam's northern border in 1979 and kept strong military pressure on the North until 1990. In the face of these developments, the Carter Administration halted consideration of improved relations with Vietnam. It worked closely with the members of the Association of Southeast Asian Nations (ASEAN—then made up of Indonesia, Malaysia, the Philippines, Singapore, and Thailand) to condemn and contain the Vietnamese expansion and to cope with the influx of refugees from Indochina. Developments During the Reagan and Bush Administrations The Reagan Administration opposed normal relations with Hanoi until there was a verified withdrawal of Vietnamese forces from Cambodia, a position amended in 1985 to include a verified withdrawal in the context of a comprehensive settlement. Administration officials also noted that progress toward normal relations depended on Vietnam fully cooperating in obtaining the fullest possible accounting for U.S. personnel listed as prisoners of war/missing in action (POW/MIAs). As Vietnam withdrew forces from Cambodia in 1989 and sought a compromise peace settlement there, the Bush Administration decided in 1990 to seek contacts with Hanoi in order to assist international efforts to reach a peace agreement in Cambodia. Regarding the issue of the POW/MIAs, following a visit to Hanoi in 1987 by General John Vessey, President Reagan's Special Emissary for POW-MIA Issues, Vietnam returned hundreds of sets of remains said to be those of U.S. MIAs. Some, but not most, were confirmed as American. Altogether, from 1974 to 1992, Vietnam returned the remains of more than 300 Americans. Virtually all U.S. analysts agree that the Vietnamese "warehoused" several hundred remains and tactically released them in increments. In April 1991, the United States laid out a detailed "road map" for normalization with Vietnam, welcomed Vietnam's willingness to host a U.S. office in Hanoi to handle POW/MIA affairs, and pledged $1 million for humanitarian aid (mainly prosthetics). The U.S. office began operation in mid-1991. Also in 1991, the United States eased travel restrictions on Vietnamese diplomats stationed at the United Nations in New York and on U.S. organized travel to Vietnam. In 1992, Vietnamese cooperation on POW/MIA matters improved, especially in the area of allowing U.S. investigators access to pursue "live sightings" reports. That year, the United States provided $3 million of humanitarian aid (mainly prosthetics and aid to abandoned or orphaned children) for Vietnam; restored direct telecommunications with Vietnam; allowed U.S. commercial sales to meet basic human needs in Vietnam; and lifted restrictions on projects carried out in Vietnam by U.S. nongovernmental organizations. The United States provided aid to Vietnamese flood victims and provided additional aid for combating malaria problems. Coinciding with these developments, the Senate Select Committee on POW/MIA affairs conducted what many consider the most extensive independent investigation of the POW/MIA issue ever undertaken. The committee, chaired by John Kerry and vice-chaired by Bob Smith, operated from August 1991 to December 1992. In early 1993, the committee issued its report, which concluded that there was "no compelling evidence" that POWs were alive after the U.S. withdrawal from Vietnam, and that although there was no "conspiracy" in Washington to cover up live POWs, the U.S. government had seriously neglected and mismanaged the issue, particularly in the 1970s. The committee's televised hearings arguably helped lay the domestic political foundation for the incremental breakthroughs in U.S.-Vietnam relations that followed. Apart from Cambodia and the POW/MIA matter, the Reagan and Bush Administrations concerned themselves with a third problem—humanitarian issues. Major progress in negotiations with Vietnam resulted in plans to: (1) facilitate emigration from Vietnam of relatives of Vietnamese-Americans or permanent Vietnamese residents of the United States; (2) regulate the flow of Vietnamese immigrants to the United States and other countries under the so-called Orderly Departure Program (ODP) managed by the U.N. High Commissioner for Refugees; (3) resolve the issue of the estimated several thousand Amerasians (whose fathers are Americans and whose mothers are Vietnamese) who reportedly wished to immigrate from Vietnam to the United States; and (4) obtain release from Vietnamese prison camps and the opportunity to immigrate to the United States of thousands of Vietnamese who worked for the United States in South Vietnam or were otherwise associated with the U.S. war effort. Meanwhile, U.S. officials in Congress and the Administration expressed repeatedly their concern about the large numbers of political prisoners said to be in Vietnam. Developments During the Clinton Administration Early moves to improve relations during the Clinton Administration included the President's announcement on July 2, 1993, that the United States would no longer oppose arrangements supported by France, Japan, and others allowing for resumed international financial institution aid to Vietnam; however, he said the U.S. economic embargo on Vietnam would remain in effect. A high-level U.S. delegation visited Hanoi in mid-July to press for progress on POW/MIAs. The delegation also disclosed that U.S. consular officials would henceforth be stationed in Hanoi. President Clinton's September 13, 1993 renewal of his authority to maintain trade embargoes included a less restrictive version of the one on Vietnam that allowed U.S. companies to bid on development projects funded by international financial institutions in Vietnam. Also in September 1993, the Administration approved $3.5 million in U.S. aid to extend two humanitarian programs (prostheses and orphans) in Vietnam. Members of Congress played an important behind-the-scenes role in encouraging the Clinton Administration to take many of these, and subsequent, steps. On February 3, 1994, President Clinton ordered an end to the U.S. trade embargo on Vietnam. The action came after many months of high-level U.S. interaction with Vietnam on resolving POW/MIA cases, and a January 27, 1994 vote in the Senate urging that the embargo be lifted, language that was attached to broad authorizing legislation ( H.R. 2333 of the 103 rd Congress). The language was controversial in the House, but H.R. 2333 passed Congress and was signed into law ( P.L. 103 - 236 ) in April 1994. On January 25, 1995, the United States and Vietnam settled bilateral diplomatic and property claims and opened liaison offices in Washington and Hanoi. In early August 1995, the two countries opened embassies in Washington and Hanoi. The following month, an attempt in the Senate to restrict trade ties with Vietnam failed. The FY1996 State Department Appropriations bill ( H.R. 2076 of the 104 th Congress) included language barring funding for full diplomatic relations with Vietnam until more progress was made on POW/MIA issues. President Clinton vetoed H.R. 2076 in December 1995. Controversy continued in 1995 and 1996 over provisions in legislation ( H.R. 1561 of the 104 th Congress) that would place conditions on upgrading U.S. relations with Vietnam, and that would admit additional boat people from camps in Hong Kong and elsewhere to the United States. H.R. 1561 passed Congress in March 1996, but was vetoed by the President, and the veto was sustained on April 30, 1996. A modified version of the Vietnam provisions in H.R. 2076 was signed by President Clinton on April 26, 1996, as part of H.R. 3019 , the Omnibus Appropriations bill ( P.L. 104 - 134 ). To comply with the provisions, President Clinton issued Presidential Determination 96-28 on May 30, 1996, saying that Vietnam was cooperating in full faith with the United States on POW/MIA issues. On April 10, 1997, the Senate approved former Vietnam War POW and Member of Congress Pete Peterson as U.S. Ambassador to Vietnam. Economic relations steadily improved over the next several years, culminating in the signing of the landmark U.S.-Vietnam bilateral trade agreement (BTA) in 2000 (see below). While visiting Vietnam in late June 1997, Secretary of State Madeleine Albright urged greater economic reform and better human rights. In December 1997, National Security Adviser Sandy Berger said the Administration was consulting with Congress on granting Vietnam a waiver from the Jackson-Vanik amendment that would smooth the way for the Overseas Private Investment Corporation (OPIC) and Export-Import Bank to support U.S. business activities in Vietnam. On March 11, 1998, President Clinton granted the waiver, and a formal agreement on OPIC was signed eight days later. In each subsequent year of his term, President Clinton granted a Jackson-Vanik waiver to Vietnam. In November 1999, OPIC signed its first financing agreement for an American business in Vietnam since the end of the Vietnam War, a $2.3 million loan to Caterpillar Inc.'s authorized dealership in Vietnam. U.S.-Vietnam Relations, 2000-2008 Reciprocal Summits At some point in the mid-2000s, leaders in Hanoi and Washington, DC, appeared to have made a decision to seek ways to upgrade the bilateral relationship. One manifestation of this goal has been annual summits. The White House appears to be using these top-level meetings to try to encourage economic and political reforms inside Vietnam. June 2005 In the future, Vietnamese Prime Minister Phan Van Khai's June 2005 trip to the United States may be viewed as a landmark in the improvement of relations between the two countries. Not only was the trip the first such visit to the United States by a Vietnamese Prime Minister since the end of the Vietnam War, but also it—combined with President Bush's November 2006 visit to Vietnam—appeared to focus the attention of the leaders in Washington and Hanoi upon how they could improve the overall relationship. While Khai was in Washington, he and President Bush issued a joint statement expressing their "intention to bring bilateral relations to a higher plane." President Bush expressed "strong support" for Vietnam's accession to the WTO, pledged to attend the November 2006 Asia Pacific Economic Cooperation (APEC) summit in Hanoi, and welcomed Vietnam's efforts on human rights and religious freedom issues, about which the two leaders agreed to continue "an open and candid dialogue." The two countries signed an agreement on implementing a bilateral International Military Education Training (IMET) program to send two Vietnamese officers to the United States for training, under which two Vietnamese officers attend English classes at the U.S. Air Force's Defense Language Institute at Lackland Air Force Base in San Antonio. The two sides also announced an agreement to resume U.S. adoptions of Vietnamese children, which Hanoi halted in 2002. Protesters, mainly Vietnamese-Americans, appeared at every stop on Khai's trip. November 2006 From November 17-20, 2006, President Bush visited Hanoi and Ho Chi Minh City Vietnam. While in Hanoi, in addition to meeting various APEC leaders, the President met with Vietnam's leadership troika: President, Prime Minister, and General Secretary of the Vietnamese Communist Party. President Bush also visited an ecumenical church and the Joint P.O.W./M.I.A. Accounting Command, which searches for the remains of Americans still listed as missing in the Vietnam War. In Ho Chi Minh City, Vietnam's economic and financial capital, the President met with business leaders at the country's stock exchange and toured a Vietnamese government-run Pasteur Institute to highlight work on avian flu and AIDS prevention and treatment. June 2007 On June 22, 2007, Vietnamese President Nguyen Minh Triet met with President Bush in Washington on June 22, 2007. It was the first such visit by a Vietnamese head of state since the end of the Vietnam War. Triet also met with some Members of Congress. As expected, economic ties and human rights were the dominant issues. The two countries signed a trade and investment framework agreement (TIFA) to expand trade and resolve outstanding disputes. President Triet, who traveled with a contingent of Vietnamese business officials, visited the New York Stock Exchange and the U.S. Chamber of Commerce, and oversaw the signing of billions of dollars worth of private commercial deals. On human rights, during the leaders' joint public appearance, President Bush stated that he and Triet had "frank and candid" discussions, and stated that "in order for relations to grow deeper ... it's important for our friends to have a strong commitment to human rights and freedom and democracy." President Triet said that he and Bush had a "direct and open exchange of views" on human rights, and stated that "we are also determined not to let those differences afflict our overall, larger interest." In comments to reporters during his trip to the United States, President Triet defended Vietnam's human rights record and legal regime. Protestors criticizing Vietnam's human rights record followed President Triet during his visit. For weeks, the meeting reportedly had been in jeopardy because of U.S. concerns over Vietnamese authorities' arrest of a number of Vietnamese dissidents since late 2006. According to one report, the United States extended a formal invitation to Triet only in early June 2007, after Vietnam agreed to release some dissidents. Economic Ties Economic ties are the most mature aspect of the bilateral relationship. PNTR/WTO Membership The final step toward full economic normalization between the United States and Vietnam was accomplished in December 2006, when Congress passed and President Bush signed H.R. 6111 ( P.L. 109 - 432 ), extending permanent normal trade relations (PNTR) status to Vietnam. Previously, Vietnam had conditional NTR status, in that it was subject to annual Presidential and congressional review under the U.S. Trade Act of 1974's Jackson-Vanik provisions, which govern trade with non-market economies. The decision to extend PNTR status to Vietnam was debated in the context of Vietnam's bid to enter the World Trade Organization (WTO), which occurred in January 2007. Under WTO rules, it was necessary for the United States to extend PNTR in order for it to enjoy the benefits of the trade concessions that Vietnam grants to all WTO members. The United States was a major player in Vietnam's accession process; Hanoi's bilateral WTO accession agreement with Washington was the last—and according to most observers, the most difficult—of the 28 bilateral agreements Vietnam completed. Vietnam's entry into the WTO did not establish any new obligations on the part of the United States, only on the part of Vietnam. However, Vietnam's accession to the WTO requires the United States and Vietnam to adhere to WTO rules in their bilateral trade relations, including not imposing unilateral measures, such as quotas on textile imports, that have not been sanctioned by the WTO. Thus, Vietnam's accession required the United States to terminate the quota program it negotiated with Vietnam in 2003, under which quotas were placed on 38 categories of Vietnam's clothing exports. For more on the legislative history of the PNTR legislation, see "Congressional Debate Over PNTR," below. U.S.-Vietnam Trade Flows U.S.-Vietnam trade flows have soared since December 2001, when a landmark bilateral trade agreement (BTA) between the two countries went into effect. Under the BTA, both sides extended normal trade relations (NTR) to one another, thereby lowering tariff levels on the other country's imports. Total merchandise trade flows in 2006 were $9.4 billion, more than six times the level before the BTA came into effect (see Table 1 ). Bilateral trade flows likely exceeded $12 billion in 2007. Over 80% of the increase in trade since 2001 has come from the growth in imports from Vietnam. The United States is now Vietnam's largest export market and according to one study, U.S. firms constitute the single largest source of foreign direct investment (FDI) in Vietnam. In the ten months after Vietnam joined the WTO, year-on-year bilateral trade flows increased by over 25%, including a 75% increase in U.S. exports and a 22% increase in U.S. imports. Rising imports have led to trade disputes over imports of Vietnamese clothing, catfish, and shrimp. Additionally, some in the United States also have complained about Vietnam's currency policies, under which the Vietnamese dong does not float freely against the U.S. dollar and other currencies. Instead, the State Bank of Vietnam maintains a "managed float" via a daily trading band limiting the fluctuation of the dong to plus or minus 0.75%, a spread that is up from the 0.1% that was maintained in 2001. Under the terms of its entry into the WTO, Vietnam will retain its designation as a "nonmarket economy" until 2019, making it procedurally easier in many cases for U.S. companies to initiate and succeed in bringing anti-dumping cases against Vietnamese exports. Since 2002, Vietnam has run an overall current account deficit with the rest of the world. Imports of Vietnamese Clothing 25 Much of the increase in U.S.-Vietnam trade since 2001 has come from a sharp rise in clothing imports from Vietnam, which were about $4.3 billion in 2007, up from the $45 million-$50 million range that Vietnam recorded in 2000 and 2001. By dollar value, clothing is the largest item the United States imports from Vietnam. In 2007, Vietnam was the third largest exporter of clothing to the United States, providing nearly 6% of total U.S. clothing imports (up from about 1.4% in 2002 and 0.1% in 2001, before the BTA went into effect). In 2007, clothing and textile products were Vietnam's second-largest export item by value (after crude oil), generating around $7.8 billion. The BTA contained no restrictions on Vietnamese clothing exports to the United States, but it did allow the United States to impose quotas on textile imports in the event of a surge of imports. Similarly, Vietnam's WTO accession agreement does not contain a special safeguard provision. However, criticism of the deal from textile interests and some Members of Congress led the Administration to establish an "import monitoring program" for certain clothing and textiles from Vietnam which allows the Commerce Department to self-initiate antidumping investigations when warranted. The import monitoring program expires with the end of the Bush Administration. On October 26, 2007, the Commerce Department announced the completion of its first six-month review of the monitoring data, finding that there was insufficient evidence to warrant the self-initiation of an antidumping investigation. On May 6, 2008, the Commerce Department announced the completion of its second six-month review, and once again determined that there was insufficient evidence to warrant self-initiating an antidumping investigation. The Department also announced it would continue the monitoring program and plans on conducting its third six-month review beginning in September 2008. Intellectual Property Rights (IPR) Since 2002, the Bush Administration has placed Vietnam on its "Special 301 watch list" for poor protection of intellectual property rights, particularly in the areas of music recordings and trademark protection. The BTA required Vietnam to make its IPR regime WTO-consistent in 2003, and as part of its efforts to accede to the WTO, Vietnam passed a new IPR law in late 2005. Despite this and other legal and regulatory changes, the Vietnamese government's IPR enforcement has been widely faulted. U.S. Bilateral Economic Assistance to Vietnam As the normalization process has proceeded, the U.S. has eliminated most of the Cold War-era restrictions on U.S. aid to Vietnam, and U.S. assistance has increased markedly since around $1 million was provided when assistance was resumed in 1991. U.S. aid was over $75 million in FY2006, about three-and-a-half times the level in FY2000, and is estimated to have surpassed $90 million in FY2007, making Vietnam one of the largest recipients of U.S. aid in East Asia. For FY2008, the Bush Administration requested nearly $100 million, including $89 million for HIV/AIDS treatment and prevention programs. By far the largest component of the current U.S. bilateral aid program is health-related assistance, which is projected to have totaled more than $70 million in FY2007. In particular, spending on HIV/AIDS treatment and prevention in Vietnam has risen since President Bush's June 2004 designation of Vietnam as a "focus country" eligible to receive increased funding to combat HIV/AIDS under the President's Emergency Plan for AIDS Relief (PEPFAR). Other sizeable assistance items include educational exchanges, de-mining activities, dioxin ("Agent Orange") remediation programs, food assistance, and programs assisting Vietnam's economic reform efforts. 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 and Religious Freedom " section.) In May 2004, Vietnam was not selected as one of the first 16 countries eligible for the Millennium Challenge Account (MCA), President Bush's foreign aid initiative that links U.S. assistance to governance as well as economic and political freedoms. Since then, Vietnam consistently has been deemed ineligible despite meeting the technical requirements for MCA eligibility because it has scored very low on some of the indicators used to measure political freedom. Human Rights and Religious Freedom In recent years, tensions between the United States and Vietnam over human rights issues have increased. It is difficult to make country-wide generalizations about the state of human rights in Vietnam, a one-party, authoritarian state ruled by the Vietnamese Communist Party (VCP). For the past several years, the VCP appears to have followed a strategy of permitting 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, has permitted most Vietnamese to observe the religion of their choice, and has allowed a moderately vibrant press to sprout, so long as it keeps criticism of the government to "safe" issues like corruption, economic policy, nature conservation and environmental pollution. On the other hand, the government in recent years reportedly has cracked down harshly on anti-government activity, as shown by the wave of arrests of political dissidents in the winter and spring of 2007 (see below). In another recent case, during the summer of 2007, a month-long protest in Ho Chi Minh City by farmers complaining about allegedly improper seizures of their land was broken up by authorities after the protestors began attracting the support of some political dissidents. The government also has periodically targeted various ethnic minority groups, most prominently the Montagnards in the country's Central Highlands, where clashes between protestors and government security forces have flared periodically since 2001. Furthermore, in its effort to control the Internet, the central government has stepped up repression of so-called "cyber dissidents" for alleged offenses such as criticizing the signing of land-border agreements with China and calling for greater political accountability and political competition. After the United States and Vietnam reestablished relations in the mid-1990s, the Clinton and early Bush Administrations generally appeared to assign human rights, including religious freedom, a lower priority than improving economic ties and securing a full accounting for U.S. personnel listed as prisoners of war/missing in action (POW/MIAs). In 2003, the Bush Administration began to take a more assertive position, after determining that the previous approach had "yet to translate the increased recognition of problems into tangible steps to improve the human rights situation." The Administration chose not to hold a human rights dialogue with Vietnam in 2003 and 2004, and in 2004 designated Vietnam as a "country of particular concern" (CPC) in the State Department's International Religious Freedom Report. In 2006, citing "many positive steps" taken by the Vietnamese government, the State Department lifted the CPC designation for Vietnam. Since 2004, according to several reports, there have been indications that human rights conditions have improved for most Vietnamese, including those in the Central Highlands and Northwest Highlands regions. But given continued reports of repression and harassment, there is considerable disagreement about how significant and how pervasive the improvements are, not to mention how lasting they will be. For years, the State Department and the U.S. Agency for International Development (USAID) have discussed ways to take advantage of the Vietnamese government's new approach toward ethnic minority areas by crafting a small-scale aid initiative in the Central Highlands. Both agencies are acting in response to the FY2006 Foreign Operations Appropriations Act ( P.L. 109 - 102 ), in which Congress appropriated $2 million for programs and activities in the region. A Wave of Arrests of Vietnamese Dissidents In 2006 a number of dissident groups appeared and publicly called for peaceful democratic change. The government responded by arresting many participants, with estimates of the number ranging from dozens to hundreds. The arrests, which appear to have peaked between March and April 2007, may have been part of a strategy to decapitate the dissident organizations, some of which have connections to Vietnamese Americans. It is unclear how much support these groups have within the broader population or to what extent the groups reflect and influence ongoing debates that are believed to be taking place within the VCP. According to some human rights organizations, as of the spring of 2008, dissidents linked to the 2006 groups continue to be arrested and/or harassed. In the spring of 2007, the White House and the State Department criticized the arrests, most notably by President Bush and Vice President Cheney's 45-minute meeting in late May 2007 with a group of Vietnamese-American human rights activists. Many Members of Congress also spoke out, including through the House's passage (by a vote of 404-0) of H.Res. 243 , calling on Hanoi to release political prisoners. To protest the arrests, Congressman Earl Blumenauer resigned his position as chairman of the U.S.-Vietnam Congressional Caucus in May 2007. Religious Freedom According to a variety of reports, most Vietnamese now are able to observe the religion of their choice. However, while the freedom to worship generally exists in Vietnam, the government strictly regulates and monitors the activities of religious organizations. Periodically, the authorities have increased restrictions on certain groups. Although the constitution provides for freedom of religion, Vietnamese law requires religious groups to join one of the officially-recognized religious organizations or denominations. 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. The State Department's 2004 designation of Vietnam as a CPC principally was 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 had been 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, has disputed the Administration's factual basis of 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. The Vietnam Human Rights Acts In large measure due to Vietnam's crackdowns in the Central Highlands earlier in the decade, attempts have been made since the 107 th Congress to link U.S. aid 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 (FY2007 in the case of the most recent version of the bill, H.R. 3096 ) if the President does not certify that Vietnam is making "substantial progress" in human rights. H.R. 3096 would grant the President a national interest waiver 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. In addition to the aid cap, the bill would require the executive branch to produce annual reports on Vietnam's human rights situation and would authorize funds to promote democracy in Vietnam and to overcome the jamming of Radio Free Asia. 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 recent warming of bilateral political and security ties and could weaken Vietnamese economic reformers in ongoing domestic battles inside Vietnam. In effect, H.R. 3096 establishes a two-part test for determining whether U.S. assistance programs would be covered by the cap: (1) Does the program constitute aid "provided to the Vietnamese government," as opposed to the private sector and non-governmental organizations? (2) Does the program constitute non-humanitarian aid? The act defines non-humanitarian assistance as sales or financing under the Arms Export Control Act and any assistance under the Foreign Assistance Act of 1961. Exceptions are explicitly made for disaster relief, food aid, refugee assistance, and HIV-AIDS assistance. Under these conditions, it appears that for FY2007 U.S. aid programs that would be frozen by H.R. 3096 's provisions appear to total less than $20 million, and probably total less than $10 million. Many of the existing U.S. military-to-military programs with Vietnam, such as the IMET program, would be frozen. At a July 31, 2007 markup session, the House Foreign Affairs Committee reported favorably H.R. 3096 to the full House by voice vote. The action was taken after the bill was amended. As introduced, the bill would have prohibited non-humanitarian assistance to the Vietnamese government unless human rights policy changes were made. The amended version, which the House passed on September 18, 2007 (414-3, roll no. 877), softened this provision to a freeze. The bill has not seen action in the Senate. In October 2008, an alternative Vietnam Human Rights Act ( S. 3678 ) was submitted in the Senate. It would prohibit increases in many forms of U.S. non-humanitarian assistance to Vietnam unless (a) such increases are matched by additional funding for human rights programming, or (b) Vietnam's human rights conditions are certified as improving. Like H.R. 3096 , S. 3678 would grant the President the authority to waive this prohibition, would authorize the increase of RFA anti-jamming funding programming, and would require the submission of a stand-alone human rights report for Vietnam. Unlike the House bill, the Senate bill would prohibit Vietnam's entry into the GSP program unless Vietnam's labor rights regime is certified as making improvements. Political and Security Ties Military-to-Military Ties Expand Vietnam and the United States gradually have been expanding their political and security ties, though these have lagged far behind the economic aspect of the relationship. In the past four years, however, Vietnam's leadership appears to have decided to expand their country's ties to the United States. Most dramatically, in 2005 the two countries signed an IMET agreement, which reportedly had been blocked for years by the Vietnamese military. In June 2006, then-Secretary of Defense Donald Rumsfeld visited Vietnam and agreed with his Vietnamese counterpart to increase military-to-military cooperation and exchanges. U.S. naval vessels have made a number of calls on Vietnamese ports, and Vietnamese military officers increasingly participate in U.S.-led conferences and academic programs. Joint counter-narcotics training programs also have been established. In April 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 will be reviewed on a case-by-case basis. In May 2007, U.S. Pacific Command Deputy Commander, Lieutenant General Dan Leaf, led a military delegation to Hanoi and the Vietnamese Air Force Academy in Nha Trang. During his visit, the two sides discussed possible joint search and rescue exercises, possible Vietnamese attendance at U.S. military academies, future military medicine and information technology training programs, and Vietnam's request for replacement parts for existing equipment. In its budget request to Congress, the Bush Administration requested about $200 million in International Military Education Training (IMET) funding, double the estimated FY2007 level. In December 2007, Admiral Timothy Keating, commander, U.S. Pacific Command, visited Vietnam. Agent Orange 38 Vietnamese leaders have pressed the United States for assistance in cleaning up the dioxin left from the spraying of Agent Orange during the Vietnam War, as well as providing medical care for the estimated 3-5 million Vietnamese "victims" of Agent Orange. Having resolved its other top priorities—such as PNTR and WTO membership—the legacy of Agent Orange may emerge as one of the Vietnamese government's chief issues in future bilateral discussions with the United States. According to the Vietnamese press, the Agent Orange issue was discussed during the most recent round of dialogue between the United States and Vietnam on human rights in May 2008. On May 15, 2008, the House Subcommittee on Asia, the Pacific, and the Global Environment held a hearing on the Agent Orange issue entitled, "Our Forgotten Responsibility." During President Bush's November 2006 trip to Vietnam, the two sides rhetorically agreed that it would be beneficial to jointly clean contamination from former dioxin ("Agent Orange") storage sites. To date, the U.S. government has not provided assistance to programs specifically to address purported Vietnamese "victims" of Agent Orange or dioxin. However, according to the State Department, the United States has provided $40 million in support for "mine-action programs" since 1993 and $43 million in disability assistance since 1989 though the Leahy War Victims Fund, which purportedly included $2 million in funding for Agent Orange related projects. Although the State Department did not provide an itemization of the use of the $2 million, apparently most of the funds were used for technical and scientific activities. The Iraq Accountability Appropriations Act of 2007 ( H.R. 2206 / P.L. 110 - 28 ), signed into law by President Bush in May 2007, appropriated $3 million for assistance to Vietnam for environmental remediation of dioxin storage sites and to support health programs in communities near those sites. In his March 2008 testimony to the Senate Committee on Foreign Relations Subcommittee on East Asian and Pacific Affairs, Assistant Secretary for East Asian and Pacific Affairs Christopher R. Hill stated, "… we are now devising a plan to implement $3 million … set aside by Congress for environmental remediation and health-related programs." Since Hill's testimony, there have been no further announcements from either the embassy or the State Department about the use of the $3 million. Although the United States has demonstrated some resistance to providing medical assistance to the alleged Vietnamese "victims" of Agent Orange, it has recently indicated a willingness to help with the containment and removal of the residual dioxin, especially in identified "hot spots" near ex-U.S. military bases in Bien Hoa, Da Nang, Nha Trang, and Phu Cat. In February 2007, the United States announced it would provide $400,000 to support mitigation planning for the dioxin clean-up of the Da Nang airbase. The clean-up of the Da Nang airbase is a joint operation involving Vietnamese Ministry of Defense, the U.S. Environmental Protection Agency (EPA), and a group called the U.S.-Vietnam Dialogue Group on Agent Orange/Dioxin (Dialogue Group). The Vietnamese government has also been supportive of a U.S. civil suit, Vietnam Association for Victims of Agent Orange/Dioxin v. Dow Chemical Co., seeking compensation for the Vietnamese "victims" of Agent Orange from the manufacturers of the herbicide. On October 5, 2005, the U.S. District Eastern District of New York dismissed the case. On February 22, 2008, the Second Circuit Court upheld the decision of the District Court. The Vietnamese government and various Vietnamese organizations reacted strongly to the U.S. Court of Appeals decision. The Vietnam Association for Victims of Agent Orange/Dioxin called the decision "irrational, biased, and unfair." The Vietnam Association of War Veterans termed the decision "legally and morally erroneous." Foreign Ministry spokesman Le Dzung said, "It is particularly regretful that the ruling came in a time that the U.S. government has started cooperating with Vietnam to resolve the consequences caused by Agent Orange/dioxin." The legacy of Agent Orange poses both challenges and opportunities for the United States. Greater U.S. assistance with the clean-up of residual dioxin and the provision of medical care to people with illnesses purportedly related to exposure to Agent Orange could generate low-cost "soft power" benefits for the United States in Vietnam and across Southeast Asia during a time when some observers assert that the United States has been neglecting the region. However, there are concerns that any action that appears to admit responsibility for the supposed aftereffects of the military use of chemical defoliants might set a precedent by which other nations might seek U.S. post-conflict assistance. Human Trafficking In June 2008, the State Department issued its eighth annual report on human trafficking, Trafficking in Persons Report . Vietnam was listed as a "Tier 2" country that "does not fully comply with the minimum standards for the elimination of trafficking." As recently as 2004, it was included on the "Tier 2 Watch-list," but was upgraded to "Tier 2" in the 2005 report. The 2007 report judges the government to be making "significant efforts" to combat trafficking, including establishing partnerships with Cambodia, China, Laos, and Thailand. However, the report criticized Vietnamese government for lax investigation of complaints of the exploitation of Vietnamese workers in officially sanctioned export labor programs. Vietnam War Resettlement Programs In November 2005, the United States and Vietnam announced the reopening of certain categories of the Orderly Departure Program (ODP), under which over 550,000 Vietnamese were resettled in the United States between 1979 and 1999. During this time, another 300,000 Vietnamese came to the United States through other programs. The reopening is limited to those who were unable to apply or who were unable to complete the application process before the ODP closed in 1994. The omnibus Consolidated Appropriations Act, 2008 ( H.R. 2764 ), which President Bush signed into law on December 26, 2007, extends the application closing date from the end of 2007 to the end of 2009. POW/MIA Issues In the mid-1990s, the United States and Vietnam devoted increased resources to POW/MIA research and analysis. By 1998 a substantial permanent 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 substantial understanding about the fate of several hundred of the over 2,000 Americans still unaccounted for in Indochina. On September 21, 1998, U.S. Ambassador to Vietnam Peterson told the media that "it is very, very, very unlikely that you would expect to see any live Americans discovered in Vietnam, Cambodia, or Laos." Official U.S. policy, however, does not remove a name from the rolls of those unaccounted for unless remains are identified. During Secretary of Defense Rumsfeld's June 2006 trip to Vietnam, the two countries discussed expanding their cooperation on recovering remains, including the possibility of using more advanced technology to locate, recover, and identify remains located under water. In May 2008, the House passed H.Res. 986 (roll no. 366), stating that the House "will not forget" and "will continue to press for a full accounting of" U.S. military and civilian personnel who remain unaccounted for from the Vietnam conflict. Vietnam's Situation Ever since communist North Vietnamese forces defeated U.S.-backed South Vietnam in 1975, reunified Vietnam has been struggling with how to maintain a balance between two often contradictory goals—maintaining ideological purity and promoting economic development. For the first decade after reunification, the emphasis was on the former. 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 central state planning, cut subsidies to state enterprises, reformed the price system, and opened the country to foreign direct investment (FDI). Economic Developments For most of the past twenty years since the doi moi reforms were launched, Vietnam has been one of the world's fastest-growing countries, generally averaging around 7%-8% annual gross domestic product (GDP) growth. Vietnam's real GDP growth in 2007 was an estimated 8.5%, and is estimated to be under 7% in 2008. 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 58% of the population in 1992 to less than 30% in 2002, and the government has set a goal of becoming a middle-income country by 2020. A substantial portion of the country's growth was driven by foreign investment, much of which the government channeled into the country's state-owned sector. Economic growth and the reform movement, however, have not always advanced smoothly. In the mid-1990s, the momentum behind continued economic reforms stalled, as disagreement between reformers and conservatives paralyzed economic decision-making. The economy staggered after the 1997 Asian financial crisis, as real GDP growth fell to less than 5% in 1999. The decision in 2000 to sign the BTA, appears to have broken the policymaking logjam by fashioning a new consensus in favor of a new reformist push that was effectively endorsed by the leadership changes in 2001. In short order after signing the BTA, the government enacted a series of measures, including passing a new Enterprise Law, passing a constitutional amendment giving legal status to the private sector, reducing red tape, and creating unprecedented transparency rules requiring the publication of many types of new rules and regulations before they are implemented. Adhering to the BTA's implementation deadlines and achieving the government's goal of joining the WTO have helped galvanize the Vietnamese bureaucracy toward implementing many of these steps. Vietnam's economy appears to have responded to these moves. GDP growth has rebounded to the 7% level for the past several years, and FDI inflows have increased. Demographic pressure is a major impetus for the renewed emphasis on economic reforms; with more than half of the population under the age of 25, Vietnamese leaders must find a way to provide jobs for an estimated 1 million new entrants to the workforce annually. Rapid growth has transformed Vietnam's economy, which has come to be loosely divided into three sectors: the state-owned, the foreign-invested, and the privately owned, which make up roughly 50%, 30%, and 20% of industrial output, respectively. For much of the 1990s, Vietnam's foreign-invested enterprises (FIEs) were among the country's most dynamic. Since the 1997 Asian financial crisis, the private sector has also made impressive gains, to the point where domestically owned private firms employ around a quarter of the workforce. Despite the impressive macroeconomic advances, Vietnam remains a poor country; about one-third of Vietnamese children under five years of age suffer from malnutrition. Per capita GDP in 2006 was just over $3,000 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. Some economists have criticized the government's latest five year development plan, issued in 2005, that focuses on the development of heavy industries such as electricity, energy, steel, and mining. The previous plan emphasized lighter industries such as foodstuffs, textiles, and electronics. Most of Vietnam's SOEs are functionally bankrupt, and require significant government subsidies and assistance to continue operating. Although more than 2,500 SOEs officially have been partially privatized since 1990 under the government's "equitization" program, most of these are small and medium-sized firms, and the government still owns substantial stakes in them. In January 2007, Vietnam's Finance Minister said that the privatization of SOEs would be accelerated, with the goal of completing the process by 2009. Political Trends 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 Vietnamese Communist Party (VCP) in politics and society, and Vietnam remains a one-party state. In practice, the VCP 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 150 members, and the Politburo, which in recent years has had 15 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. The National Assembly Over the past 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. Although more than 80% of parliamentarians are VCP members and the VCP carefully screens all candidates before elections are held, 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). The Tenth Party Congress In the spring of 2006, Vietnam's ruling Communist Party held its 10 th Party Congress. These events, 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 9 th Party Congress in 2001, for instance, the VCP endorsed the acceleration of economic reforms that apparently had been stalled by policymaking paralysis. The former VCP general secretary, an ideological conservative, was ousted in favor of the current secretary, Nong Duc Manh , who generally is considered a more pragmatic figure. Significantly, Manh's selection reportedly was made possible when the Party's Central Committee rejected—an unprecedented move—the Politburo's decision to endorse Manh's predecessor. The 10 th Party Congress reportedly resulted in few if any major changes to current policy direction of the country—an indication that the economic reformers remain in the ascendency—with the ultimate goal remaining creating a "socialist-oriented market economy." During his opening address, Manh outlined the party's five-year development strategy, including accelerating the doi moi reforms, further integrating Vietnam into the world economy, and laying the foundations for becoming an industrialized country by 2020. The Congress also outlined specific targets, such as maintaining average annual GDP growth of 7.5-8%, creating 8 million jobs, and reducing urban unemployment to below 5%. There were some major personnel changes. As expected, the sitting Prime Minister (Phan Van Khai) and President (Tran Duc Luong) resigned their Politburo positions, effectively ending their official political careers. Both had served two terms. Changes in their government posts will be confirmed by the National Assembly, either in its ninth session in May or its tenth session later this year. In May 2006, Khai endorsed Vietnam's deputy premier, Nguyen Tan Dung (56) as his successor. Dung is a southerner and widely considered to be an economic reformer. During the 10 th Party Congress, he was elevated to the third-highest post in the Politburo. Luong's successor as President is another southerner, Nguyen Minh Triet (64), formerly the party secretary in Ho Chi Minh City. Triet also is widely considered an economic reformer and is known for fighting corruption and criminal gangs in Ho Chi Minh City. Vietnam's leadership is trying to confront the problem of how to reverse the Communist Party's declining legitimacy. Attracting new recruits into the Party has become increasingly difficult, particularly among young Vietnamese, though there are some signs this may be changing. A key issue for the VCP leadership is combating official corruption, which was a major topic during the Party Congress. Vietnam regularly is ranked near the bottom of surveys of foreign executives on corruption in various countries. Under Manh's leadership, the government appears to have attacked corruption in a much more systemic fashion than in the past, including passage in November 2005 of a new anti-corruption law that aims at increasing government transparency. However, pervasive and high-level corruption is widely considered to be endemic, as revealed by the breaking of a major scandal in the winter and spring of 2006, in which top officials in the Transportation Ministry apparently embezzled more than $7 million in foreign assistance funds. The deputy minister was arrested for his suspected involvement in the case, and the transport minister resigned to take responsibility for the scandal. Foreign Policy Prior to the 10 th Party Congress, there was some speculation that China's economic and diplomatic resurgence in Southeast Asia was driving some soul-searching in Hanoi on foreign policy issues. Some in Hanoi are wondering how much additional utility Vietnam would gain from continuing its "omnidirectional foreign policy," which has successfully restored cordial relations with the rest of the world but has left Vietnam without truly warm relations with any one country or grouping of countries. It is unclear whether these debates over foreign policy took place during the congress. Sino-Vietnam Relations Since the late 1990s, when China began espousing its "new security concept" of cooperation with its neighbors, improvements in Sino-Vietnamese relations have accelerated, most notably with the signings of a land border treaty in 1999 and a sea border treaty for the Gulf of Tonkin in 2000. For Vietnamese leaders, this process has been fraught with ambivalence. On the one hand, maintaining stable, friendly relations with its northern neighbor is critical for Vietnam's economic development, and Hanoi does not undertake large-scale diplomatic moves without first calculating Beijing's likely reaction. China's ruling communist party is an ideological bedfellow, as well as a role model for a country that seeks to marketize its economy without threatening the communist party's dominance. China also is Vietnam's largest trading partner. On the other hand, many Vietnamese are believed to be wary of China's increased influence in Southeast Asia. Beijing's outreach to Cambodia and Laos in recent years has rekindled internal battles between pro-Hanoi and pro-Beijing camps in both countries, and has spurred counter-moves by Hanoi. Vietnam and China still have overlapping claims to the Spratly Island chain in the South China Sea, differences that led to military clashes in the late 1980s. In 2002, ASEAN and China signed a Declaration on the Conduct of Parties in the South China Sea, a non-binding agreement to resolve disputes diplomatically, exercise restraint, and respect the freedom of navigation and overflight. Significantly, Vietnam did not succeed in its efforts to have the agreement specifically include the Paracel Islands, claimed by both Vietnam and China. Instead, the declaration is vague on its geographic scope. Like other countries in the dispute, Vietnam has continued to expand its presence in the island chain. China also represents an economic rival, as both countries compete for foreign direct investment and for markets in many of the same low-cost manufacturing products. Vietnamese leaders periodically express concern about Vietnam's rising trade deficit with China. Another sign that Hanoi is seeking regional counterweights to China is that Vietnam, along with Indonesia and Singapore, supported efforts to include Australia and New Zealand in the East Asia Summit that was held in Kuala Lumpur, Malaysia, in December 2005. China and some Southeast Asian countries favored excluding countries outside of North and Southeast Asia. Refugees in Cambodia Since 2001, hundreds of Montagnards have crossed into Cambodia, to escape continuing unrest in the Central Highlands region. In 2002, Cambodia accepted an offer from the United States to resettle the more than 900 Montagnards who remained following the 2001 protests and crackdown. More than 700 Montagnards have fled to Cambodia since then, particularly after a wave of unrest in April 2004. The United Nations High Commissioner for Refugees (UNHCR) has found the majority of the border-crossers to be refugees and therefore entitled to asylum. While most of these are being resettled in the United States, Canada, or Finland, others have returned to Vietnam following a January 2005 agreement between UNHCR, Cambodia, and Vietnam in which Hanoi agreed that those returning to Vietnam would not be punished, discriminated against, or prosecuted for fleeing to Cambodia. Vietnam also agreed to drop its refusal to allow UNHCR to monitor the returnees' well-being, though some human rights groups have criticized UNHCR's monitoring visits, as well as its process for screening border crossers in Cambodia. More than 200 individuals, including many who have been recognized as refugees by UNHCR, refused offers to be resettled in third countries outside Southeast Asia. In the past, Cambodia has been accused of abiding by Vietnamese requests to close its borders and repatriate individuals forcibly. In May 2007, the United States adopted a new policy toward the Montagnards in Cambodia, in which individuals UNHCR deems not to be refugees will not be considered for resettlement in the United States. In the year following policy shift, the United States accepted approximately 100 Montagnards for resettlement. The Senate Appropriations Committee's report accompanying H.R. 2764 , the FY2008 Department of State, Foreign Operations, and Related Programs Appropriations Act, requested the Secretary of State to submit a report on the estimated number of Montagnards who are refugees in Cambodia. The language was not included in the final legislation that was included in the omnibus Consolidated Appropriations Act, 2008 ( H.R. 2764 ), which President Bush signed into law on December 26, 2007. Legislation in the 110th Congress H.Res. 243 (Chris Smith). Calls on the Government of the Socialist Republic of Vietnam to immediately and unconditionally release Father Nguyen Van Ly and other political prisoners. Introduced March 14, 2007; passed in the House May 2, 2007 (404-0, roll call no. 286). H.Res. 447 (Blumenauer). Condemns the recent convictions and sentencing of Vietnamese pro-democracy activists. Introduced May 24, 2007; referred to House Foreign Affairs Committee. H.Res. 506 (Lofgren). Condemns ongoing human rights abuses in Vietnam and calls for the United States to remove permanent normal trade relations status with Vietnam unless all political and religious prisoners are released and significant and immediate human rights reforms are made by Vietnam. Introduced June 20, 2007; referred to Committees on Foreign Affairs and Ways and Means. H.Res. 665 (Tom Davis). Endorses reforms for freedom and democracy in Vietnam. Introduced September 19, 2007; referred to House Committee on Foreign Affairs. H.Res. 986 (Boehner). States that the House "will not forget" and "will continue to press for a full accounting of" the over 1,700 U.S. military and civilian personnel who remain unaccounted for from the Vietnam conflict. Introduced February 14, 2008; passed by the House, May 22, 2008 (394 - 0, roll no. 366). H.Res. 1048 (Lofgren). Condemns the detention of Dr. Nguyen Quoc Quan, a U.S. citizen, by the Vietnamese government, and expresses the sense of the House that the United States should remove permanent normal trade relations status with Vietnam unless Dr. Nguyen is released. Introduced March 13, 2008; referred to the Committees on Foreign Affairs and Ways and Means. H.Res. 1089 (Loretta Sanchez). Calls on the government of Vietnam to release from prison and end the harassment of people who signed the April 2006 Manifesto on Freedom and Democracy for Vietnam. Directs the Secretary of State to establish a Countries of Particular Concern list to condemn countries like Vietnam that engage in "particularly severe violations" of human rights. Introduced April 8, 2008; referred to House Committee on Foreign Affairs. H.R. 275 (Christopher Smith). The Global Online Freedom Act of 2007. Directs the President to annually designate a list of Internet-restricting countries, including Vietnam. Places restrictions and reporting requirements on certain U.S. business activities in designee countries. Introduced January 5, 2007; reported as amended by the Committee on Foreign Affairs, December 10, 2007; on February 2008, discharged by House Committees on Energy and Commerce, and on Judiciary; placed on the Union Calendar, Calendar No. 320. H.R. 571 (Tancredo). Requires additional tariffs be imposed on products of any nonmarket economy country, including Vietnam, until the President certifies to the Congress that the country is a market economy country. Introduced January 18, 2007; referred to House Ways and Means Committee. H.R. 2206 (Obey). The U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007. Appropriates $3 million for assistance to Vietnam for environmental remediation of dioxin storage sites and to support health programs in communities near those sites. Introduced May 8, 2007; passed by House May 10, 2007 (221 - 205, Roll no. 333); passed by Senate May 17, 2007 by voice vote; signed by President May 25, 2007; became P.L. 110 - 28 . H.R. 2764 (Lowey). The Department of State, Foreign Operations, and Related Programs Appropriations Act, 2008. Senate version would appropriate $10.7 million in economic support funds (ESF)—nearly double the Administration request—to support Vietnam's economic and judicial reform efforts. In contrast, the House Committee on Appropriations recommended $5 million in ESF, $0.7 less than the Administration requests. Both versions of the bill encourage funding programs in the Central Highlands region. Introduced June 18, 2007; passed by the House June 22, 2007 (241-178 (Roll no. 542)); Senate version passed by the Senate September 6, 2007 (Record Vote Number: 325). H.R. 3096 (Chris Smith). The Vietnam Human Rights Act of 2007. Would freeze non-humanitarian aid to Vietnam at 2007 levels unless the Vietnamese government were to make certain human rights policy changes. Authorizes funds for organizations and individuals that promote human rights in Vietnam, and for overcoming the jamming of Radio Free Asia by the Vietnamese government. Introduced July 19, 2007; passed by the House September 18, 2007 (414-3 (Roll no. 877)); referred to Senate Committee on Foreign Relations. H.R. 4223 (Fortenberry). Establishes a Congressional-Executive Commission on the Socialist Republic of Vietnam to monitor and report annually on, among other items, Vietnam's human rights conditions and rule of law developments. Introduced November 15, 2007; referred to House Committees on Foreign Affairs and House Committee on Rules. H.R. 6124 (Collin Peterson) . The Food, Conservation, and Energy Act of 2008. Introduced May 22, 2008; became Public Law No: 110-246 June 18, 2008. Section 11016 amends the Federal Meat Inspection Act to include catfish as a species subject to inspection when used for human consumption. Directs the Secretary, with respect to a meat food product derived from catfish, to take into account the conditions under which the catfish is raised and transported to a processing establishment. H.R. 6535 (Delahunt) and S. 3097 (Kerry). Vietnam Education Foundation Amendments Act of 2008. Among other items, establishes the Vietnam Education Foundation within the State Department's Bureau of Educational and Cultural Affairs and establishes a new "American Research College" in Vietnam. H.R. 6535 introduced July 17, 2008; referred to House Committee on Foreign Affairs. S. 3097 introduced June 6, 2008; reportedly favorably without amendment September 12, 2008 ( S.Rept. 110 - 458 ). S. 3678 (Boxer). Vietnam Human Rights Act of 2008. Prohibits increases in many forms of U.S. non-humanitarian assistance to Vietnam unless (a) such increases are matched by additional funding for human rights programming, (b) Vietnam's human rights conditions are certified as improving, or (c) the President issues a waiver. Prohibits Vietnam's entry into the U.S. Generalized System of Preferences (GSP) program unless Vietnam's labor rights regime is certified as making improvements in certain areas. Introduced October 1, 2008; referred to Senate Foreign Relations Committee.

After communist North Vietnam's victory over U.S.-backed South Vietnam in 1975, U.S.-Vietnam relations remained essentially frozen until the mid-1990s. Since then, bilateral ties have expanded remarkably, to the point where the relationship has been virtually normalized. Indeed, since 2002, overlapping strategic and economic interests have compelled the United States and Vietnam to improve relations across a wide spectrum of issues. Congress played a significant role in the normalization process and continues to influence the state of bilateral relations. Voices favoring improved relations have included those reflecting U.S. business interests in Vietnam's reforming economy and U.S. strategic interests in expanding cooperation with a populous country—Vietnam has over 85 million people—that has an ambivalent relationship with China. Others argue that improvements in bilateral relations should be conditioned upon Vietnam's authoritarian government improving its record on human rights. The population of over 1 million Vietnamese Americans, as well as legacies of the Vietnam War, also drive continued U.S. interest. Economic ties are the most mature aspect of the bilateral relationship. The United States is Vietnam's largest export market. The final step toward full economic normalization was accomplished in December 2006, when Congress passed and President Bush signed H.R. 6111 (P.L. 109-432), extending permanent normal trade relations (PNTR) status to Vietnam. For years, the United States has supported Vietnam's market-oriented economic reforms, which many credit with Vietnam's extraordinary economic performance; from 1987-2007, annual gross domestic product (GDP) growth has averaged over 7%. Since the early 1990s, poverty levels have been halved, to less than 30%. In 2008, the two countries launched bilateral investment treaty (BIT) talks and the Bush Administration announced that it would explore whether to add Vietnam to the Generalized System of Payments (GSP) program, which extends duty-free treatment to certain products that are imported from designated developing countries. Since 2002, the United States and Vietnam have expanded political and security ties, symbolized by reciprocal summits that have been held annually since 2005. Vietnam is one of the largest recipients of U.S. assistance in East Asia; estimated U.S. aid in FY2008 surpassed $100 million, much of it for health-related activities. In September 2007, the House passed the Vietnam Human Rights Act, H.R. 3096, which would freeze some non-humanitarian U.S. assistance programs at existing levels if Vietnam does not improve its human rights situation. Since 2006, arrests of dissidents and other developments have increased concerns about human rights. Vietnamese leaders have sought to upgrade relations with the United States due in part to worries about China's expanding influence in Southeast Asia and the desire for continued U.S. support for their economic reforms. Many argue, however, that there is little evidence that Hanoi seeks to balance Beijing's rising power. Also, some Vietnamese remain suspicious that the United States' long-term goal is to end the Vietnamese communist party's monopoly on power through a "peaceful evolution" strategy.

Most Recent Developments Rescission and Reallocation Package Adopted. ThePresident signed the FY2006 Department of Defense appropriations bill into law, P.L. 109-148 , onDecember 30, 2005. It contained a reallocation of $29 billion in Hurricane Katrina recovery funds,as well as a 1% across-the-board rescission for all domestic discretionary programs. Under the law,HUD received $11.9 billion in supplemental Katrina funds, $11.5 billion for the CommunityDevelopment Block Grant program, and $390 million for Section 8 vouchers for previouslyHUD-assisted families displaced by the storm. The 1% cut resulted in a reduction of $380 millionin HUD's FY2006 budget, as contained in P.L. 109-115 . For more information, see CRS Report RS22239, Emergency Supplemental Appropriations for Hurricane Katrina Relief , by [author name scrubbed]. Congress Approves H.R. 3058. OnNovember 18, 2005, both Houses of Congress approved H.R. 3058 , the FY2006Treasury, Transportation, Judiciary, Housing and Urban Development (HUD), District of Columbia,and Related Agencies (TTHUD) funding bill. It was signed into law on November 30, 2005, as P.L.109-115 . It includes $34 billion for HUD, which is less than the Senate-passed level, but more thanthe House-passed or President-requested level. For most accounts, the final agreement splits thedifference between the House- and Senate- approved levels, and it rejects the Administration'sStrengthening America's Communities Initiative (SACI), which would have eliminated theCommunity Development Block Grant (CDBG) program and replaced it with a new program withinthe Department of Commerce. Rescission and Reallocation Package Submitted. OnOctober 28, 2005, President Bush submitted to Congress a rescission and reallocation package tohelp fund reconstruction in the Gulf Coast after the recent hurricanes. The proposal would rescindand reallocate funds from selected programs across the government and reallocate FEMA disasterrelief funds to other agencies, including HUD. The request includes a rescission of unobligatedbalances from the Section 811 program of $100 million, from the HUD Brownfields Redevelopmentprogram of $24 million, and from the Section 108 loan guarantees program of $6 million. Theproposal would provide $2.2 billion in additional funding to HUD programs to aid in disasterrecovery, including $1.5 billion for the CDBG program; $50 million for the Self HelpHomeownership (SHOP) program; $70 million for the HOME Investment Partnerships program;$390 million for the Section 8 voucher program to serve displaced, previously HUD-assisted,families; and $200 million for an Urban Homesteading program, which has not been enacted. Senate Approves H.R. 3058. On July 21,2005, the Senate Appropriations Committee approved a $34.8 billion FY2006 budget for HUD. OnOctober 20, 2005, the full Senate approved H.R. 3058 . Several floor amendments wereadopted, although they did not change the funding levels for any HUD accounts. Like the Houseversion, the Senate bill rejected the President's SACI proposal. It included increases in fundingabove both the President's request and the House version for HOPE VI, CDBG-related programs(including Section 108 loan guarantees), Native American Housing Block Grants, and Rural Housingand Economic Development. Continuing Resolution Passed. On September 30,2005, President Bush signed H.J.Res. 68 into law. The continuing resolution (CR)funded agencies through the earlier of November 18, 2005, or the enactment of the regularappropriations bills into law. Programs were funded at the lower of the FY2005 enacted, FY2006House-passed, or FY2006 Senate-passed levels as of October 1, 2005. Since the FY2006 HUDappropriations bill had not been passed by the full Senate by October 1, HUD's programs werefunded at the lower of the FY2005 or House-passed level. Given the way funding is allocated in themajority of HUD programs (either on a calendar-year basis or through competitive grants), anyreductions in funding as a result of the CR should have had little, if any, impact. House Approves H.R. 3058. On June 21,2005, the House Appropriations Committee approved, with minor changes, an FY2006 TTHUDfunding bill that was approved by the Subcommittee on June 15, 2005. H.R. 3058 provided an overall increase in funding for HUD of more than $4 billion above the President'srequest. On June 30, 2005, the House, by a vote of 405 to 18, approved H.R. 3058. During floor consideration, several amendments were approved, increasing funding for Section 8vouchers, HOPE VI, CDBG, Brownfields, HOPWA, Lead-based Paint Hazard Reduction, and FairHousing programs, above the Committee-approved levels. House and Senate Budget Resolutions Passed. InMarch 2005, the House and Senate passed differing versions of a budget resolution for FY2006( H.Con.Res. 95 ). Both expressed support for continuing the CDBG program at HUD. President's Budget Submitted. The Presidentsubmitted his FY2006 budget to the Congress on February 7, 2005, requesting $29.1 billion forHUD, a cut of $2.8 billion, or 9%, from FY2005 appropriations of $31.9 billion. The mostcontroversial aspect of the budget was the proposed elimination of the CDBG and related programsat HUD, and their replacement with a new program at the Department of Commerce. Introduction to the Department of Housing and Urban Development (HUD) Most of the appropriations for the Department of Housing and Urban Development (HUD)are designed to address housing problems faced by households with very low incomes or otherspecial housing needs. These include programs of rental assistance for the poor, elderly or disabled,housing assistance for persons with AIDS, and shelter for those who are homeless. The two largeHUD block grant programs, HOME and CDBG, also help communities finance a variety of activitiesto address the housing and community development needs of disadvantaged populations. In recentyears, HUD has focused more attention on efforts to increase the homeownership rates forlower-income and minority households. (At the end of the fourth quarter of 2004, the nationalhomeownership rate stood at 69.2, while the rates for White, Black and Hispanic households stoodat 76.2%, 49.1% and 48.9% respectively.) HUD's Federal Housing Administration (FHA) insuresmortgages made by lenders to lower income homebuyers, many with below-average credit records,and to developers of multifamily rental buildings containing relatively affordable units. Table 1. Department of Housing and Urban DevelopmentAppropriations, FY2001 to FY2005 (net budget authority in billions) Source: Figures are from the House Appropriations Committee estimate tables. FY2005 figuresare adjusted to reflect the 0.8% across-the-board rescission enacted in P.L. 108-447 . Final spendinglevels for any fiscal year include all supplemental appropriations or rescissions. They do not reflectrevised estimates of offsetting receipts. FY2005 Appropriations The President signed the Consolidated Appropriations Act, 2005 on December 8, 2004 ( P.L.108-447 ) providing HUD with $31.9 billion, about 2% above the FY2004 enacted level. TheAdministration had proposed a controversial initiative, the Flexible Voucher Program (FVP), thatwould have significantly revised the Section 8 voucher program and cut its funding. Congress didnot adopt the FVP, but continued with dollar-based funding, a practice first adopted in FY2004 thatprovided some of the spending constraint that the Administration sought. Nevertheless, the billsigned by the President approved $1.6 billion more for Section 8 than the requested level. To payfor this significant increase, most other HUD programs were reduced below their FY2004appropriation levels. While the Administration proposed no funding for the HOPE VI public housingrevitalization program, P.L. 108-447 appropriated $144 million. FY2006 Budget Issues Table 2 below details the President's FY2006 HUD budget and tracks the Congressionalresponse. Table 2. Appropriations: Housing and Urban Development,FY2005 to FY2006 (budget authority in $ billions) Source: Prepared by CRS based on information provided by the House Committee onAppropriations, HUD's Congressional Budget Justifications, House and Senate versions of H.R. 3058 , H.Rept. 109-153 , S.Rept. 109-109 , Conf. Rept. 109-307, and P.L. 109-148 . FY2005 figures are adjusted to reflect the 0.8% across-the-board rescission enacted in P.L. 108-447 ;FY2006 figures are not adjusted to reflect the across-the-board rescission. Note: This table does not include two accounts whose costs are equal to their offsetting receipts:Manufactured Housing Fees Trust Fund ($12.9 million in FY2005 and $13 million in FY2006) andthe Office of Federal Housing Enterprise Oversight ($58.7 million in FY2005 and $60 million inFY2006). a. Note that P.L. 109-148 , enacted after the HUD FY2006 Appropriations law, included anacross-the-board rescission of 1% to all domestic discretionary spending, which is notreflected in the totals in this table. The rescission-adjusted FY2006 enacted figures will beavailable in FY2007 CRS HUD budget products. b. The Administration has proposed that in FY2006, Congress provide no new funding and alsorescind the HOPE VI funding provided in FY2005. c. Includes $58 million for Indian community and economic development activities, which, inFY2005, received $68 million as a set-aside within the Community Development Fund. d. Includes $45 million for Indian community and economic development activities, which, inFY2005, received $68 million as a set-aside within the Community Development Fund. e. In FY2005, $8.9 million was provided for this program (Hawaiian Homelands Homeownership)as a set-aside within the Community Development Fund. The Senate bill provides $8.8million for this program in the Community Development Fund. f. For FY2006, the Administration proposes to eliminate these programs and replace them with anew program funded in the Commerce Department. g. The CDBG appropriation includes $180.8 million in CDBG supplemental funding for FY2005,including $30.8 million appropriated under Section 424 of P.L. 108-447 and $150 millionappropriated under P.L. 108-324 . h. Two floor amendments to the House Appropriations Committee version of H.R. 3058 , adding funds to the CDF account, were approved. H.Amdt. 396 added$67.5 million to the CDF account to increase funding for CDBG formula grants and ensurefunds were available for Youthbuild. H.Amdt. 404 added $24 million to theCDF account to be used for Brownfields. i. In FY2005, $24.8 million was provided for this program as a set-aside within the CommunityDevelopment Fund. The Senate bill provides $15 million for this program in the CommunityDevelopment Fund. j. The House bill would rename this account Self-Help and Assisted Homeownership and transferto it funding for several set-asides that were formerly funded under the CommunityDevelopment Fund. See Table 14 for details. k. The final bill adopts the new account proposed by the House, although it allocates the fundsdifferently. See Table 14 for details. l. In FY2005, $41.7 million was provided for this program as a component of HOME. m. The House provides $41.7 million for Housing Counseling Assistance as a set-aside within theHOME program. The Senate bill proves $42 million for Housing Counseling Assistance asa set-aside within the HOME program. n. Includes $29 million requested for University Partnerships, which, in FY2005, received a totalof $33 million as set-asides within the Community Development Fund. o. This category includes Section 108 ($7 million in FY2005, $0 in President's request and Housebill, $7 million in Senate bill, $3.75 million in the conference report), Native Hawaiianhousing ($992,000 in FY2005 and $882,000 in President's request and House bill, $1 millionin Senate bill, $900,000 in the conference report) and Indian housing loan guarantees ($5million in FY2005 and $2.6 million in President's request and House bill, $5 million inSenate bill, $4 million in the conference report). For FY2006, the Administration proposedto replace Section 108 loan guarantees with a new, larger program in the CommerceDepartment. p. The bill rescinds $10 million from prior years' appropriations; however, if sufficient funds are notavailable, they can be taken from current year appropriations. q. Includes one-time rescissions of unobligated balances from the following accounts: PublicHousing Drug Elimination grants, Title VI credit subsidy, Urban Development Action Grants,rental housing assistance and GI/SRI credit subsidy. Section 8 Tenant-based Rental Assistance. TheSection 8 program is really two programs: tenant-based rental assistance, commonly calledvouchers, and project-based rental assistance (see below). The two programs were previously fundedunder a joint account called the Housing Certificate Fund, which was split into the two componentsby the FY2005 appropriations law. (See CRS Report RL32284 , An Overview of the Section 8Housing Program , by [author name scrubbed].) Section 8 Housing Choice Vouchers (vouchers) areportable federal subsidies that low-income families use to reduce their housing costs in the privatemarket. HUD currently funds over two million Section 8 vouchers. Note that approximately $4.2billion of the funds shown in the table below are provided in the form of an advance appropriationfor the following year, and each year approximately $4.2 billion is available from the previous year. This advance funding structure had been used to provide funds to the Public Housing Authorities(PHAs) that administer the voucher program in the months between the beginning of their fiscalyears and the time the federal budget is enacted in final form, which, in recent years, has generallylagged the federal fiscal year and often lagged the calendar year. The FY2004 appropriations billsynchronized PHA fiscal year start dates; however, this advanced funding structure has continued. Table 3. Section 8 Tenant-Based Rental Assistance (Vouchers),FY2005 to FY2006 (in millions) Source: See Table 2 . a. The House provides $15,631,400,000 for tenant-based rental assistance, but the amounts provided for the components of the account as listed in the bill and the report total to $15,631,356,000. The $44,000 discrepancy has not been clarified and may be due to rounding. b. The House would permit up to $45 million to be set aside in renewal funding for the Secretaryto use to adjust the budgets of agencies that were adversely impacted by the FY2005 fundingformula due to portability vouchers. c. The Senate version of H.R. 3058 would permit the Secretary to use up to $45 millionof renewal funds to be used to adjust the budgets of agencies who were adversely impactedby the FY2005 formula due to the three-month period of time used or due to portabilityvouchers. d. The final version would permit the Secretary to use up to $45 million of renewal funds to be usedto adjust the budgets of agencies that (1) apply for an adjustment because they had unusuallylow leasing levels during the May-July period that was the basis for FY2005 funding or (2)that the Secretary determines to have a significant increase in renewal costs due tounforeseen circumstances or portability vouchers. e. See Table 17 . Voucher Renewals. The most contentious aspect ofthe tenant-based assistance account is the renewal of existing vouchers. Congress has authorized thecreation of more than 2 million vouchers over the history of the program and the funding for virtuallyall of them expires every year. If a family is using a voucher to lease an apartment but funding is notsufficient to renew it, then the family will lose its assistance and likely lose its current housing. Priorto FY2004, HUD funded PHAs based on the number of vouchers they were using and the cost ofthose vouchers. If costs went up or PHAs were able to use more of their vouchers, they receivedadditional funds to cover those costs. In FY2005, at Congress's direction, HUD funded PHAs basedon the number of vouchers they were using and the cost of those vouchers in May-July 2004, plusinflation, reduced (by 4%) to fit within the amount appropriated. This new formula was designedto contain the growing cost of the program. Many PHAs and low-income housing advocatesopposed the new formula, arguing that it left many agencies with inadequate funding to maintaintheir programs. While it appears that few agencies were required to terminate assistance to familiesas a result of budget shortages, many agencies suspended the reissuance of vouchers when familiesleft the program and undertook other administrative measures to cut costs. The President's FY2006 budget request included $14.1 billion to renew expiring vouchersubsidies, an increase of 5% from FY2005. It proposed distributing renewal funding to PHAs ona pro-rata basis, based on what they received last year plus an inflation adjustment, and prorated tofit within the amount appropriated. In addition to renewal funding, the Administration requested $45million for a central reserve fund to cover the cost of unforeseen exigencies experienced by PHAs,such as natural disasters or significant changes in the economic condition of a locality. Congressprovided HUD with a central reserve account in FY2003 and FY2004, but not in FY2005. H.R. 3058 , as it passed the House Appropriations Committee on June 21, 2005,provided more than $300 million less for tenant-based assistance than the President requested, butfunded renewals at the President's requested level. During floor proceedings on June 30, 2005, anamendment adding $100 million for tenant-based renewals was approved. The increase was offsetby a decrease in funding for the Working Capital Fund. The bill proposed to distribute renewalfunding using the same formula proposed by the President. It would have permitted the Secretaryto set aside $45 million of renewal funding to adjust budgets that were adversely affected by theFY2005 funding formula due to a high number of portability vouchers. The Senate version of H.R. 3058 would have funded renewals at the President'srequested level. Unlike the House bill and the President's request, the Senate bill would not havefunded agencies based on the funding they received in FY2005 plus inflation. Rather, agencieswould have received renewal funding based on their voucher costs and leasing over the past 12months, plus inflation, and pro-rated to fit within the amount appropriated. Low-income housingand PHA groups advocated for this use of more recent data. The Senate bill would have providedthe Secretary with the authority to use up to $45 million to adjust PHA budgets if they wereadversely affected by the May-July formula either because those months were anomalous for theagency or because the agency faced a high number of portability vouchers. The final version of H.R. 3058 funds renewals at the same level proposed bythe Senate bill and the President's request, $100 million less than the House-passed level. It adoptedthe renewal funding formula proposed by the President and included in the House bill. For calendaryear 2006, agencies will receive the amount of funds they were eligible to receive in 2005, plusinflation, adjusted for tenant protection vouchers, HOPE VI vouchers, and project-basedreservations, and reduced to fit within the appropriated amount. The bill permits the Secretary toset aside up to $45 million to (1) adjust the budgets of PHAs that apply for an adjustment becauseof temporarily low leasing during May-July 2004, and (2) adjust the budgets of PHAs thatexperienced a significant increase in renewal costs, as determined by the Secretary, due to unforeseencircumstances or portability vouchers. Administrative Fees. Prior to FY2003, PHAs werepaid a fixed fee per voucher administered. Beginning in FY2003, at Congress's direction, HUDchanged the way it distributed administrative fees, providing agencies with a pro-rata share of theamount appropriated for administrative fees, based on what they had received in the previous year. The change was designed to contain the cost of administrative fees, which were estimated to havegrown to account for 10% of the cost of a voucher. The President's FY2006 budget requested $1.3 billion for administrative fees, an 8% increaseover FY2005, and would have distributed the funds on a pro-rata basis. The House bill proposed$1.2 billion and also would have allocated the funds on a pro-rata basis, except for $25 million thatthe Secretary could set aside to distribute to agencies in need of additional funds to administer theirprograms. The bill also would have allowed the Secretary to transfer up to $200 million from thetenant-based account to project-based rental assistance, which, if done, would have reduced theamount of administrative funds to well below the FY2005 level. The Senate bill would have fundedadministrative fees at the President's requested level and distributed them on a pro-rata basis. The final version of H.R. 3058 provides $1.25 billion for administrative fees,splitting the difference between the House and Senate levels. Of that amount, $10 million will beavailable for the Secretary to allocate to agencies in need of extra money to run their programs, andthe remaining funds will be allocated on a pro-rata basis, based on last year's distribution. The billdoes not include the $200 million transfer authority provided in the House bill. Tenant Protection Vouchers. Tenant protectionvouchers are provided to families in a variety of circumstances, including families who arethreatened with displacement because the contract on their assisted unit is ending (project-basedSection 8, for example); families who are displaced from public housing (due to demolition ordisposition); families in the witness protection program; and families in the child welfare system. The President requested an increase in funding for tenant protection vouchers of almost 120%for FY2006. The proposed increase was attributed partly to the needs of the HOPE VI program andpartly to a new rule that HUD stated would be published in 2005 that would permit the Secretary ofHUD to require the conversion of public housing to vouchers, a practice called MandatoryConversion. The report accompanying the House-passed version of H.R. 3058 expressed doubt that the mandatory conversion rule would be implemented before the end ofFY2006, and therefore proposed to fund tenant-protection vouchers at roughly the same level as lastyear (an increase of about 3%). The Senate version expressed the same doubt about the mandatoryconversion rule and noted that, for many of the units that would be subject to the rule, HOPE VIremains a viable option. The Senate recommended $192 million for tenant protection vouchers,more than the House but less than the President's request. The final version of H.R. 3058 provided $180 million for tenant protectionvouchers, which is less than the President's request and falls between the House- andSenate-proposed levels. Rescission. The President's FY2006 budget requestedthat Congress rescind $2.5 billion in unobligated balances from the tenant-based rental assistanceaccount. The request included a provision stating that, if sufficient funds were not available withinthe account, the Secretary could use funds from other accounts to meet the rescission target. Low-income housing advocates stated concern that sufficient funds would not be available in thetenant-based rental assistance account and that other programs would be negatively affected by therescission. When questioned about the source of funds to meet the requested rescission in hearingsbefore the Senate Appropriations Committee on April 14, 2005, the Secretary indicated that he wasnot sure where the funds would come from and could not guarantee that they would not come fromactive programs. (1) The House bill proposed a rescission level of $2.49 billion, about $6.4 million less than thePresident proposed, and included language permitting the Secretary to use funds from other accounts,as necessary. The Senate bill proposed a notably lower rescission level and a provision stating that,if sufficient funds were not available within the Section 8 tenant-based or project-based account, theSecretary would be required to first take up to 10% from the HUD salaries and expenses account andup to 10% from the Office of Management and Budget's appropriation, before taking funds fromother HUD programs. The final version of H.R. 3058 rescinds $2.1 billion in unobligated funds fromthe Section 8 accounts. The language permits the Secretary to use funds from other accounts, ifnecessary, but does not include the language proposed by the Senate requiring reductions first fromHUD and OMB's appropriations. The accompanying conference report directs the Secretary toreport to the Appropriations Committee 30days before taking funds from other accounts. Voucher Reform Legislation. Beyond funding levels,the FY2006 budget documents also stated that the President intends to introduce a new proposal toreform the tenant-based voucher program. One purpose for this reform proposal is to contain, if notreduce, the cost of the program. According to the President's budget summary: "Section 8's programcosts are cannibalizing every HUD program -- at the same time waiting lists of families seekinghousing continue to grow." The Congressional Budget Justifications state that this new proposal willprovide additional flexibility to PHAs, which will enable them to run their programs more effectivelyand efficiently and better respond to the current budget-based funding structure in the program. Reform proposals were also submitted as a part of the FY2004 and FY2005 budgets, althoughcongressional action was not taken on either. The State and Local Housing Flexibility Act of 2005was introduced in the Senate on April 13, 2005 ( S. 771 ) and in the House on April 28,2005 ( H.R. 1999 ). It would replace the current voucher program with a new program,called the Flexible Voucher Program, which would have fewer rules and regulations than the currentprogram, would provide for greater discretion in administering the program for both the Secretaryof HUD and for PHAs, and, low-income housing advocates contend, would also provide fewerresources and protections for very poor families. For more information, see CRS Report RL31930, Section 8 Housing Choice Voucher Program: Funding and Related Issues , by [author name scrubbed]. Emergency Supplemental Hurricane Funding. InOctober 2005, FEMA engaged HUD in a mission assignment to provide rental assistance to familiesthat were unlikely to qualify for standard FEMA assistance -- specifically, families that werereceiving HUD rental assistance or were homeless when the storm struck. On December 30, 2005,the President signed a supplemental appropriations bill, P.L.109-148 , which transferred $390 millionto HUD from FEMA to provide this rental assistance directly. HUD has implemented the programas the Disaster Voucher Program (DVP), and it is largely governed by Section 8 voucher programrules, although the Secretary was given the authority to waive income eligibility and rentdetermination rules. For more information on the role of the voucher program in response to the2005 Hurricanes, see CRS Report RL33270 , The Section 8 Housing Voucher Program: ReformProposals , by [author name scrubbed]. Section 8 Project-based Rental Assistance. Thisaccount provides funding to renew existing contracts between HUD and private landlords providingsubsidies to low-income families that allow them to live in private market rental units, but pay only30% of their incomes toward rent. Project-based Section 8 differs from Section 8 vouchers in thatthe subsidy is provided to a specific unit of housing in which a family can live, rather than to afamily to then use to pay for the housing of their choice. No new contracts are entered into underthis program; the funding provided is used only to renew existing contracts and pay administrativecosts. This program was formerly funded with the Section 8 tenant-based rental assistance accountin a merged account titled the Housing Certificate Fund until the account was split in FY2004. Table 4. Section 8 Project-based RentalAssistance (in millions) Source: See Table 2 . a. See Table 17 . Renewals. The President requested a 5% decreasein renewal funding for project-based rental assistance contracts in FY2006. HUD budget documentsexplained that the Department planned to augment the renewal funding request with $622 millionin funds recaptured from previous years and savings from program improvements. The additionalfunds would have raised the program level to $5.6 billion, an increase of 6% over the FY2005program level. The House version of H.R. 3058 proposed $17 million more for renewals thanthe President requested. The bill would have permitted the Secretary to transfer, if necessary, up to$200 million from the tenant-based rental assistance account to the project-based account. TheSenate version of H.R. 3058 proposed funding project-based renewals at the President'srequested level, and did not include the transfer language included in the House version. The SenateCommittee report raised concern that HUD was not doing enough to encourage landlords in theproject-based Section 8 program to renew their contracts and thus preserve the properties as assistedhousing. The Senate bill proposed that the Government Accountability Office (GAO) assess HUD'sefforts to preserve assisted housing. The final version of H.R. 3058 adopts the House-passed funding level forproject-based renewals, but does not include the transfer authority proposed by the House. The billdoes not include a request for the GAO report proposed by the Senate, but does direct theDepartment to study and report back on the living conditions of residents in two developments inIllinois. Contract Administrators. The President's budgetrequested a 46% increase in funding for contract administrators and stated that $185 million inunobligated balances would be used to augment the funding, resulting in a program level increaseof 70% over FY2005. Contract administrators are subcontracted by HUD to manage the long-termSection 8 contracts between HUD and private owners of subsidized multifamily units. HUDcontinues to manage a portion of the contracts; however, the Department intends to transfer most,if not all, contracts to contract administrators in the future. The FY2006 budget request includes anincrease of $67 million to fund the transfer of additional contracts from HUD to contractadministrators. Further, HUD's budget justifications state that the Department intends to begin usingcontract administrators to manage rental assistance contracts outside of the Section 8 program, suchas those entered into under the Section 202 Housing for the Elderly program. The budget documentsnote that $30 million would be used to fund these transfers. The House, Senate, and final versions of H.R. 3058 funded contractadministrators at the President's requested level and permitted the expansion of contractadministrators to additional programs. Public Housing Programs. Public housingprovides publicly owned and subsidized rental units for very low-income families. While no newpublic housing developments have been built for many years (except through the HOPE VI program,which is discussed below), Congress continues to provide funds to maintain the existing stock ofover 1.2 million units. The Operating Fund provides funds to PHAs for the ongoing maintenanceand administration of public housing. The Capital Fund provides funding to PHAs for large capitalprojects and modernization needs. HOPE VI is a competitive grant program that provides funds tohelp demolish and/or redevelop severely distressed public housing developments, with a focus onbuilding mixed-income communities. Table 5. Public Housing, FY2005 toFY2006 (in millions) Source: See Table 2 . a. See Table 17 . b. The President's FY2006 budget proposes no new funding for HOPE VI and requests thatCongress rescind the full amount provided to the program in FY2005. c. Neither the House nor Senate version of H.R. 3058 would rescind FY2005 HOPEVI funding. Operating Fund. Operating funds are paid to PHAsto help make up the difference between the low rents paid by tenants living in public housing andthe cost of running the buildings. The President's budget requested $3.4 billion for the operatingfund in FY2006. While this represents an increase over the FY2005 enacted level, it is a decreasein the program level. In FY2005, Congress enacted an accounting change in the program thatprovided a one-time savings of $992 million. The total amount available for operating subsides inFY2005 (minus the set-asides listed above) was $16 million more than the amount requested forFY2006. Despite the slight decrease, the FY2006 request would have been sufficient to fundagencies at a similar proration level as FY2005. According to HUD's budget documents, in FY2005,agencies received approximately 90.5% of the amount that they qualified for under the operatingsubsidy formula; in FY2006 they would receive approximately 89% at the President's requestedlevel. On April 14, HUD issued a proposed rule to revise the current formula for distributionoperating subsidies. The proposed rule differed from a version of the rule agreed to by HUD and thestakeholders that participated in a congressionally-mandated negotiated rulemaking process. HUD'sdecision to publish an altered, and arguably less costly, form of the negotiated rule proved to becontroversial. HUD contended that the proposed rule better reflects the Department's policy andbudgetary priorities. Nonetheless, on September 19, 2005, HUD published a final rule that reinstatedmost of the provisions of the negotiated rule that had been eliminated in the proposed rule anddelayed implementation until 2007. The House version of the HUD funding bill proposed almost $200 million more for theoperating fund than the President requested, resulting in more funding available in FY2006 than wasavailable in FY2005. It included language directing the Secretary of HUD to distribute FY2006operating funds using the formula agreed to by the negotiated rulemaking committee. The bill alsoincluded $50 million to help agencies that faced losses of more than 5% under the new formulatransition to asset-based management. The Senate version of the HUD funding bill proposed $150 million more than the Presidentrequested for the Operating Fund. While $50 million less than the House recommended level, theSenate bill proposed to set aside fewer funds, leaving more to be distributed through the operatingfund formula than the House bill. While the Senate bill would not mandate the use of the negotiatedrule, the accompanying report stated that the Committee expected the final rule to "reflect thenegotiated agreement ... to the greatest extent possible." The final version of H.R. 3058 funds the Operating Fund at the House-passed level, which is higher than the President's request or Senate-passed level, but will be a decrease fromthe FY2005 program level. The bill does not include language specifying how the funds should bedistributed, noting the postponed implementation of the new rule. The conference agreement directsHUD to include broad participation from affected agencies when developing the technical guidanceto implement the new rule. Capital Fund. The President's FY2006 budgetproposed a 10% decrease in capital funding for PHAs. Under the request, the amount available forcapital grants, after set-asides, would have been 7% lower than what was distributed in FY2005. HUD budget justifications state that the decreased funding level would be sufficient to meet annualcapital repair needs. However, there is a backlog of unmet modernization needs in public housingthat is estimated to be between $18-$20 billion, which this funding level would not address. HUDargues that reductions in the capital fund are necessary to ensure that tenant-based rental assistancereceives sufficient funding. The request would have cut the Resident Neighborhood Opportunitiesfor Self Sufficiency (ROSS) funding in half. ROSS funds are used to provide supportive servicesfor residents of public housing, including job training, work supports and case management. ThePresident also proposed to eliminate funding for Neighborhood Networks, which are used to buildand update technology centers in Public Housing and to assist low-income households developcomputer skills. The House-passed version of H.R. 3058 would have provided almost $250million more than the President requested for capital funding. The bill would have adopted thePresident's requested funding levels for ROSS and Neighborhood Networks, so the full increasewould have gone to capital grants, providing a 4% increase above the amount available for capitalgrants in FY2005 and a 12% increase over the amount the President requested for capital grants inFY2006. The Senate-passed version of the HUD funding bill would have adopted the President'srequested level for the capital fund, which is lower than the House-approved level. It would haveincreased funding for set-asides above the President's requested level (for example, almost doublingROSS funding over the President's request), leaving less available for capital grants than thePresident requested (-2%), the FY2005 level (-9%), and the House-approved level (-12%). The final version of the HUD funding bill splits the difference between the House and Senatefunding levels for the Capital Fund, providing $2.46 billion, a decrease from the FY2005 level, buthigher than the President's request. The bill also splits the difference between the House and Senatelevels for ROSS and Neighborhood Networks, providing $38 million and $8 million, respectively. HOPE VI. For the third year, the President's budgetrequested no new funding for HOPE VI, claiming that the program has met its mandate, that programfunds are spent too slowly, and that per unit costs are too high. Despite the President's request, inFY2004 and FY2005, Congress funded HOPE VI, but at a lower level than in FY2003 when over$570 million was provided to the program. In addition to requesting no new funding for theprogram, the President's budget proposes that Congress rescind the funds it provided to the programin FY2005. The version of H.R. 3058 that passed the House Appropriations Committee onJune 21, 2005, did not provide any new funding for the HOPE VI program in FY2006, but did notrescind the FY2005 funding. During floor debate on June 30, 2005, an amendment was approvedtransferring $60 million to the HOPE VI program for FY2006 from the General ServicesAdministration's Federal Buildings Fund. The Senate-passed bill proposed $150 million for HOPE VI, a slight increase over theFY2005 level. The Committee, in its report, "urge[d] the Department to reconsider the eliminationof the HOPE VI program, and consider a restructured HOPE VI program that is more efficient,cost-effective and still capable of leveraging other funds for rebuilding often distressedcommunities...." The enacted version of H.R. 3058 provides $100 million for the HOPE VIprogram, an amount nearly halfway between the House and Senate-passed levels. Although the finalbill funded the program, the accompanying conference agreement stated that "the conferees believeit is time to consider alternative approaches to the HOPE VI program...." For more information, see CRS Report RL32236 , HOPE VI Public Housing RevitalizationProgram: Background, Funding, and Issues , by [author name scrubbed]. Native American Block Grants. The NativeAmerican Block Grants replaced several separate programs of assistance in 1996. It provides grantsto Indian Tribes and their Tribally Designated Housing Entities to meet housing and communitydevelopment needs in their areas. Table 6. Native American Block Grants, FY2005 toFY2006 (in thousands) Source: See Table 2 . Note: The table does not include all set-asides. The amount for formula grants is not specified inthe House, Senate, or final bill. The figures shown here are derived from subtracting all set-asidesfrom the total provided for the account. a. In FY2005, $68.4 million was provided for this program as a set-aside in the CommunityDevelopment Fund and the Senate bill recommends $69 million for this program as aset-aside in the Community Development Fund for FY2006 (see Table 9 ). The final versionappropriates $60 million as a set-aside in the Community Development Fund. b. See Table 17 . The President's FY2006 budget proposed an appropriation of $583 million for the NativeAmerican Block Grant program, a decrease of $39 million. The total included $58 million for theIndian Community Block Grant activities. In prior years these activities were funded as a set-asidewithin the Community Development Block Grant program. Effectively, this may be regarded as anadditional decrease in funding for the Native American Block Grant program since $58 million,which would otherwise be used for other purposes, would have to be used for economic developmentactivities. The House-passed version of H.R. 3058 increased funding for Native AmericanBlock Grants above the President's requested level, but below the FY2005 enacted level. Thefunding for formula grants is 6% above the President's request, but 10% below the FY2005 enactedlevel. The bill adopted the President's request that the Indian Economic Block Grant program, whichwas funded within the Community Development Fund, be funded as a set-aside in this account; H.R.3058 would set aside $45 million for this purpose, which is a 35% reduction in fundingfrom FY2005 and a 22% reduction in funding from the President's request. The Senate-passed version of the HUD funding bill increased funding for the NativeAmerican Block Grants account above the FY2005 level, the President's request, and the Houselevel. The amount available for formula grants would be slightly decreased from FY2005, but wouldbe an increase of 10% over the House-passed level and 17% over the President's request. The SenateCommittee, in its report, noted concern about the significant unspent balances in the account as wellas revised eligibility definitions adopted for distribution of FY2004 formula funding. TheCommittee encouraged HUD to work to facilitate the timely expenditure of funds and to reassess thenew eligibility definition. P.L. 109-115 appropriates $630 million for Native American Housing Black Grants. P.L.109-115 requires HUD to make two calculations when determining the allocation to each tribe. HUD must determine the amount of the allocation based on single-race Census data and onmulti-race Census data, and allocate the greater of the two to the tribe. An administrative provisionrequires that in FY2006, HUD allocate block grants to the same Native Alaskan organizations thatreceived block grants in FY2005. Housing for Persons with AIDS (HOPWA). HOPWA provides housing assistance and related supportive services for low-income persons withHIV/AIDS and their families. Funding is distributed both by formula allocation and competitivegrants to states, localities and nonprofit organizations. Table 7. HOPWA, FY2005 to FY2006 (in thousands) Source: See Table 2 . The Administration's budget proposed to reduce HOPWA program funding by 5% inFY2006. This funding decrease, according to HUD budget documents, would have reduced thenumber of households served in FY2006 from 70,400 to 67,000. The Department stated that thisfunding decrease was necessary in order to meet the funding needs of the Section 8 voucher program. The House Appropriations Committee's version of the bill proposed funding the programabove the President's request, at $285 million. During floor debate of the bill on June 30, 2005, anamendment was added to H.R. 3058 increasing HOPWA funding by another $10million, to $295 million. The Senate-passed bill increased HOPWA funding about $5 million abovethe FY2005 level and about $20 million above the President's requested level, although it providedless than the House by $18 million. The final appropriation for HOPWA funds the program at $289 million for FY2006, anincrease of approximately 2.6% over FY2005. The final amount exceeds the Administration'srequest by $21 million, the Senate's version by $2 million, and is $6 million less than the Houseproposal. For more information on HOPWA, see CRS Report RS20704, Housing Opportunities forPersons with AIDS (HOPWA), by [author name scrubbed]. Rural Housing and Economic Development. Thisprogram provides competitive grants to states and localities to fund capacity building and innovativehousing and economic development activities in rural areas. Table 8. Rural Housing and Economic Development, FY2005to FY2006 (in thousands) Source: See Table 2 . In prior years, the Administration has proposed zero funding for the Rural Housing andEconomic Development program (RHED), but Congress has responded by funding the program atabout $25 million. For FY2006, the Administration proposed to consolidate RHED into a newprogram within the Department of Commerce, called the "Strengthening America's CommunitiesInitiative." (See discussion of Community Development Fund/Block Grants below.) Neither the House nor Senate bill would adopt the President's Strengthening America'sCommunities Initiative, and both would continue to fund Rural Housing and Economic Developmentas a freestanding program at HUD. The House proposed $10 million, less than half of what wasprovided in FY2005, while the Senate Committee proposed $24 million, which is slightly more thanwas approved in FY2005. P.L. 109-115 appropriates $17 million for the program. Empowerment Zones (EZ) and Enterprise Communities(EC). The EZ/EC program awards tax incentives to eligible businesses located inEZ designated zones. Grant funds are also awarded to support EZ/EC activities. Table 9. Empowerment Zones and Enterprise Communities,FY2005 to FY2006 (in thousands) Source: See Table 2 . The Bush Administration's budget proposal called for eliminating funding for the EZ/ECprogram along with 17 other community development, economic development, and communityservice programs, and replacing them with a new block grant called Strengthening America'sCommunities Initiative. (See discussion of Community Development Fund/Block Grants, below.) The House, Senate, and conference versions of H.R. 3058 rejected thePresident's Strengthening America's Communities Initiative proposal; however, none of the versionsof H.R. 3058 included funding for EZ/ECs in FY2006. Community Development Fund/Block Grants. The CDBG program is the largest source of federal assistance in support of housing, community andeconomic development activities of states and local governments. The Administration's FY2006budget would eliminate funding for the CDBG program and related set-asides. The activities of theCDBG program along with 17 other community development, economic development, andcommunity services programs would have been carried out under a new block grant. The new blockgrant proposal, called the "Strengthening America's Communities Initiative," would have beenfunded at $3.7 billion. This amount is $416 million less than the $4.116 allocated to the formulaportion of the CDBG and insular areas in FY2005 and $1.1 billion less than the $4.8 billionappropriated in FY2005 for the total Community Development Fund, which includes the CDBGformula program and related set-asides and earmarks. According to the Administration, the new initiative would: reduce fragmentation in the delivery of federal community and economicdevelopment assistance by consolidating the activities of 18 programs that are presently administeredby five different federal agencies; improve accountability by ensuring that communities focus on tangibleoutcomes; and target assistance to areas with the greatest needs. A number of organizations representing states and local governments voiced reservationsabout the Administration's new initiative and expressed support for the CDBG program. Suchorganizations as the National League of Cities, the U.S. Conference of Mayors, the NationalAssociation of Counties, and the National Governors Association noted that the Administration waslate to include them in any discussions about its new initiative and provided few details about theinitiative. A March 1 Federal Register notice announced the creation of an advisory panel to assistthe Secretary of Commerce develop the legislative proposal. When support for the new proposal didnot materialize, the Administration characterized the proposal as a work in progress. On July 21,2005, the Commerce Department announced the release of the SACI advisory committee's reportwhich included a number of findings, guiding principles, and recommendations intended to assistthe Secretary develop a specific legislative proposal. The SACI Advisory Committee's report isavailable from the Council on Competitiveness at http://www.compete.org/pdf/SACAC_Report.pdf . For a discussion of the Administration's proposal, see CRS Report RL32823 , An Overview of the Administration's Strengthening America's Communities Initiative , by[author name scrubbed], coordinator. Table 10. Community Development Fund (CDF): CommunityDevelopment Block Grants (CDBG) and Related Set-Asides, FY2005 toFY2006 (in thousands) Source: See Table 2 . Note: The total amount shown in FY2005 for the CDF, CDBG account in this table is taken fromthe HUD Congressional Budget Justifications and is just under $1 million higher than the amountshown in the House Appropriations Committee's re-estimate of the President's budget table andshown in Table 2 . The source of this discrepancy is unclear, but seems to be attributable to the EDIset-aside. See table note "o" below for more details. a. The sum of the amount specified in the Senate bill for formula grants and set-asides totals $2.6million less than the total appropriation level for the CDF specified in the bill. It is unclearwhether the Committee intends for the Department to use these funds for formula grants orfor a set-aside. b. The amount specified in each appropriations bill for formula grants is split between grants toentitlement communities (which receive 70% of grant funds) and states (which receive 30%of formula grant funds). c. $57.8 million is requested for this program within the Native American Housing Block Grant. (See Tables 2 and 5 .) d. The House version of H.R. 3058 includes $45 million for the Indian CDBG programin the Native American Housing Block Grant account. (See Tables 2 and 5 .) e. P.L. 108-324 , a supplemental appropriations bill, provided $150 million to the CDF account foremergency disaster assistance to communities affected by disasters designated by thePresident between August 31, 2003 and October 1, 2004. f. The House and conference versions of H.R. 3058 would create a new account calledthe Self-Help Assisted Homeownership account. The House version of the account included$23.8 million for Self-Help Homeownership (SHOP); $28 million for NCDI capacitybuilding grants to the Local Initiative Support Corporation, the Enterprise Foundation, andHabitat for Humanity; $1 million for Special Olympics; $1 million for National AmericanIndian Housing Council; $3 million for the Housing Assistance Council; and $4 million inone-time funding for the Housing Partnerships Network. An additional $1.2 million isprovided in the Native American Housing Block Grant account to be awarded to the NationalAmerican Indian Housing Council for capacity building and technical assistance. Theconference version of the act included $20 million for SHOP, $30 million for NCDI/capacitybuilding, $3 million for Housing Assistance Council, $1 million for National AmericanIndian Housing Council, $4 million for the La Raza HOPE Fund, $2 million for the NationalHousing Development Corp., and $1 million for Special Olympics. g. The following amounts are requested within Research and Technology (see Table 2 ): Historically Black Colleges and Universities -- $9.0 million; Hispanic-Serving Institutions-- $6.0 million; Community Development Work Study -- $2.6 million; Alaskan Native andNative Hawaiian-Serving Institutions -- $3.0 million; Tribal Colleges and Universities -- $2.6million; and Community Outreach Partnerships -- $6.0 million. h. The House version of H.R. 3058 would provide $29 million within the Research andTechnology Account (see Table 2 ) for assistance to university based programs previouslyfunded under the CDBG account. Funding for the following university-based program wouldshift from the Office of Planning and Development to the Office of Policy Development andResearch: Historically Black Colleges and Universities -- $8.967 million; Hispanic-ServingInstitutions -- $5.979 million; Alaskan Native and Native Hawaiian-Serving Institutions --$2.989 million; Tribal Colleges and Universities -- $2.562 million; and Community OutreachPartnerships -- $5.979 million; Community Development Work Study -- $2.562 million. i. $8.8 million is requested for this activity within the Native Hawaiian Block Grant. (See Table2 .) j. The House version of H.R. 3058 would fund this program as a separate account inFY2006 (see Table 2) at its requested level, $8.8 million. k. See Table 17 . l. $30 million is requested for this program as a separate line item. (See Table 2 .) m. $58.9 million is requested for this program within the Department of Labor. n. A House floor amendment to H.R. 3058 added $67.5 million to the CDF account;floor statements indicate that up to $50 million of the amount was available for Youthbuild,unless the program is funded within the Department of Labor. o. In addition to the EDIs specified within the HUD portion of the FY2005 omnibus appropriationsbill ($262 million), P.L. 108-447 also appropriated $31 million to the CommunityDevelopment Fund for a grant to the Hudson River Park Trust (Division I, Title IV, Section424). This brings the total EDIs in FY2005, pre-rescission, to $293 million, whichpost-rescission, would total $291.7 million. However, HUD's Congressional BudgetJustifications indicate that in FY2005, EDIs were funded at $291.6 million post-rescission,which is equivalent to $294 million in EDIs pre-rescission. The source of this additional $1million in EDI funds is unclear and was not included in the House AppropriationsCommittee's re-estimate of the President's budget. p. In FY2005 and prior, the Brownfields program was funded in a separate account. A House flooramendment to H.R. 3058 added $24 million to the CDF account and the sponsorspecified that the funds were to be used for Brownfields. The Senate and conference billsfunds Brownfields in a separate account. q. S.Amdt. 2183 added language to the bill that would set aside $5 million for capacitybuilding activities of Habitat for Humanities. This amendment, which was approved byvoice vote, superseded S.Amdt. 2114 , which would have set aside $4.5 millionfor Habitat for Humanities capacity building activities. r. Includes $4 million for emergencies that constitute an imminent threat to health and safety. s. Includes $4 million to establish YouthBuild programs in underserved and rural areas, and $1million for capacity building activities of YouthBuild USA. t. The following amounts were provided within Research and Technology (see Table 2 ): Historically Black Colleges and Universities -- $9.0 million; Hispanic-Serving Institutions-- $6.0 million; Alaskan Native and Native Hawaiian-Serving Institutions -- $3.0 million; andTribal Colleges and Universities -- $2.6 million. On June 21, the House Appropriations Committee passed a FY2006 HUD funding bill thatincluded $4.15 billion for the Community Development Fund within HUD. By recommendingFY2006 funding for the CDBG program, the measure rejected the Administration's proposed"Strengthening America's Communities Initiative (SACI)." The proposed funding of $4.151 billionfor the Community Development Fund included $3.860 billion for CDBG formula grants awardedto entitlement communities and states, which is $250 less than appropriated in FY2005; and $290million for EDI grants for congressional earmarked projects, which is $30 million more than wasmade available in FY2005. Under the bill, as reported by the Committee, a number of CDBG set-asides and relatedprograms would not be funded in FY2006 including the YouthBuild, empowerment zones,brownfields, and Section 108 loan guarantees. In addition, the bill proposed transferring fundingfor several CDBG-related asides to other accounts within HUD. A new self-help and assistedhomeownership account would provide, among others, $23 million for the Self-HelpHomeownership Program (SHOP), $28 million for the National Community Development Initiative,and $3 million for the Housing Assistance Council. It also recommended transferring to HUD'sOffice of Policy Development and Research $29 million in funding for university programspreviously included as CDBG set-asides under Section 107 -- including assistance to historic blackcolleges and universities, institutions serving Hispanic populations, and a community developmentwork study program. On June 30, 2005, the House, by a vote of 405 to 18, approved H.R. 3058 , andforwarded the bill to the Senate for its consideration. Before approving the bill, the Houseconsidered and approved several amendments, two of which increased funding for the CDF accountto a total of $4.324 billion. The House approved by voice vote an amendment ( H.Amdt. 396 ) offered by Representative Knollenberg that would have provided an additional $67.5 millionto the CDF account. Floor debate indicated that $50 million of that amount was to be made availablefor the Youthbuild program, unless the program was funded within the Department of Labor'sbudget. The additional $17.5 million was to be allocated to CDBG formula grants. As approved bythe House, the CDBG formula-based program would have received $3.9 billion in funding, whichis approximately $230 million below its FY2005 funding level. During floor consideration of thebill, the chairman of the TTHUD Appropriations Subcommittee, Representative Knollenberg, statedhis intention to continue to seek a means of restoring the CDBG formula-based program to itsFY2005 funding level. A second amendment, offered by Representative Gary Miller and approvedby voice vote added another $24 million to the CDF account to be used for the HUD BrownfieldsRedevelopment program. In prior years, the program was funded within its own account, not as aset-aside within the CDF (see below.) Representative Gingrey offered, but later withdrew, an amendment that would haveprohibited the use of CDBG funds for economic development projects in instances where privatelyowned land was acquired through the use of eminent domain. The amendment was offered inresponse to the June 23, 2005, Supreme Court decision in Kelo v New London, Connecticut , whichupheld the use of eminent domain to acquire privately held property and transfer it to another privateparty for government-supported economic development projects. The Supreme Court held, in a 5to 4 decision, that such a transfer is permissible if it results in a public benefit such as job creationand increased tax revenues. The House approved an amendment, H.Amdt. 427 , offeredby Representative Scott Garrett that would prohibit the use of funds in H.R. 3058 toenforce the Supreme Court's Kelo decision. The amendment, which was approved by a vote of 231-189, would, if approved by both the House and Senate, prohibit the use of any federalappropriations, including CDBG, transportation, and housing funds, included in H.R. 3058from being used to directly or indirectly support economic development projects involving the useof eminent domain. (For more information, see CRS Report RS22189 , Condemnation of PrivateProperty for Economic Development: Kelo v. City of New London , by [author name scrubbed].) On July 21, 2005, the Senate Appropriations Committee approved its version of H.R. 3058 by a vote of 28-0. The Senate version of the bill would have appropriated$4.324 billion for Community Development Fund (CDF) activities, including $3.767 billion forCDBG formula grants, and $554 million for CDBG-related set asides and earmarks. It would have also appropriated $72 million more for programs and set-asides funded under the CDF account thanrecommended by the House (see discussion below), but would have allocated $110 million fewerdollars to CDBG formula grants. On October 20, 2005, the full Senate approved its version of H.R. 3058 by avote of 93-1. The Senate version of the bill would have continued to fund a number of smallerCDBG-related programs under the CDF account, unlike the House bill, which would provide nofunding, reduce funding, or would transfer the activity to another account within HUD. For instance,the Senate bill included $69 million for the Native American CDBG, while the House version wouldappropriate $45 million for the program. The Senate bill would have appropriated $32.4 million infunding for college and university programs and retain the programs under the CDF account, whilethe House bill called for transferring the activity to a new Self Help and Assisted Homeownershipaccount; it would appropriate $40 million for the Neighborhood Initiative Program, a program thatwas not included in the President's request or the House version of the bill; and it would haveappropriated $30 million for capacity building grants under the National Community DevelopmentInitiative program, which is $2 million less than the amount recommended by the House. Like the House version of H.R. 3058 , the Senate version also includedprovisions limiting the use of federal funds in economic development projects involving eminentdomain. During the Senate Appropriations Committee consideration of H.R. 3058,Senator Bond introduced and then withdrew a proposed amendment that would have prohibited theuse of federal funds in economic development projects involving the use of eminent domain. Theamendment would have allowed the use of federal funds if the project involved airports, seaports,mass transit, or was intended to revitalize a blighted area. During Senate floor consideration of thebill, Senator Bond again introduced an amendment ( S.Amdt. 2113 ) to limit the use offederal dollars in support of economic development projects involving eminent domain. The Bondamendment, which was approved by voice vote, stated that no appropriated funds included in H.R.3058 could be used to support any federal, state, or local government-assisted projectsinvolving the use of eminent domain unless such projects or activities involve a public purpose. Theamendment would not include economic development "that primarily benefits private entities" asan eligible public purpose, but would include transportation and utility projects that benefit thegeneral public, as well as projects involving the removal of blighted areas or brownfields as publicuse activities. Such projects would be allowed the use of eminent domain without the loss of federalfunds. The amendment would also direct the Government Accountability Office (GAO) and theNational Academy for Public Administration, state and local government organizations, and propertyrights organizations to conduct a study-by-state study of the use of eminent domain. The conference version of H.R. 3058 , which was approved by the House onNovember 18 and the Senate on November 21, 2005, appropriates $4.220 billion for CommunityDevelopment Fund activities, including $3.748 billion for the CDBG formula grant program. Thisis 9% less than appropriated for formula grants in FY2005. The act includes $471 million for variousCDF set-asides, and earmarks with the majority of such funds -- $310 million -- allocated among1126 EDI earmarked projects. Of the remaining funds, $50 million is earmarked for NeighborhoodInitiative 50 projects identified in the conference report; another $50 million is to be awarded to localYouthBuild organizations. The $310 million in EDI earmarks represents a 7% increase in fundingfor such projects over the amount appropriated in FY2005 ($290 million) . The conference version of the act shifts funding for a number of programs previously fundedunder this account to other HUD accounts. Funding for the SHOP program, National CommunityDevelopment Initiative, the Housing Assistance Council, the National American Indian HousingCouncil, and the La Raza HOPE Fund are now funded under a new Self-Help AssistedHomeownership account. Assistance for minority-serving universities and colleges previouslyfunded under Section 107 (Special Projects) are now funded under the Policy Development andResearch account (see footnotes f and t in Table 10 for funding allocations). Section 726 of the General Provisions of Title VII of the TTHUD Appropriations Act forFY2006, includes the language prohibiting federal, state, and local governments from using fundsappropriated under the act for projects involving the use of eminent domain, unless such projects oractivities involve a public purpose. The provision excludes economic development "that primarilybenefits private entities" as an eligible public purpose, except in cases involving the removal ofblighted areas, brownfield redevelopment, mass transit, transportation, and utility projects thatbenefit the general public. Such projects would be allowed the use of eminent domain without theloss of federal funds. The provision also directs GAO and the National Academy for PublicAdministration, state and local government organizations, and property rights organizations toconduct a study-by-state study of the use of eminent domain. Emergency Supplemental Hurricane Funding. Congress included $11.5 billion in FY2006 supplemental appropriations for disaster-recoveryassistance under the Community Development Block Grant (CDBG) in P.L. 109-148 , to assist thefive states (Louisiana, Mississippi, Alabama, Texas, and Florida) impacted by hurricanes Katrina,Rita, and Wilma. Of this amount, $6.2 billion was allocated to Louisiana. Among other provisions,(1) affected states were authorized to use up to 5% of their allocation for administrative costs; (2)HUD was authorized to grant waivers of program requirements (except those relating to fair housing,nondiscrimination, labor standards, and the environment); and (3) Mississippi and Louisiana wereauthorized to use up to $20 million for Local Initiative Support Corporation and EnterpriseFoundation-supported local community development corporations. The HUD income targetingrequirement for activities benefitting low- and moderate-income persons was decreased from 70%to 50% of the state's allocation. CDBG Section 108 Loan Guarantees. TheSection 108 loan guarantee program allows states and entitlement communities to leverage theirannual CDBG allocation in order to help finance brownfield redevelopment, large scale economicdevelopment, and housing projects. CDBG entitlement communities and states are allowed toborrow up to five times their annual CDBG allocation for qualifying activities. As security againstdefault states and entitlement communities must pledge their current and future CDBG allocation. Table 11. CDBG Section 108 LoanGuarantees (in thousands) Source: See Table 2 . The Administration included the Section 108 program in the list of programs whose activitieswould be consolidated under its Strengthening America's Communities Initiative. The Houseversion of H.R. 3058 did not include funding for the program, but the Senate versionof the bill would have provided a $6 million subsidy fund that would have supported a loancommitment ceiling of $275 million. The conference version of the act included $3 million subsidyfund that will support a loan commitment ceiling of $137.5 million. Brownfields Redevelopment. The BrownfieldsRedevelopment program is a competitive grant program that provides funds to assist cities with theredevelopment of abandoned, idled and underused industrial and commercial facilities whereexpansion and redevelopment is burdened by real or potential environmental contamination. Table 12. Brownfields Redevelopment, FY2005 toFY2006 (in thousands) Source: See Table 2 . a. For FY2006, the House funds the Brownfields program at $24 million as a set-aside within theCommunity Development Fund. The Administration's FY2006 budget included Brownfield Economic Development Initiativegrants among the 18 programs that would be eliminated and whose activities would be consolidatedunder a new program -- Strengthening America's Communities Initiative -- to be administered by theDepartment of Commerce. (See discussion above.) H.R. 3058 , as reported by the Appropriations Committee, rejected thePresident's Strengthening America's Communities Initiative proposal; however, it did not includefunding for the Brownfields Redevelopment program in FY2006. During consideration of H.R.3058, the full House approved by voice vote an amendment offered by RepresentativeGary Miller that would have appropriated $24 million to the Community Development Fund accountfor HUD's Brownfield program. The Senate version of the bill included $15 million for the program. The conference version of the act appropriates $10 million for the Brownfield Redevelopmentactivities. The HOME Investment Partnership Program. Created in 1990, the HOME Investment Partnerships Program provides formula-based block grantfunding to states, units of local government, Indian tribes and insular areaas to fund affordablehousing initiatives. Eligible activities include acquisition, rehabilitation and new construction ofaffordable housing as well as rental assistance for eligible families. Table 13. The HOME Investment Program, FY2005 toFY2006 (in millions) Source: See Table 2 . a. Includes funding for insular areas, which received $3.6 million in FY2005 and for which thePresident requested $3.5 million in FY2006. b. The budget proposed that Housing Counseling be funded at $39.7 million in a separate account. c. See Table 17 . The FY2006 budget requested $1.94 billion for the HOME program, an increase of $41.3million over the level enacted in FY2005. This increase was attributable to an increase of $150million for the American Dream Downpayment Initiative (ADDI) and a decrease for all the otherHOME program set-asides. A similar increase was requested in FY2005 and ADDI was fundedinstead at $50 million. Concern was raised that the program may be helping families who may notbe the best candidates for homeownership, and a Government Accountability Office (GAO) reviewof the program suggested that it was unlikely that HUD would be able to obligate more than $40 to$50 million during the fiscal year. As in prior years, the budget requested that Housing Counselingbe funded in a separate account within the housing programs budget. Both the House and Senate-passed versions of the FY2006 HUD bill would have provided$1.9 billion for the HOME program in FY2006, less than the President requested, but slightly morethan was provided in FY2005. In the House bill, funding for formula grants would have beenincreased over both the FY2005 level and the President's requested level. The Senate bill wouldhave increased formula grants slightly above the House level. In both bills, the American DreamDownpayment Initiative would have been funded close to the FY2005 level, which is substantiallyless (-75%) than the President's requested level. Neither bill would have provided separate fundingfor Housing Counseling, as requested by the President; instead, the bills included a set-aside forhousing counseling within the HOME account. The final version of H.R. 3058 cut funding for the HOME program by $125million from the President's request, House-passed, and Senate-passed levels. The American DreamDownpayment Initiative is funded at half of the House and Senate levels. The HOME formula grantsface the largest decrease, a 5% cut from the FY2005 enacted level. The final version of H.R.3058 continues to fund housing counseling assistance as a set-aside within the HOMEprogram. Self Help and Assisted Homeownership. The SelfHelp Homeownership Program (SHOP) provides grants to non-profits, including Habitat forHumanity, to fund self-help homeownership (for example, sweat-equity) programs. In FY2005 andprior years, SHOP was funded as a set-aside within the CDF account. As a part of the larger SACIproposal, the President requested in his FY2006 budget that Congress fund the Self HelpHomeownership program as a separate line-item in the budget. While SACI was not adopted in H.R. 3058 , the House did choose to fund SHOPin a new account, with several other programs. This new account, called Self Help and AssistedHomeownership, would consolidate funding for several programs that were previously funded asset-asides within the Community Development Fund account and provide funding for one programthat does not appear to have received funding in FY2005. H.Rept. 109-153 notes that most of theprograms in the account are funded at a reduced level, consistent with reductions in many HUDprograms necessary to meet rental assistance priorities. The Senate-passed version of the bill doesnot include this account. P.L. 109-115 creates the new account and appropriates $61 million for it. Table 14. Self Help and AssistedHomeownership (In thousands of dollars) Source: See Table 2 . a. In FY2005 and in the Senate-passed version of the FY2006 HUD funding bill, these programswere funded as set-asides in the Community Development Fund (see Table 9 ). b. These programs are proposed for elimination as a part of the President's Strengthening America'sCommunities Initiative (see discussion beginning on page 17). c. An additional $1.2 million is provided in the Native American Housing Block Grant account tobe awarded to the National American Indian Housing Council for capacity building andtechnical assistance. (See Table 5 .) Homeless Programs. Homeless Assistance Grantsis the blanket title given to the four homeless programs authorized by the McKinney-VentoHomeless Assistance Act ( P.L. 100-77 ) and administered by HUD. Three of the four programs arecompetitive grant programs: the Supportive Housing Program (SHP), the Shelter Plus Care program(S+C) and the Single Room Occupancy program (SRO). Funding for the fourth HUD program, theEmergency Shelter Grants program (ESG), is distributed via a formula allocation to states and localcommunities. Table 15. HUD Homeless Programs, FY2005 toFY2006 (in thousands) Source: See Table 2 . a. See Table 17 . The President's FY2006 budget request proposed to provide $200 million more forhomelessness programs than in FY2005. In addition, as in FY2004 and FY2005, the Administrationproposed to consolidate the three competitive components of the Homeless Assistance Grantsaccount into a single competitive program. Consolidation legislation was not introduced in FY2004or FY2005, although the FY2006 budget stated that legislation would be submitted to Congress thissession. The Administration's budget included two additional initiatives. The Samaritan Initiativeaccounted for the full $200 million increase over FY2005 appropriations. It would fundservices-enriched supportive housing for chronically homeless individuals. Authorizing legislationfor the Samaritan Initiative was introduced in the 108th Congress, but was not enacted, and no fundswere provided for the initiative in FY2005. In addition to the Samaritan Initiative, the President'sbudget proposed $25 million for a Prisoner Re-entry Initiative, with funds transferred from HUD tothe Department of Justice for use in helping individuals exiting prison successfully transition tocommunity life and employment. The same proposal was included in the President's FY2005 budgetrequest, but was not enacted. The House-passed version of H.R. 3058 provided $100 million less for theHomeless Assistance Grants account than the President requested, which is $100 million more thanthe account received in FY2005. The House bill did not designate any funding for the SamaritanHousing Initiative and did not authorize funding for the Prisoner Re-entry Initiative. The HouseAppropriations Committee report ( H.Rept. 109-153 ) noted that because authorizing legislation forthe Prisoner Re-entry Initiative has not been enacted, funding for the program was not included inits version of H.R. 3058. The Senate-passed version of the FY2006 HUD appropriations bill increased funding abovethe FY2005 level by about $175 million, and above the House-approved level by about $75 million. Like the House bill, the Senate bill did not designate any funding for the Samaritan HousingInitiative and did not authorize funding for the Prisoner Re-entry Initiative. The final spending bill adopted the House's proposed funding level and appropriates $1.34billion for the Homeless Assistance Grants, $100 million below the President's request, and $100million more than FY2005, an increase of just more than 8%. The final version does not includefunding for the Samaritan Initiative or the Prisoner Reentry Initiative. The Conference Report( H.Rept. 109-307 ) reiterated the directive in the Senate Appropriations Committee Report ( S.Rept.109-109 ) that HUD continue to implement its Homeless Management Information System to countand track the homeless, and report its progress to Congress by March 10, 2006. For moreinformation on HUD's Homeless Assistance Grants, see CRS Report RL30442 , Homelessness:Recent Statistics, Targeted Federal Programs, and Recent Legislation , by [author name scrubbed], coordinator. For more information on HMIS, see CRS Report RS22328, The Homeless Managment InformationSystem , by [author name scrubbed]. Housing Programs for the Elderly and theDisabled. Formerly known together as Housing for Special Populations, the Section202 housing for the elderly and the Section 811 housing for the disabled programs provide capitalgrants and ongoing rental assistance to developers of new subsidized housing for these populations. Table 16. Sections 202 and 811, FY2005 toFY2006 (in thousands) Source: See Table 2 . Note: "NS" indicates that a specfic amount is not specified. a. See Table 17 . While the President's FY2006 budget proposal for the Section 202 program represented levelfunding, the President's request for Section 811 represented a 50% cut in funding over FY2005. Further, Section 811 funding would not have been available for capital grants under the President'sproposal; rather, the full amount would have been used to provide vouchers to persons withdisabilities. HUD budget documents do not provide a rationale for the reduction or restriction onuse for capital grants. In testimony before the House Appropriations Subcommittee onTransportation, Treasury, HUD, the Judiciary, and the District of Columbia, the Secretary of HUDreferred to the need to make unpopular cuts in programs such as Section 811 in order to maintainadequate funding for Section 8 and programs for the homeless. Both the House and Senate versions of H.R. 3058 proposed to fund the Section202 program at about the President's requested level, and approximately the same level as FY2005spending. A floor amendment in the Senate ( S.Amdt. 2140 ) made $10 million availablefor the Section 202 LEGACY demonstration program ( P.L. 108-186 ), which provides housing forlow-income elderly heads of households who care for children. Both House and Senate versionsproposed to fund the Section 811 program at about the FY2005 level, and, unlike the President'srequest, allowed funds to be used for capital grants. The Senate bill included language proposingto transfer the renewal of Section 811 vouchers to the Section 8 tenant-based rental assistanceaccount. Under the Senate proposal, it appeared that the tenant-based account would be required toabsorb the cost of vouchers, thus leaving additional dollars in the Section 811 account for capitalgrants. The enacted appropriation for FY2006 funds Section 202 at $742 million. It also retains theSenate's proposal to set aside funding for the Section 202 LEGACY demonstration program, butreduces the amount to $4 million from $10 million. The final spending bill funds Section 811 at$239 million, an increase of approximately $1 million over FY2005, and twice as much as thePresident's request. Like the House and Senate versions, the final version includes funds for capitalgrants, but does not transfer Section 811 vouchers to the Section 8 tenant-based rental account, asthe Senate version proposed. Affordable Housing and Economic Development TechnicalAssistance Board. The Senate version of H.R. 3058 would haveestablished a new program designed to provide technical assistance to local non-profit organizationsinvolved in managing HUD programs and activities. The Affordable Housing and EconomicDevelopment Technical Assistance Board (AHEDTAB) would be comprised of three nationalorganizations (the Local Initiative Support Corporation, the Enterprise Foundation, and the Centrefor Management and Technology), and would be charged with developing uniform policies and bestpractices to assist local non-profit organizations to effectively develop and manage local housing andeconomic development programs. The AHEDTAB would be assisted by an advisory boardcomposed of a number of groups which have participated in HUD programs, including the HousingAssistance Council, the Corporation for Supportive Housing, the National Alliance to EndHomelessness, the National Council of La Raza, the National Urban League, the National AmericanIndian Housing Council, the National Association for the Mentally Ill, and the American Associationof Homes and Services for the Aging. The program would have been funded by transferring a total of $50 million from severalexisting HUD programs, including Section 8 tenant-based and project-based rental assistance, theCDBG program, the Native American Housing Block Grant program, the HOME program, Section202 Housing for the Elderly, the Homeless Assistance program, and Section 811 Housing forPersons with Disabilities program. Neither the President's budget request nor the House version of H.R. 3058 includes a similar provision. The Board was not created in the final versionof H.R. 3058. Table 17. Affordable Housing and Economic DevelopmentTechnical Assistance Board (in thousands) Source: See Table 2 . Note: This account would not receive a direct appropriation, rather, the funds are transferred fromother accounts. Federal Housing Administration (FHA). TheFHA administers a variety of mortgage insurance programs that insure lenders against loss from loandefaults by borrowers. Through FHA insurance, lenders make loans that otherwise may not beavailable, and enable borrowers to obtain loans for home purchase and home improvement as wellas for the purchase, repair, or construction of apartments, hospitals, and nursing homes. Theprograms are administered through two program accounts -- the Mutual MortgageInsurance/Cooperative Management Housing Insurance fund account (MMI/CMHI) and the GeneralInsurance/Special Risk Insurance fund account (GI/SRI). The MMI/CMHI fund provides insurancefor home mortgages. The GI/SRI fund provides insurance for more risky home mortgages, formultifamily rental housing, and for an assortment of special purpose loans such as hospitals andnursing homes. Table 18. Federal Housing Administration, FY2005 toFY2006 (in thousands) Source: See Table 2 . a. Note that the President's request numbers are taken from the Appropriations Committee'sre-estimate of the President's budget as shown in tables provided in H.Rept. 109-153 and S.Rept. 109-109 . As shown in Table 18 , FHA has negative appropriations, which means that the income tothe program from insurance premiums exceeds the program expenses. This suggests that, becauseof the surplus generated by FHA, HUD needed $1,724 million less in appropriations in FY2005. The negative appropriation has implications for two legislative initiatives that have been proposedby the Administration. One initiative would permit 100% FHA financing for first-time buyers withstrong credit records. Under the other initiative, HUD would amend its underwriting guidelines inorder to permit borrowers with blemished credit records to obtain FHA-insured loans. The FHAinsurance premiums for these borrowers would be increased to cover the higher risks and costsinvolved in these initiatives. The President's budget assumed that these initiatives would create $268million in additional negative appropriations in FY2006. The budget also assumed that the MMI andGI/SRI programs would generate $1,956 million in offsetting receipts. Based on its assumptions ofincome, costs, and fees to the insurance funds, the Administration estimated net FHA appropriationsof $-1,489 million for FY2006. The Appropriations Committee, however, did not accept theAdministration's assumptions. The Committee's re-estimate (shown in Table 18 as the FY2006request) assumes zero savings from the proposed initiatives, and it assumes $347 million less inoffsetting receipts. Both House and Senate versions of H.R. 3058 assume lower administrativeexpenses in the MMI account and lower offsetting receipts in the GI/SRI account than presented inthe President's request. As a result, the committees are able to realize greater savings than there-estimate of the President's budget would have allowed, although notably less than in thePresident's original budget and less than was available in FY2005. As shown in Table 18 , thecommittees' assumptions result in an estimated appropriation of $-913 million. The decrease in FHAnet income implies a need for an additional $811 million in appropriations to support other HUDprograms at the same level as FY2005. P.L. 109-115 funds FHA as proposed by the House andSenate. Office of Federal Housing Enterprise Oversight(OFHEO). OFHEO is the office within HUD which is responsible for regulatingFannie Mae and Freddie Mac regarding the safety and soundness of their operations. Theappropriations for OFHEO are completely offset by fees collected from Fannie Mae and FreddieMac. In recent years there has been criticism that OFHEO has been ineffective in its role. TheAdministration expects that the resources of OFHEO will be transferred to a strengthened regulatorthat will be proposed. H.R. 1461 , as passed by the House, would combine OFHEO andHUD's regulatory division into a new independent agency called the Federal Housing FinanceAgency. Fair Housing. The Office of Fair Housing andEqual Opportunity enforces the Fair Housing Act and other civil rights laws that make it illegal todiscriminate in the sale, rental, or financing of housing based on race, color, religion, sex, nationalorigin, disability, or family status. This is accomplished through the Fair Housing AssistanceProgram (FHAP) and the Fair Housing Initiatives Program (FHIP). FHAP provides grants to stateand local agencies to enforce laws that are substantially equivalent to the federal Fair Housing Act. It provides grants on a non-competitive basis. FHIP provides funds for public and private fairhousing groups, as well as state and local agencies, for activities that educate the public and housingindustry about the fair housing laws. Table 19. Fair Housing Programs, FY2005 toFY2006 (in thousands) Source: See Table 2 . The President's budget recommended decreases in funding for both Fair Housing programsin order to provide needed funding for the tenant-based Section 8 voucher program. FHAP wouldbe reduced 14% from its FY2005 level and FHIP would be reduced 19%. H.R. 3058 ,as reported by the House Appropriations Committee, adopted the President's funding request. Anamendment by the full House increased funding for the program to a slight increase over the FY2005level. The increase was offset by a reduction of $7.7 million from the information system budget ofthe IRS. The Senate version of H.R. 3058 increased funding for fair housing activitiesabove the President's requested level, but provided less than was appropriated in FY2005 and whatwas recommended by the House. For FY2006, P.L. 109-115 funds the Fair Housing programs at $46 million, of which $26million is for Fair Housing Assistance and $20 million is for Fair Housing Initiatives. Anadministrative provision precludes the use of these funds to prosecute or investigate legal activitiesunder the Fair Housing Act. Lead-Based Paint Hazard Reduction. The Officeof Lead Hazard Control at HUD administers both the Lead-Based Paint Hazard Control GrantProgram and the Healthy Homes Initiative (HHI), designed to reduce the hazards of lead-based paintin homes. Table 20. Lead-Based Paint Hazard Control, FY2005 toFY2006 (in thousands) Source: See Table 2 . For FY2006, the Administration proposed a funding level of $116 million for the HealthyHomes and Lead Hazard Control Reduction program. This $48 million (29%) reduction from theFY2005 level is largely the result of proposing zero funding for the Lead Hazard Demonstrationprogram, which was funded at $47 million in FY2005. The justification for this reduction is that thefunds are needed instead for the Section 8 voucher program. H.R. 3058 , as reported bythe House Appropriations Committee, adopted the President's funding request. During full Housedebate on the bill, a floor amendment was adopted that restored funding to the level enacted inFY2005. The Senate-passed bill proposed to fund the account slightly above the FY2005 level. ForFY2006, P.L. 109-115 appropriates $152 million for the program.

In February 2005, a House Appropriations Committee reorganization plan abolished theVeterans Affairs, Department of Housing and Urban Development (HUD), and IndependentAgencies Subcommittee, sending HUD to a new Treasury, Transportation, Judiciary, Housing andUrban Development, District of Columbia and Related Agencies Subcommittee. A similar but notidentical change was made in the Senate, creating the Transportation, Treasury, HUD Subcommittee. On February 7, 2005, the Administration submitted a $29.1 billion FY2006 budget requestfor HUD, which is 9% less than was provided in FY2005. The most controversial part of the budgetproposal would have eliminated the Community Development Block Grant (CDBG) program inHUD and transferred its purposes to the Department of Commerce, combining it with 17 otherprograms (that had approximately $5.6 billion of appropriations in FY2005) into a new $3.7 billionStrengthening America's Communities Initiative (SACI) grant program. The President's budgetproposal also included increased funding for Section 8 tenant-based rental vouchers, HomelessAssistance Grants, and the HOME program; decreased funding for Housing for the Disabled (Section811), Housing for Persons with AIDS, and Fair Housing programs; and elimination of funding forthe HOPE VI program. On June 30, 2005, the House approved an FY2006 HUD appropriations bill, H.R. 3058 , funding HUD at more than $4 billion above the President's requested level. The bill, which rejected the President's SACI initiative, would fund CDBG at HUD and increasefunding above the President's request for several HUD programs. On October 20, 2005, the Senate passed its version of H.R. 3058 , providing forHUD more than $5 billion above what the President requested and more than $1 billion above whatthe House version allocated. Like the House bill, the Senate version rejected the President's SACIinitiative and proposed to fund CDBG and related programs within the HUD budget, and increasefunding above the President's request and the House-approved level for several HUD programs,including HOPE VI and Section 811. On October 28, 2005, the President submitted to Congress a rescission and reallocationpackage that would rescind $124 million in HUD funding and transfer $2.2 billion to HUD fromFEMA's disaster relief fund. A modified version was attached to the FY2006 DefenseAppropriations law ( P.L. 109-148 ), providing $11.9 billion for HUD. That bill also contained a 1%across-the-board rescission that applies to all of HUD's discretionary programs. On November 18, 2005, the House and Senate approved a final version of the FY2006 HUDappropriations bill. It does not adopt the CDBG transfer, and funds most programs between theHouse- and Senate-approved levels. Key Policy Staff Division abbreviations: ALD -- American Law; DSP -- Domestic Social Policy; G&F --Government and Finance

Introduction The 115 th Congress states that tax reform is a priority. In recent years, the focus of individual income tax reform has been on reducing the number of statutory tax brackets as part of a base broadening, rate reducin g tax reform. On June 24, 2016, Republicans released a tax reform blueprint, "A Better Way for Tax Reform." This blueprint proposes to consolidate the seven individual income tax brackets under current law into three, and to eliminate the alternative minimum tax (AMT). Tax reform legislation introduced in the 113 th Congress, the Tax Reform Act of 2014 ( H.R. 1 ), also proposed to reduce the number of individual income tax brackets, and repeal the AMT. Tax reform debates often highlight statutory rates. As is illustrated in this report, however, under the current tax system, statutory rates provide limited information on tax burden. Statutory rates also provide limited information on the economic incentives created by the tax code. When evaluating the equity and economic efficiency (behavioral) effects of tax reform proposals, it is important to look beyond the statutory rate. This report highlights two other tax rate measures: average tax rates and effective marginal tax rates. A taxpayer's average tax rate is the share of total income that is paid in taxes. A taxpayer's effective marginal tax rate is the portion of an additional dollar in earnings that is paid in individual income tax. The analysis in this report relies on the 2010 Internal Revenue Service (IRS) Statistics of Income (SOI) individual public use file. The individual public use file is a microdata file designed to provide a representative sample of individual income tax filers in a given year. The 2010 file contains 159,791 records designed to provide statistical information for the 142.9 million individual income tax returns filed. The report uses the National Bureau of Economic Research's TAXSIM model to compute tax liability, for the purposes of calculating average tax rates, and effective marginal tax rates. The focus of this report is on the federal individual income tax. Thus, the tax rates reported here do not include payroll taxes, corporate income taxes, excise taxes, or estate taxes at the federal level. Nor do the tax rates in this report include any state tax liability. The report also does not include any analysis of the effect of transfer payments on effective marginal tax rates. Not all individuals or households file income tax returns. For example, in 2016, an estimated 83% of "tax units" are expected to file individual income tax returns. The other 17% of tax units are not expected to file returns and have no federal individual income tax liability. Overall, roughly 44% of tax units are expected to have zero or negative income tax liability in 2016. But, many taxpayers that have zero or negative income tax liability have positive payroll tax liability. When both income and payroll taxes are considered, an estimated 18% of tax units are expected to have no income or payroll tax liability in 2016. Since this report relies on data from the IRS SOI public use file, only individuals and households (or tax units) that filed individual income tax returns are included in the analysis. This report provides an overview of the three types of tax rates commonly considered in tax reform debates: statutory, average, and effective marginal tax rates. The first part of the report defines these concepts, and discusses them in the context of the current federal individual income tax system. The report also includes an analysis of how these tax rates vary across the income distribution. The report also looks at variation in average and effective marginal tax rates across taxpayers with similar levels of income. The report concludes with a discussion of potential implications of the analysis for tax reform. Statutory, Average, and Effective Marginal Tax Rates Many tax policy debates focus on the statutory tax rates, or the tax rates applied to taxable income. However, in practice, statutory rates do not necessarily reflect a taxpayer's tax burden. Other measures of tax rates that provide more information on tax burdens include average tax rates and effective marginal tax rates. Average tax rates provide a good measure for comparing the burden of taxes across different taxpayers, while both average and effective marginal tax rates provide information on potential economic distortions caused by taxation. Defining Tax Rates The following sections define and describe three common tax rate metrics—statutory, average, and effective marginal rates. Statistics are provided to show how these rates vary for taxpayers at different income levels. A case study is also included to illustrate how statutory, average, and effective marginal tax rates differ for a hypothetical taxpayer. Statutory Tax Rates Statutory rates are the tax rates applied to taxable income that falls within a given range or tax bracket. The federal income tax system is designed to be progressive, meaning that higher tax rates are applied at higher income levels. By design, only income that falls within each tax bracket is taxed at that tax rate. For example, if a single filer has taxable income of $10,000 in 2016, that taxpayer would fall in the 15% statutory tax bracket (see Table 1 ). However, only $725 would be taxed at a rate of 15%. For all single filers, income up to $9,275 is taxed at 10%, regardless of the taxpayer's total taxable income. Most tax returns filed fall into one of the lower tax brackets. Figure 1 classifies returns according to the highest statutory tax rate applied to each return. In 2014, the most recent year for which these data are available, 43% of tax returns filed were either non-taxed or in the 10% tax bracket. These returns contained 9% of all adjusted gross income (AGI) reported on 2014 tax returns. Less than 1% of returns filed in 2014 were in the top tax bracket (39.6% in 2014). These returns, however, accounted for 16% of all AGI. Another way to look at the distribution of income across statutory tax rates is to look at the amount of taxable income taxed at a particular rate. In 2014, 29% of taxable income at the marginal rate was taxed at the 39.6% rate. However, less than half of the AGI reported on tax returns falling in the 39.6% bracket was taxed at that rate. The remaining income was taxed at lower rates, per the progressive tax structure. Much of the analysis below examines tax returns filed for 2010. In 2010, the top statutory tax rate was 35% (the 2010 statutory tax rates and brackets are shown in Table A-3 ). The top rate increased to 39.6% following the enactment of the American Taxpayer Relief Act (ATRA; P.L. 112-240 ). As noted above, very few returns filed fell into the top statutory rate bracket (less than 1% in 2014). However, because the top statutory rate is higher now than it was in 2010, the very highest income taxpayers may face higher average and effective marginal tax rates than in 2010. This is important to keep in mind when considering the results of the analysis presented below. Average Tax Rates A taxpayer's average tax rate is the percentage of total income that is paid in taxes. For the purposes of this report, the average tax rate is calculated as income tax liability divided by cash income. Since the analysis only looks at individual income taxes, payroll taxes, for example, are excluded. The progressive nature of the tax system, coupled with a variety of tax preference items (credits, deductions, exclusions, exemptions, etc.), makes it so that for nearly all taxpayers, average tax rates are less than statutory tax rates. Further, many taxpayers, particularly lower-income taxpayers, have negative average tax rates. Refundable tax credits, such as the earned income tax credit (EITC), can lead to negative average tax rates. Taxpayers that have average individual income tax rates that are negative often have positive payroll tax liability. In 2010, average tax rates were negative for taxpayers in the bottom four income deciles (or the bottom 40% of taxpayers, in terms of income) (see Figure 2 ). The average of average tax rates (or mean average tax rate) for taxpayers in the second income decile is less than the mean average tax rate for taxpayers in the lowest 10% of the income distribution, reflecting the phase-in of certain refundable credits (e.g., the EITC). As illustrated in Figure 2 , average tax rates tend to rise with income. For taxpayers in the top income decile, or those with incomes above $123,230 in 2010, the mean average tax rate was 13.6%. Average tax rates continue to rise towards the very top of the income distribution. For taxpayers in the top 1% in 2010, or those with incomes above $421,340, the mean average tax rate was 19.8% (see Table B-1 in Appendix A ). While the top statutory rate in 2010 was 35%, average tax rates, even for the highest-income taxpayers, were less. For the income tax system as a whole, average tax rates have fluctuated over time (see Figure 3 and the related discussion). Between 1960 and 2016, the average tax rate for the U.S. income tax system generally fluctuated between 10% and 16%. Over this time period, the individual income tax system-wide average tax rate was highest in the period immediately preceding the 1986 tax reform, and before the tax cuts of the early 2000s. System-wide average individual income tax rates in the 2000s tended to be lower than the historical average. Beginning in 2009, the system-wide average tax rate began increasing. As of 2016, the system-wide average tax rate approached levels seen before the 1986 tax reform and tax cuts of the early 2000s. Effective Marginal Tax Rates Effective marginal tax rates are the amount paid in tax on the next dollar of income. A taxpayer's effective marginal tax rate can affect work and savings decisions. Higher effective marginal tax rates make non-taxable forms of compensation, such as non-taxable fringe benefits, more attractive. When taxes distort taxpayer choices, society's economic resources may not be put to their most productive use. Effective marginal tax rates are determined by (1) a taxpayer's statutory tax bracket; and (2) interactions with other credits, deductions, exemptions, and special provisions in the tax code. For the purposes of this report, effective marginal tax rates include only changes to individual income taxes paid from increased earnings. The effective marginal tax rates in this report do not include payroll taxes or reductions in benefits from other government programs. Effective marginal tax rates are computed using the National Bureau of Economic Research's (NBER's) full TAXSIM program. In an uncomplicated tax system, the effective marginal rate would equal the statutory rate. Both phase-ins and phaseouts of various tax provisions affect a taxpayer's effective marginal tax rate. For example, the earned income tax credit (EITC) can increase or decrease a taxpayer's effective marginal tax rate depending on their level of earnings. In 2016, an unmarried tax filer with one child claiming the EITC would get an EITC of $0.34 for each dollar in earnings, up to $9,920. In other words, in the phase-in range, the EITC reduced the effective marginal tax rate by 34%. The EITC is the primary reason why many lower-income taxpayers have negative average and effective marginal tax rates. The phaseout range for an unmarried taxpayer with one child started at $18,190 in 2016. For every dollar earned beyond $18,190, until earnings reached $39,296, the EITC was reduced by $0.1598. In other words, in the phaseout range, the EITC increased the effective marginal tax rate by 15.98%. The effect of the EITC phaseout on marginal tax rates is also illustrated in the shaded text box ("Case Study") below. Effective marginal tax rates tend to rise with income (see Figure 4 ). On average, taxpayers in the first two income deciles face negative effective marginal tax rates. These taxpayers tend to be in the phase-in range of the EITC. On average, taxpayers in the top income decile faced an effective marginal tax rate of 28.5%. Marginal tax rates tend to be higher than average tax rates, reflecting the progressive nature of the income tax system. Further, phaseouts of tax benefits for higher-income taxpayers contribute to enhanced progressivity, making marginal tax rates higher for certain higher-income taxpayers. While effective marginal tax rates tend to rise with income, there is substantial variation in the effective marginal tax rates faced by taxpayers within income groups. This observation is discussed further below (see " Tax Rates Vary Across and Within Income Groups "). The Importance of Weights: Taxpayer-Weighted versus Earnings-Weighted Tax Rate Statistics When looking at average marginal tax rates for a group of taxpayers, or for the tax system as a whole, it is important to distinguish between averages that are taxpayer-weighted (or return-weighted) as opposed to earnings-weighted. Taxpayer-weighted (or return-weighted) summary statistics average the marginal tax rates paid by each taxpayer. Earnings-weighted summary statistics, by contrast, weight each return by the amount of earnings reported, or the earnings reported at the marginal rate. Recall that most taxpayers file returns in the lower statutory rate brackets, but that a larger share of income is reported in the higher statutory rate brackets. As a result, earnings-weighted measures of average effective marginal tax rates tend to be higher than taxpayer-weighted measures. Mean average tax rates and mean effective marginal tax rates reported in Figure 2 and Figure 4 above are taxpayer weighted. However, since the taxpayers are grouped according to income, means calculated on a taxpayer-weighted basis should be similar to earnings-weighted means. The mean average and effective marginal tax rates in Figure 3 are earnings-weighted, such that the means better reflect tax rates applied to income in the economy. When considering how marginal tax rates might affect economic output, earnings-weighted marginal tax rates are more appropriate. Observations Using Individual Taxpayer Data The following sections take a closer look at average and effective marginal tax rates. Specifically, the analysis highlights the variation in tax rates within income groups, and how family composition affects tax burden. Findings are discussed in greater detail below and include the following: In 2010, 46% of taxpayers faced an effective marginal tax rate that was different than their statutory rate. Average tax rates tend to rise across income groups. Effective marginal tax rates, however, are higher for many low- and middle-income taxpayers, particularly those with children, than they are for higher-income taxpayers. For low- and middle-income taxpayers, family composition explains much of the variation in average tax rates within income groups. For higher-income taxpayers, controlling for family composition does less to reduce variation in average tax rates. Statutory Tax Rates Do Not Necessarily Reflect Tax Burden While statutory tax rates are often highlighted in tax reform debates, statutory tax rates are often not a good measure of either taxes paid on additional earnings or overall tax burden. In 2010, 54% of tax filers had an effective marginal tax rate that was the same as the statutory tax rate. For 29% of taxpayers, the effective marginal tax rate was higher than the statutory rate. For 16% of taxpayers, the effective marginal tax rate was less than the statutory rate. The reasons why effective marginal rates differ from statutory rates are discussed in more detail below. In 2010, taxpayers in the 28% and 33% brackets were most likely to face effective marginal rates higher than their statutory rate (see Figure 5 ). Many taxpayers with little or no income face negative effective marginal tax rates. Thus, taxpayers in the zero statutory rate bracket are among those most likely to face effective marginal tax rates that are below their statutory rate. Taxpayers in the highest tax bracket, 35% in 2010, are also among the most likely to have an effective marginal rate that is less than the statutory rate. How Much Do Effective Marginal Rates and Average Rates Differ from Statutory Rates? For many taxpayers, not only do effective marginal and average tax rates differ from statutory rates, but they differ by a sizable amount. Table 4 provides more information on the magnitude of differences between effective marginal and statutory rates, as well as average and statutory rates. In the lower tax brackets, when taxpayers faced an effective marginal tax rate above their statutory rate, the difference in the two rates tended to be substantial. In 2010, approximately 41% of taxpayers in the 10% statutory rate bracket had an effective marginal tax rates that was higher than their statutory rate. Approximately 36% of taxpayers in the 10% bracket in 2010 faced effective marginal tax rates that were at least 5 percentage points higher than 10% (faced an effective marginal tax rate of at least 15%), while 20% of taxpayers in the 10% bracket faced effective marginal tax rates that were at least 10 percentage points higher than 10% (faced an effective marginal tax rate of at least 20%). Taxpayers in higher tax brackets are also more likely to face an effective marginal tax rate that is above their statutory rate. However, the difference between the effective marginal rate and statutory rate tends to be smaller. In 2010, more than half of taxpayers in the 28% bracket, and more than three-quarters of taxpayers in the 33% bracket, faced effective marginal tax rates higher than their statutory rate. Looking at magnitude, nearly 10% of taxpayers in the 28% bracket faced an effective marginal tax rate that was at least 5 percentage points higher than their statutory rate. However, less than 1% of taxpayers in the 28% bracket faced an effective marginal tax rate that was at least 10 percentage points higher than their statutory rate. Very few taxpayers in the 33% bracket faced an effective marginal tax rate that was more than 5 percentage points above their statutory rate. Average tax rates are at least 5 percentage points less than statutory tax rates for nearly all taxpayers. For many taxpayers, average tax rates are less than statutory rates by 10 percentage points. In the 25% bracket, an estimated 94% of taxpayers had an average tax rate of 15% or less in 2010. In the 35% tax bracket, an estimated 44% of taxpayers had an average tax rate of 25% or less. Why Do Effective Marginal Tax Rates Differ from Statutory Rates The U.S. individual income tax system is complex. There are many provisions with phase-ins, phaseouts, floors, or other features that cause effective marginal tax rates to differ from statutory rates. A survey of all provisions that cause effective marginal tax rates to differ from statutory rates is beyond the scope of this report. However, some of the provisions that cause effective marginal tax rates to differ from statutory rates are briefly discussed below. For lower- and moderate-income families, the earned income tax credit (EITC) and child tax credit (CTC) cause effective marginal tax rates to differ from statutory rates. In 2010, the phase-in rate for the EITC was 40% for a married couple with two children. Thus, for married couples with two children with up to $12,590 in income in 2010, the EITC reduced effective marginal tax rates by 40 percentage points. The EITC phased out at a rate of 21.06% for married couples with two children in 2010, causing effective tax rates to rise by this amount for taxpayers with incomes between $16,450 and $40,363. Thus, the EITC helps explain effective marginal tax rates that are less than statutory rates for many low-income families. The EITC also helps explain effective marginal tax rates that exceed statutory rates for some middle-income families (e.g., married couples with two children in the 15% statutory rate bracket in 2010). In 2010, the child tax credit affected marginal tax rates for many families with children. Families with earnings of a least $3,000 could receive a refundable credit of up to $1,000 per qualifying child. The credit was phased in at a rate of 15%, therefore reducing effective marginal tax rates by 15 percentage points in the phase-in range. The child tax credit phases out at a rate of 5% for joint filers with incomes above $110,000 ($75,000 for head of household filers). Thus, the CTC decreases effective marginal tax rates for those in the very lowest tax bracket, but increases effective marginal tax rates for those in higher brackets, the 25% statutory bracket in particular. Phaseouts for the EITC and the CTC ensure that the benefits of these provisions are targeted towards the lower and middle portions of the income distribution. In 2010, the making work pay credit and its associated phaseout increased effective marginal tax rates for many taxpayers in the 25% and 28% tax brackets. The making work pay credit provided a tax credit of up to $400 for single filers, or $800 for married couples filing jointly. The credit was designed to phase out at a rate of 2% of income. The phaseout range for single filers began at $75,000, such that those with income above $95,000 would not receive the credit. For married couples filing joint returns, the phaseout range began at $150,000, and the credit was fully phased out for couples with income above $190,000. The 2% of income phaseout increases effective marginal tax rates for taxpayers in the phaseout range by 2 percentage points. The alternative minimum tax (AMT) affects effective marginal tax rates for many higher-income taxpayers. Broadly, the AMT has a two-tiered rate structure, with rates set at 26% and 28%. In 2010, the AMT had exemption amounts of $72,450 for joint filers, and $47,450 for non-joint filers. These exemption amounts, however, are phased out above certain income thresholds (in 2010, the phaseout started at $150,000 for joint filers, and $112,500 for single or head of household filers). The exemption amount is phased out at a rate of 25%, making the effective AMT rates 32.5% and 35% in the exemption phaseout range. In 2010, 85% of returns filed in the 33% bracket were returns with alternative minimum tax. The AMT and the associated exemption phaseout explain why most returns filed in the 33% statutory bracket face an effective marginal tax rate of 35% (see Table B-3 ). Of returns filed in the top bracket, or the 35% bracket in 2010, 53% were returns with alternative minimum tax. Thus, for a large proportion of taxpayers in the top statutory tax brackets, the relevant marginal rate is not the statutory rate of the ordinary individual income tax, but instead the effective marginal rate under the AMT. Most of the 16% of taxpayers with effective marginal tax rates below their statutory rate either do not pay income taxes (are in the 0% bracket) or were in the top tax bracket, the 35% bracket, in 2010. For tax filers with a 0% rate, effective marginal tax rates are the result of phased-in refundable tax credits (e.g., the EITC, child tax credit, or, in 2010, the making work pay tax credit). The AMT, with a top effective rate of 28%, explains why approximately 45% of tax filers in the top statutory tax bracket have a marginal effective tax rate that is less than the statutory rate. Of the less than 1% of taxpayers in 2010 that filed returns that placed them in the top statutory bracket (the 35% bracket), nearly half of those taxpayers face an effective marginal tax rate that is less than the statutory rate, and for most of those taxpayers, the effective marginal tax rate was 30% or less. Effective marginal tax rates can fluctuate from year to year, as policy changes mean that phase-ins and phaseouts come in and out of the code. For example, in 2010, effective marginal tax rates were affected by the making work pay tax credit. This temporary policy was only available during 2009 and 2010. Other provisions that increase effective marginal tax rates on higher-income taxpayers are the personal exemption phaseout (PEP) and limitation on itemized deductions (Pease). Notably, these provisions were repealed for 2010, and thus did not affect the effective marginal tax rates summarized in this report. PEP reduces personal exemptions by 2% for each $2,500 that income exceeds phaseout thresholds (in 2016, the phaseout begins at $259,400 for single filers, $311,300 for joint filers). The Pease limitation on itemized deductions is triggered by income, and is not a function of the amount of deductions claimed. For taxpayers above the Pease earnings threshold in a given tax year (same as the PEP threshold noted above for 2016), the Pease limitation increases tax liability by $0.03 for each dollar of earnings. Thus, for tax years when Pease is in effect, the Pease limitation serves to increase effective marginal tax rates by 3%. Tax Rates Vary Across and Within Income Groups There is substantial variation in average tax rates within income groups. As a result, some higher-income taxpayers have average tax rates that are less than the average tax rate faced by lower-income taxpayers. For example, taxpayers in the 90 th percentile of the 4 th income decile (cash income between $24,160 and $31,310) had an average tax rate of 5.6% in 2010 (see Figure 6 ). In contrast, taxpayers in the 10 th percentile of the 9 th income decile ($84,970 - $123,230) had an average tax rate of 3.6% in 2010. Various features of the U.S. tax system make it so that some taxpayers with higher income have average tax rates that are less than average rates paid by some lower-income taxpayers. While there is variation in tax rates within income groups, median average tax rates rise across income groups, reflecting the generally progressive nature of the individual income tax system. The dispersion of tax rates within income groups tends to be widest for taxpayers in the lower-income deciles. Much of this dispersion is due to family composition (discussed more below). That is, lower-income taxpayers with children qualify for refundable credits that reduce average tax rates. As these credits phase-out, there is less dispersion in average tax rates within income groups. Dispersion of average tax rates rises towards the top of the income distribution, after declining in the middle of the income distribution. There is also a substantial amount of variation in effective marginal tax rates within income deciles (see Figure 7 ). Most taxpayers in the first two income deciles (those with incomes up to $17,610) face negative effective marginal tax rates. Thus, each dollar in earnings results in more than a dollar of after-tax income. Negative effective marginal tax rates are the result of phase-ins of refundable tax credits. The median effective marginal tax rate holds steady at 15% through the middle of the income distribution (the 4 th through 8 th income deciles). This is consistent with the observations above that (1) approximately two-thirds of taxpayers in the 15% statutory tax bracket face an effective marginal tax rate of 15%; and (2) a plurality of tax returns filed fall in the 15% bracket (a plurality of taxable income is also taxed at the 15% rate). Some taxpayers in the middle of the income distribution face higher effective marginal tax rates than most taxpayers with higher incomes. These relatively high effective marginal tax rates reflect phaseouts of tax credits. Family Composition and Tax Rates Family composition is a key factor explaining much of the variation in average and effective marginal tax rates across the income distribution. Figure 8 illustrates average tax rate by income group for six family types: (1) single, with no dependents; (2) head of household, with one child; (3) head of household, with two children; (4) married, with no dependents; (5) married, with one child; and (6) married, with two children. An estimated 80% of tax filers fell into one of these six family type categories in 2010. In Figure 8 , income deciles are calculated separately for each family type. For example, for single tax filers in 2010, the top income decile starts at $76,010 (see Table B-4 for the income ranges associated with the decile break points for the six family types). For married filers, the top income decile starts at $176,160. Looking at Figure 8 , the distribution of average tax rates for single filers in the top income decile appears roughly similar to the distribution of average tax rates for married filers without children that are in the top 10% of that family type group. The incomes of taxpayers in these two groups, however, are very different. For low- and moderate-income taxpayers, controlling for family type tends to reduce the variation in average tax rates within income groups. This is less true, however, at the top of the income distribution. In 2010, for the entire sample, tax filers in the 10 th percentile of the top income decile faced an average tax rate of 3.8%. Tax filers in the 90 th percentile of the top income decile faced an average tax rate of 23.3%. Similar differences between the 10 th and 90 th percentiles can be observed in Figure 8 for tax filers in different family type groups in the top income decile. This suggests that for higher-income taxpayers, variation in average tax rates is generally driven by factors other than family composition. There are several other trends that can be observed in Figure 8 . For head of household taxpayers, average tax rates tend to decrease across the lowest income deciles, before increasing. This reflects the phase-in of family-related tax benefits, and that married taxpayers' incomes tend to be higher. For head of household taxpayers with one child, the median average tax rate is negative across the first six income deciles (or the first eight income deciles for head of household filers with two children). For married tax filers with two children, the median average tax rate in the 10 th decile is higher than the median average tax rate for other married filers. The 10 th income decile also starts at a higher value for married filers with two dependents ($200,890) than for married filers with one dependent ($180,310) or married filers without children ($176,160). For head of household filers, in contrast, the 10 th income decile starts at a lower level for head of household filers with two children ($63,410) as opposed to one child ($72,710) or single filers without children ($76,610). Evaluating effective marginal tax rates by family type also reveals some broad trends (see Figure 9 ). In the lowest income deciles, there is less variation in effective marginal tax rates for taxpayers without children (either single or married), than for taxpayers with children. For taxpayers with children, there is still substantial variation in effective marginal tax rates within income groups for lower-income deciles. The variation is driven by eligibility for child- and family-related tax benefits. While average tax rates tend to rise across the income distribution, a different trend appears for effective marginal tax rates for taxpayers with children. Median effective marginal tax rates rise initially, but then tend to decline as incomes increase, before increasing again at the top of the income distribution. This trend is most pronounced for head of household taxpayers with children. Tax credit phaseouts for taxpayers with children cause effective marginal tax rates to be higher for some lower income taxpayers than for higher income counterparts. In the lower and middle parts of the income distribution, households with children tend to have average tax rates and effective marginal tax rates that differ from households without children. These differences, however, largely disappear at the top of the income distribution, as tax benefits for families with children phase out. Discussion The differences between statutory, average, and effective marginal tax rates are important when analyzing tax policy and considering matters of equity and efficiency. Since statutory tax rates provide limited information about tax burdens, questions of equity are often better addressed by using average rates. Since effective marginal tax rates do not equal statutory tax rates for a large proportion of taxpayers, statutory rates provide limited information on the incentives created by the tax code. Measuring Tax Burden In the current tax system, statutory tax rates do not provide much information about individual taxpayers' overall tax burden. Average tax rates provide better information about how much taxpayers are paying in income tax. For that reason, analysis of tax policy proposals tends to focus on average tax rates, rather than statutory rates. In a progressive tax system, average tax rates rise with income. Taxpayers with a greater ability to pay contribute a larger share of their income to taxes, consistent with the notion of vertical equity. A progressive tax system also means that average tax rates tend to be less than statutory tax rates. In 2010, taxpayers in the top 1% of the income distribution had an average tax rate of 19.8%, even though the top statutory rate was 35%. Summarizing average tax rates for different income groups can also mask variation in average tax rates within income groups. Exemptions, deductions, exclusions, credits, and other features of the tax code mean that, even for taxpayers with similar incomes, average tax rates can vary substantially. Thus, there can be (and are) taxpayers in the 35% statutory rate bracket with average tax rates below taxpayers in the 10% or 15% statutory bracket. Efforts to address horizontal equity may result in average tax rates that differ for taxpayers with similar levels of income. Horizontal equity suggests that taxpayers who are equal before paying taxes should face a similar tax burden. Horizontal equity also provides that some allowance could be made for family size or composition. In the existing tax system, controlling for differences in family composition reduces, but does not eliminate, variations in tax burden across the income distribution. Further, controlling for family composition tends to expose differences in average tax burdens and effective marginal tax rates between taxpayers with and without children in the lower and middle parts of the income distribution. However, towards the top of the income distribution, average and effective marginal tax rates tend to be more similar across family types. This suggests that how the tax system adjusts for horizontal equity depends where a taxpayer is on the income distribution. The Tax Code and Taxpayer Behavior Marginal tax rates can affect taxpayers' work and savings decisions. Increases in marginal tax rates reduce the after-tax returns to work, and tend to cause taxpayers to work less (economists call this the "substitution effect"). With higher tax rates, however, taxpayers may work more to maintain their standard of living (economists call this the "income effect"). Theoretically, the income effect might offset some of the reduction in labor supply following tax increases, or increases in labor supply following tax cuts. Empirical evidence suggests that increases in marginal tax rates reduce labor supply, but that the effects are small. A 2012 survey of the literature found that a policy that reduced after-tax income by 1% would lead to a 0 to 0.2% decrease in hours worked (or a 0 to 0.2% decrease in labor force participation). There are also questions about the extent to which taxpayers know their marginal tax rate, or understand how and when it changes. Analysis of taxpayer behavior regarding effective marginal tax rates has shown that while some taxpayers do report income to maximize tax credits and avoid high effective marginal tax rates, these patterns are not observed consistently in response to various phase-ins and phaseouts in the tax code. Broadly, however, there is agreement that taxes distort behavior, and result in taxpayers making decisions that are different than they would have made in the absence of taxes. To the extent that effective marginal tax rates lead to taxpayers changing behavior—whether it be changes in labor supply, changes in the form of compensation received (un-taxed fringe benefits as opposed to wages), or non-reporting of income—effective marginal tax rates are the metric that can be used to measure the efficiency cost of taxation. The notion that an economically efficient tax system is one with a broad base, allowing for low tax rates, is based on the belief that higher rates impose a larger efficiency cost. As illustrated above, for many taxpayers, effective marginal tax rates differ from statutory rates. A tax system with low statutory rates, but high effective marginal tax rates, could cause more distortions than a system with higher statutory rates, but lower effective marginal rates or effective marginal rates closer to statutory rates. While marginal tax rates can distort taxpayer behavior, for these tax rates to drive changes in behavior, taxpayers need to understand what they are. In the current system, complexity and a lack of transparency regarding effective marginal tax rates makes it hard for taxpayers to understand the economic incentives created by the tax code. In other words, if taxpayers are not aware that they face a high effective marginal tax rate, then they would not be expected to respond by reducing work hours or changing behavior in some other way. Considerations for Tax Policy Design Policymakers engaged in tax reform efforts may seek to make the tax system simpler, fairer, and more efficient. With respect to statutory, average, and effective marginal tax rates, there are several considerations for policymakers designing a tax reform plan that achieves these goals. First, the number of statutory tax brackets has little impact on complexity. Instead, complexity comes from defining the tax base, or what is treated as taxable income. For example, are employee-provided fringe benefits taxable? The rules created in response to this and similar questions make for a complex tax system. Other sources of complexity include various tax incentives designed to address social and economic issues, including but not limited to tax benefits for families, children, education, housing, and charitable giving. Temporary tax provisions, as well as frequent changes in tax policy, also contribute to a complicated individual income tax system. While there is ample room for simplification in tax reform, consolidating and reducing the number of tax brackets alone does little to achieve this objective. Second, evaluations of equity should consider differences in tax burdens both across and within income groups. The extent to which the tax system is proportional, progressive, or regressive can be evaluated by looking at the average tax burden across income groups. However, as illustrated in this report, under the current individual income tax system, there is substantial variation in tax burdens within income groups. Policymakers might consider whether this variation is desirable, perhaps because it makes adjustments for family size or other ability-to-pay considerations (in other words, makes adjustments to enhance horizontal equity). Third, low effective marginal tax rates do more than low statutory rates to promote economic efficiency (that is, they introduce fewer distortions in real economic activity). In an uncomplicated tax system, effective marginal rates are equal to statutory rates. Under the current system, however, a taxpayer's effective marginal tax rate often differs from the statutory rate. Phaseouts of various tax benefits, limiting the benefits of certain provisions to low- and moderate-income taxpayers, results in marginal tax rates that exceed the statutory rate. Thus, there is a tradeoff between equity and efficiency objectives. If a reformed tax system includes provisions to reduce the tax burden for low- and moderate-income taxpayers without extending those benefits to higher-income taxpayers, policymakers might consider the marginal tax rate effects of phaseouts associated with those policies. Finally, it is helpful to remember the primary goal of taxation: raising revenue. That said, the individual income tax can, and often is, used to achieve social, regulatory, and other policy objectives. Doing so, however, introduces complexity, and can involve trade-offs between other objectives. For example, refundable tax credits enhance the progressivity of the tax system, increasing after-tax income for those with little or no tax liability. With a fixed revenue target, refundable tax credits might be compensated for elsewhere in the system with higher rates. These higher rates could distort taxpayer behavior, possibly creating a disincentive to work. The need to raise revenues can constrain the extent to which the tax code can be used to achieve other policy objectives. Appendix A. The 2010 Public Use File and the Individual Income Tax System in 2010 Much of the analysis in this report relies on data from the IRS SOI public use file. The most recent public use file available at the time this report was written was for tax year 2010. This appendix provides additional information on the IRS SOI public use file and the individual income tax system in 2010, highlighting differences between the system in 2010 and the current system. The 2010 IRS SOI public use file contains 159,791 records designed to provide statistical information for the 142.9 million individual income tax returns filed in 2010. The focus of this report is on the 2010 tax year. Thus, records pertaining to previous tax years (5,117 records in total) are dropped, leaving a file that represents 138.3 million returns. Information on the filing status of taxpayers filing 2010 returns in the IRS SOI public use file can be found in Table A-1 . An estimated 45.1% of returns filed for 2010 were for single taxpayers. An estimated 38.0% were for married filers filing joint returns. The remainder of returns were filed using the married filing separately or head of household filing status. Table A-2 provides information on returns filed, categorized according to adjusted gross income (AGI). In 2010, 57.6% of returns filed reported an AGI of less than $40,000, while 87.1% of returns filed reported an AGI for less than $100,000. Statutory tax rates applied in 2010 appear in Table 1 . In 2010, the top statutory tax rate was 35%. In 2010, less than 1% of tax returns filed had income taxed at the top marginal statutory rate (see Figure A-1 ). These returns accounted for 14% of AGI in 2010. Just over 27% of taxable income was taxes at the 35% rate in 2010. The proportion of taxpayers taxed at the top rate and the share of income taxed at the top rate were similar between 2010 and 2014. However, the top rate increased from 35% to 39.6% between these two years. Overall, given the current statutory rate bracket structure, changes in the top statutory rate would affect few taxpayers, but would affect a larger proportion of income. There are several features of the 2010 tax code that differ from the tax code in 2016 that affect effective marginal tax rates. For example, the making work pay tax credit was available in 2010, providing up to $800 for joint returns, or $400 for single returns. This credit phased out for higher-income taxpayers. Some taxpayers may have claimed the first-time homebuyer tax credit for property purchased in 2010. Like the making work pay tax credit, this provision phased out for higher-income taxpayers. Both of these provisions generated increased effective marginal tax rates for taxpayers in the phaseout range. Under current law, the Pease itemized deduction limit and the personal exemption phaseout (PEP) raise effective marginal tax rates for higher-income taxpayers. These provisions were not in effect in 2010. Appendix B. Supplemental Tables and Data This appendix contains charts and figures to supplement the analysis presented in the body of the report. Table B-1 contains data underlying Figure 2 and Figure 6 in the body of the report. Table B-2 contains data underlying Figure 4 and Figure 7 in the body of the report. Table B-3 contains data underlying Figure 5 , as well as additional information on the distribution of effective marginal tax rates within statutory tax brackets. Table B-4 contains information on the income levels in the income deciles for each of the family types included in Figure 8 and Figure 9 in the body of the report. The final two figures presented in this appendix, Figure B-1 and Figure B-2 , reproduce Figure 8 and Figure 9 using the income decile break points for the entire sample of taxpayers (as opposed to break points determined for each individual family type).

Tax reform is a stated priority of the 115th Congress. In June 2016, Ways and Means Committee Republicans released the "Better Way" tax reform blueprint. The proposal seeks to make the individual income tax system "simpler, flatter, and fairer" by consolidating the number of individual income tax brackets. Looking at statutory tax rates alone, however, provides limited information regarding the simplicity or fairness of the tax system. Average tax rates and effective marginal tax rates are frequently used by economists and policy analysts to evaluate the fairness of the tax system, as well as various economic incentives created by the system. This report provides background information on alternative tax rate metrics, and discusses how these measures of the tax burden inform the tax reform debate. Under current law, there are seven statutory tax rate brackets in the federal individual income tax system. Very few taxpayers, less than 1% in 2014, face the top statutory rate. A taxpayer's average tax rate is the percentage of total income that is paid in taxes. This metric is useful when comparing tax burdens across taxpayers, as well as certain economic incentives created by the tax system. For nearly every taxpayer, average tax rates are less than the statutory rate. A taxpayer's effective marginal tax rate is the amount of income tax paid on the next dollar of earnings. Effective marginal tax rates are determined by statutory rates, as well as various other provisions. Effective marginal tax rates also provide information on the economic incentives created by the tax code for different taxpayers. As illustrated in this report, under the current system, statutory, average, and effective marginal tax rates can differ substantially for any given taxpayer. Since statutory tax rates provide limited information about tax burdens, questions of equity are often better addressed by using average rates. Since effective marginal tax rates do not equal statutory tax rates for a large proportion of taxpayers, statutory rates provide limited information on the incentives created by the tax code. One way to evaluate average tax rates is to examine them across the income distribution. This report uses the 2010 Internal Revenue Service (IRS) Statistics of Income (SOI) public use file, the most recent publicly available sample of individual taxpayer returns available when this report was written, to complete this analysis. When taxpayers are divided into income deciles (grouped such that there are 10 equal-sized groups of taxpayers, ranked by income), average tax rates are negative for the first four income deciles. Negative average tax rates are the result of refundable tax credits, generally provided to working families with children. For the top income decile, taxpayers with income above $123,210 in 2010, the average of the average tax rates was 13.6%. In an uncomplicated tax system, marginal tax rates would generally equal the statutory tax rate. For 46% of taxpayers in 2010, effective marginal tax rates differed from the statutory rate. Twenty-nine percent of taxpayers had an effective marginal tax rate that exceeded their statutory rate, while 16% had an effective marginal tax rate that was less than the statutory rate. Both average and effective marginal tax rates vary both across and within income groups. Average tax rates tend to rise with income, reflecting the overall progressivity of the tax system. However, the substantial variation of average tax rates within income groups illustrates that higher-income taxpayers do not necessarily face higher average tax rates. For lower- and middle-income taxpayers, family composition explains much of the difference in average tax rates for taxpayers with similar incomes. Unlike average tax rates, effective marginal tax rates do not always rise with income. The phase-ins and phaseouts associated with tax benefits for families with children mean that for these family types, effective marginal tax rates in the lower and middle parts of the income distribution are similar to those faced by taxpayers near the top of the income distribution.

Introduction The United States has maintained foreign aid programs in Latin America and the Caribbean since the 1940s, although funding levels were minimal until the early 1960s. U.S. objectives have varied over the years. Recent programs are meant to address poverty, health, economic growth, counternarcotics, and trade capacity building. The region is considered important to U.S. interests as countries of Latin America and the Caribbean are important trading partners, sources of immigration to the United States, and production centers and transit points for illegal narcotics. Environmental concerns are also prominent, particularly in the Amazon basin. U.S. support for development is identified by President Bush as one of the three pillars, with defense and diplomacy, of the National Security Strategy, developed after the terrorist attacks of September 11, 2001. Globally, the U.S. Agency for International Development (USAID) identifies five challenges to which U.S. assistance programs are designed to respond: promoting transformational development; strengthening fragile states; providing humanitarian relief; supporting U.S. geostrategic interests; and mitigating global and transnational ills. USAID identifies the main security threats to the United States as the confluence of terrorism and the proliferation of weapons of mass destruction, and global criminal networks. The focus has shifted to strengthening the institutions of weak states, rather than on just economic growth, because weak states are seen as permissive environments for terrorist and criminal activities. A foreign aid reform initiative, begun in 2006, categorizes countries in one of five categories: transforming; developing; sustaining partners; rebuilding; and restrictive. These categories, representing common development challenges, are linked to strategic objectives, promoting: peace and security; governing justly and democratically; investing in people; economic growth; and humanitarian assistance. (See section below for more details on the effects of aid reform in Latin America.) This report tracks foreign aid funding levels to Latin America and the Caribbean over the last three years. The annual State Department, Foreign Operations, and Related Programs Appropriations bills are the vehicles by which Congress funds foreign assistance programs. Congress completed action on FY2008 funding in a Consolidated Appropriations Act, Division J ( H.R. 2764 ) passed the week of December 17, 2007. Congress will likely continue to take interest in a number of related issues, including the level of aid, the effectiveness of counternarcotics assistance, and how best to address the spread of HIV/AIDS, and address poverty in the region. This report will be updated as country specific aid levels for FY2008 become available. Historical Trends Trends in U.S. foreign assistance to Latin America generally reflect the trends and rationales for U.S. foreign aid programs globally. U.S. assistance spiked in the 1960s during President Kennedy's Alliance for Progress, reflecting an interest in preventing the spread of Soviet and Cuban influence in the region, and recognizing poverty as one possible root cause of popular discord. In the 1980s, the U.S. focus shifted to the Central American isthmus where leftist insurgencies were challenging friendly governments, and where a leftist movement in Nicaragua had taken control of government through armed combat. Substantial amounts of U.S. assistance were provided to support Central American governments and the U.S.-backed Contras seeking to overthrow the Sandinista government in Nicaragua. In the aftermath of the 1989 U.S. military intervention in Panama, and the 1990 electoral defeat of the Sandinista government in Nicaragua, U.S. assistance to these two countries increased substantially. Countries in Central America have resolved a number of their political problems since the 1980s, although it is still one of the least developed areas in the hemisphere. With the dissolution of the Soviet Union in 1991, U.S. concerns about spreading communist influence lessened, and so too did levels of U.S. assistance for a time. Since 2000, U.S. assistance has focused on support for counternarcotics activities, largely in the Andean region. Figure 1 indicates trends in U.S. assistance since 1946 in real terms (adjusted for inflation). U.S. assistance has not returned to levels attained during the Alliance for Progress in the 1960s. The annual average since 1990 is approximately half of what it was in the 1960s. During the 1990s, the regional annual average aid level was approximately $1.9 billion; since 2000, it has averaged $2.4 billion, largely a reflection of increases in counternarcotics resources directed at the Andean region. The FY2008 request of $1.6 billion in the regular budget represents a decrease in the average since 2000, but is consistent with levels since FY2006. When including an additional $550 million in counternarcotics funds for Mexico and Central America requested as part of the supplemental budget, the FY2008 request is $2.1 billion, an increase from the previous year. Some countries are benefitting from two new presidential initiatives. Haiti and Guyana—identified as focus countries by the President's Emergency Plan for AIDS Relief (PEPFAR)—have received increased assistance for HIV/AIDS prevention and treatment programs. El Salvador, Nicaragua, and Honduras have signed Millennium Challenge Corporation (MCC) compacts that total $846 million over five years. In addition, Guyana and Paraguay are receiving MCC Threshold grants to help prepare them for possible compacts. Since 2000, the region has seen an increase in assistance for counternarcotics, military training, and HIV/AIDS programs. Other accounts have seen steady decreases. Table 1 tracks funding since FY2000 for major assistance accounts with figures adjusted for inflation. Figure 2 represents funding trends of major sectors over the same period. In the last eight years (FY2000-FY2007), the United States has funded counternarcotics programs totaling $6.7 billion, or roughly $841 million per year. By contrast, counternarcotics funding during the 1990s averaged $134 million per year. The FY2008 regular request of $493.3 million, together with a $550 million supplemental request for Mexico and Central America, amounts to $1.04 billion, surpassing the annual average since 2000. Assistance for health programs since 2000 has increased from a low of nearly $99 million in FY2000 to a high of $237 million in FY2007, for an annual average of $179.6 million. A large proportion of the increase can be attributed to assistance to two countries—Guyana and Haiti—as PEPFAR focus countries. HIV/AIDS funding accounted for $95 million in FY2007 and a proposed $104 million in FY2008. Security assistance, on the other hand, has fluctuated since 2000, but has averaged $161.9 million per year. The average during the 1990s was $459.8 million. Military assistance, the total of Foreign Military Financing (FMF) and International Military Education and Training (IMET), has increased since 2000, largely a factor of increased FMF assistance to Colombia. Military assistance from 2000 to 2007 averaged $80.8 million. During the 1990s, military assistance averaged $96.7 million per year. Assistance by Subregion For FY2007, the largest portion of U.S. assistance occurs in the Andean region, a result of counternarcotics programs focused on Colombia. The Andean region's share of the total Western Hemisphere aid budget is currently 52.9%. The second largest share (20.8%) goes to countries in the Caribbean where Haiti receives 2/3 of the subregion's share. Mexico and Central America receive 16.2% of the total with most funds for programs in Mexico, El Salvador, Guatemala, Honduras, and Nicaragua. Brazil and countries of the Southern Cone (Chile, Argentina, Uruguay, and Paraguay) receive 2% of the region's aid. The United States also maintains programs of a regional nature, such as trade capacity building, and migration and refugee assistance, that receive 8% of the aid budget. The ratio of assistance requested for FY2008 is similar to the previous year. The Andean region would receive 52.4% while Mexico and Central America would receive 14%. These figures could change substantially if Congress approves the budget request, and a $550 million supplemental request for Mexico and Central America. If approved, assistance to the Andean region and the Mexico/Central America region would be comparable at 39% and 36% respectively. Andean Region The area is generally known for its rugged terrain, from Peru's Pacific coastline to the Andes mountain range that traverses Peru, Bolivia, Colombia and Ecuador, to Amazonian basin regions marked by tropical rainforests. The area has large indigenous communities, high levels of poverty, and a history of political unrest. U.S. assistance to the Andean region has focused on narcotics since 2000, when Congress approved a $1.3 billion package in support of Plan Colombia. The United States had supported counternarcotics programs in the Andes previously, but at far lower levels of funding than the current Andean Counterdrug Initiative (ACI). Concerns with the influence of the populist Venezuelan leader President Hugo Chávez has also driven aid policy in the region. The Andean region also receives assistance for economic development and health programs. Bolivia and Peru are major recipients of Development Assistance, Child Survival and Health funds, and food assistance. Ecuador and Peru receive sizeable amounts of Economic Support Funds. The Peace Corps maintains programs in Bolivia, Ecuador, Panama, and Peru. Andean Counterdrug Initiative The Andean Counterdrug Initiative (ACI) is the centerpiece of U.S. counternarcotics assistance to the region. The program supports counternarcotics efforts in the three cocaine producing countries—Bolivia, Colombia, and Peru—as well as neighboring drug transit countries. The countries considered a part of ACI are: Bolivia, Brazil, Colombia, Ecuador, Panama, and Peru. Colombia receives the majority of ACI funding. Venezuela was previously considered part of ACI, but the Administration did not request any ACI funds for Venezuela in its FY2008 budget request. ACI currently supports a combination of enforcement and alternative development efforts which aim to reduce the flow of drugs into the United States and increase government stability in ACI countries. Enforcement programs include drug crop eradication and interdiction of drug shipments. Alternative development funds support economic development programs in coca growing regions, including infrastructure development and marketing and technical support for alternative crops. The FY2008 budget shifts support of alternative development programs from the ACI account to the ESF account. FY2006 funding for ACI was $727.2 million, and an estimated $721.5 million for FY2007. The FY2008 request is for $442.8 million, a 39% decrease from FY2006 levels. This cut is largely due to the transfer of alternative development funds to the ESF account, though aid levels to Ecuador and Peru would be lower in FY2008. Since the program's inception in 2000, the United States has allocated more than $6 billion for the effort. Mexico and Central America Because of proximity and lingering issues of poverty, Mexico and the isthmus of Central America are sources of immigration, often illegal, to the United States. The area is also considered a key transit zone for the flow of narcotics from its own production centers, and from South America. All the nations are trading partners, Mexico, under NAFTA, and the countries of Central America, under the U.S.—Dominican Republic—Central America Free Trade Agreement (CAFTA—DR). Environmental concerns are also prominent especially along the shared border with Mexico. Mexico Although U.S.-Mexico cooperation on counternarcotics, law enforcement, and trade has improved significantly in the last decade, Mexico, a middle income country, is not a major recipient of U.S. foreign assistance. U.S. assistance to Mexico may increase significantly in the near-term if Congress approves a new counternarcotics initiative (the Merida Initiative). An initial installment of $500 million was requested as part of the FY2008 emergency supplemental. Foreign aid allocations to Mexico are typically between $60 million and $70 million. In FY2006, $68 million in aid was allocated and an estimated $67 million was spent in FY2007. The majority of U.S. assistance to Mexico is for international narcotics and law enforcement programs. In FY2006 nearly $39 million, or 58%, of aid was through the INCLE account. An estimated $37 million was spent on narcotics and law enforcement programs in FY2007. In FY2006 some $27 million was spent on CSH, DA, and ESF programs in Mexico. That figure appears to have remained constant in FY2007, with an estimated $27 million allocated for CSH, DA, and ESF programs. The Administration's FY2008 regular budget request cuts aid to Mexico by 30% from FY2007 funding levels. The most significant cuts are in the Development Assistance (DA), and International Narcotics Control and Law Enforcement (INCLE) accounts. No funding is requested for DA in 2008, and INCLE programs—which fund counternarcotics and rule of law programs—are cut by $12 million. The Administration maintains that these cuts are justified because Mexico is the 13 th -largest economy in the world. However, in October 2007, the Administration announced a new multi-year, counternarcotics initiative for Mexico and Central America. Mérida Initiative On October 22, 2007, the United States and Mexico issued a joint statement announcing a multi-year plan for $1.4 billion in U.S. assistance to Mexico and Central America to combat drug trafficking and other criminal organizations. The Administration requested $500 million for Mexico and $50 million for Central America in the FY2008 supplemental appropriations request. The joint statement highlights current efforts of both countries, including Mexico's 24% increase in security spending in 2007. The stated objective of the Mérida Initiative is "to maximize the effectiveness of our efforts to fight criminal organizations—so as to disrupt drug-trafficking (including precursor chemicals); weapons trafficking, illicit financial activities and currency smuggling, and human trafficking." All of the proposed FY2008 funding for the Mérida Initiative is through the INCLE account, administered by the Department of State's Bureau of International Narcotics and Law Enforcement Affairs. The proposed $500 million in funding for Mexico is largely in the form of equipment and training, providing helicopters, surveillance aircraft, scanners, training, and information technology improvements for Mexican federal law enforcement and intelligence agencies. The Central American portion of the Mérida Initiative includes $50 million in initial funding to bolster the capacity of Central American governments to inspect and interdict drugs, goods, arms and people and to support the regional anti-gang strategy discussed at the July 2007 Central American Integration System (SICA) Summit. At that meeting, the United States pledged support to strengthen regional security coordination and to fund community action programs engaged in gang prevention and rehabilitation activities. Assistant Secretary of State for Western Hemisphere Affairs Thomas Shannon recently indicated the State Department's intent that the $50 million for Central America is slated to receive as part of the Merida Initiative will be followed by a larger, multi-year aid package for that region. Central American officials have said that they may need between $600 and $800 million to fund the increased law enforcement and equipment that would be necessary to implement a comprehensive regional security strategy. Central America Central America is a region composed of seven small countries with limited economic resources. Although Panama and Belize are on the Central American isthmus and receive small amounts of U.S. aid, their distinctive histories distinguish them from the five core countries—Guatemala, El Salvador, Honduras, Nicaragua, and Costa Rica—generally referred to as Central America. Among the five core Central American countries, Costa Rica enjoys a long history of stable democracy and a per capita income that is 10 times greater than that of Nicaragua. The other four countries, although posting significant democratic and economic improvements in the 1990s, are still recovering from decades of civil war and trying to confront high levels of poverty and violent crime. Despite these differences, each of the countries in Central America is highly dependent on trade with the United States. Trade ties between Central America and the United States have expanded since the implementation of the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA-DR). The Central America Regional program, for which Congress provided $16.8 million in FY2006 and an estimated $7.7 million in FY2007, has focused on fostering regional trade integration, including funds to ensure that countries enforce labor and environmental laws as required by CAFTA-DR. The FY2008 Administration request for regional programs in Central America is for $10.7 million, including $5 million to support ongoing government efforts to streamline and harmonize customs regulations. Regional funding will also support cross-border efforts to combat HIV/AIDS in Guatemala, El Salvador, Nicaragua, Belize, Costa Rica, and Panama. The latter three countries only receive HIV/AIDS assistance through the regional program. In addition to trade, environmental issues, and HIV/AIDS, Administration officials and Members of Congress have expressed ongoing concerns about another transnational problem facing Central America: organized crime and gang violence. The House-passed version of the FY2008 State, Foreign Operations, and Related Agencies Appropriations bill ( H.R. 2764 ; H.Rept. 110-197 ) would provide $8 million to the State Department to combat crime and youth gangs, an increase of $3 million from the Administration's request. In Central America, that funding would support a regional anti-gang initiative aimed at prevention, police training, and judicial reform, as well as bilateral anti-gang efforts in specific countries, particularly El Salvador, Guatemala, and Honduras. The major recipients of U.S. bilateral foreign assistance in Central America include El Salvador, Guatemala, Honduras, and Nicaragua. These four countries received $204 million in total assistance from the United States in FY2006, but only an estimated $173.6 million in FY2007. The FY2008 request for El Salvador, Guatemala, Honduras and Nicaragua was for an estimated $155.5 million. The bulk of U.S. bilateral assistance to Central America is provided through the Development Assistance (DA), Economic Support Fund (ESF) and Child Survival and Health (CSH) accounts. DA is provided to El Salvador, Guatemala, Honduras, Nicaragua, and Panama, totaling $77.6 million in FY2006, but falling to $59.5 million in FY2007. The FY2008 request for DA for Central America was for $49.4 million, a 17% decline from the previous year. Panama is not slated to receive DA assistance. In FY2006, a total of $9.8 million in ESF funds went to Guatemala, Nicaragua, and Panama. In FY2007, an estimated $8 million in ESF funds went to El Salvador, Guatemala, and Nicaragua. The FY2008 request included some $10 million in ESF funds, but all of those funds were requested for Guatemala. El Salvador, Guatemala, Honduras, and Nicaragua continue to receive between $7 million and $12 million in CSH funds each fiscal year, which are used to support the prevention and treatment of HIV/AIDS and other infectious diseases. Possessing high levels of poverty and unsustainable levels of foreign debt, Honduras and Nicaragua have additionally qualified for debt-relief under the Highly Indebted Poor Country (HIPC) initiative. Three Central American nations—Honduras, Nicaragua, and El Salvador—also receive economic assistance through the Millennium Challenge Corporation (MCC), totaling $851 million. Although Millennium Challenge funds were supposed to be in addition to, not a substitute for, traditional aid programs, all three countries experienced cuts in either (or both) of their DA and CSH funds from FY2006 levels in FY2007. Aid cuts have continued in the FY2008 request. Aid has decreased since FY2006 by 43% to El Salvador, 19% to Honduras, and 35% to Nicaragua. In addition to economic assistance, the United States provides military assistance to some of the governments of Central America. International Military Education and Training (IMET) funding provides training to both civilian and military leaders in all 5 Central American countries. El Salvador, Honduras, Nicaragua and Panama have also received Foreign Military Financing (FMF) funding in recent years. On March 24, 2005, the United States announced that it was releasing $3.2 million of Military Assistance Program (MAP) funds, a program later supplanted by the FMF program, to Guatemala that had been withheld since 1990 because of human rights concerns. However, the FY2006 Foreign Operations Appropriations Act ( P.L. 109-102 ) and the FY2007 Continuing Resolution ( H.J.Res. 20 / P.L. 109-289 , as amended by P.L. 110-5 ) maintained a prohibition on FMF funding to Guatemala. The Guatemalan government's recent approval of the establishment of an International Commission Against Impunity in Guatemala (CICIG) prompted the U.S. House and Senate to approve Foreign Military Financing for Guatemala in FY2008, pending Department of State certification that certain human rights conditions have been met. El Salvador is the only country in Latin America that still has troops in Iraq. It is also home to one of the three counternarcotics Cooperative Security Locations (CSLs), formerly known as Forward Operating Locations (FOLs), in the region, and a new International Law Enforcement Academy (ILEA). The FY2006 provision of $9.9 million in Foreign Military Financing for El Salvador was substantially higher than the $1.5 million allocated in FY2005. El Salvador received an estimated $7.2 million in FMF in FY2007. It is the only country in Central America slated to receive FMF funds in FY2008. Caribbean With some 42 million people encompassing 16 independent countries and 13 overseas territories, the Caribbean is a diverse region that includes some of the hemisphere's richest and poorest nations. In addition to 13 island countries, the Caribbean region also includes two countries located on the northern coast of South America, Guyana and Suriname, and one country, Belize, located in Central America, that historically and culturally share similar backgrounds with the Caribbean. The United States has provided considerable amounts of foreign assistance to the Caribbean over the past 25 years. U.S. assistance to the region in the 1980s amounted to about $3.2 billion, with most concentrated in Jamaica, the Dominican Republic, and Haiti. An aid program for the Eastern Caribbean also provided considerable assistance, especially in the aftermath of the 1983 U.S.-led military intervention in Grenada. In the 1990s, U.S. assistance to Caribbean nations declined to about $2 billion, or an annual average of $205 million. Haiti was the largest recipient of assistance during this period, receiving about $1.1 billion in assistance or 54% of the total. Jamaica was the second largest U.S. aid recipient in the 1990s, receiving about $507 million, almost 25% of the total, while the Dominican Republic received about $352 million, about 17% of the total. Eastern Caribbean nations received about $178 million in assistance, almost 9% of the total. The bulk of U.S. assistance was economic assistance, including Development Assistance, Economic Support Funds, and P.L. 480 food aid. Military assistance to the region amounted to less than $60 million during the 1990s. From FY2000 through FY2007, U.S. aid to the Caribbean region totaled about $1.9 billion, with increases reflecting increased HIV/AIDS assistance to the region (especially to Guyana and Haiti), disaster and reconstruction assistance in the aftermath of several hurricanes and tropical storms in 2004, and increased support for Haiti following the departure of President Jean-Bertrand Aristide from power. As in the 1990s, the bulk of assistance to the region consisted of economic assistance. With regard to hurricane disaster assistance, Congress appropriated $100 million in October 2004 in emergency assistance for Caribbean nations ( P.L. 108-324 ), with $42 million for Grenada, $38 million for Haiti, $18 million for Jamaica, and $2 million for other countries affected by the storms. Overall assistance to the Caribbean amounted to $308 million in FY2006, and an estimated $337 million in FY2007. For FY2008, the Bush Administration requested almost $366 million in assistance for the Caribbean, with about 61% for Haiti, almost 13% for Cuba democracy programs, almost 10% for the Dominican Republic, and just over 7% for Guyana. The Caribbean regional program would be funded at $9.3 million, while Eastern Caribbean nations would also receive about $3.2 million for a Peace Corps program, $0.6 million for International Military and Training (IMET) assistance, $0.5 in counternarcotics assistance, and $0.5 million in anti-terrorism assistance (ATA). While in past years, Caribbean nations have received some Foreign Military Financing (FMF)—for example, almost $4 million in FY2006—the Administration did not request any FMF for Caribbean nations in FY2008. Funding for the Third Border Initiative would decline, and has been subsumed into a Western Hemisphere Regional Program, with at least $1.750 million identified for the TBI in the State Department's FY2008 Congressional Budget Justification for Foreign Operations. Over the past several years, several Caribbean nations have become eligible for Millennium Challenge Account (MCA) assistance, but none has yet to be selected for the program, which provides assistance to countries with strong records of performance in the areas of governance, economic policy, and investment in people. Although Haiti and Guyana have been candidate countries potentially eligible for MCA funds since FY2004 (because of low per capita income levels), neither country has been approved to participate in the program because they have not met MCA performance criteria. Guyana has been designated as an MCA "threshold" country since FY2005, and in June 2007 was slated to receive $7.2 million in assistance (from FY2005 MCA funds) to help the country improve its fiscal policy so that it may become eligible for regular MCA funding. For FY2006 and FY2007, the per capita income level for MCA-eligibility increased, and as a result, in addition to Guyana and Haiti, three other Caribbean countries—the Dominican Republic, Jamaica, and Suriname—became potentially eligible for MCA funding but ultimately were not approved for participation. Haiti Haiti, the poorest country in the Western Hemisphere, has long been one of the top recipients of U.S. foreign aid in Latin America. Total assistance to Haiti, including food aid, increased from about $72 million in FY2003 to an estimated $214.9 million in FY2007. Some of the recent increases in assistance to Haiti have supported U.S. and international efforts to restore security and functioning democratic institutions in the country following the February 2004 ouster of embattled former President John-Bertrand Aristide. U.S. assistance has also supported the ongoing efforts of the U.N. Stabilization Mission in Haiti (MINUSTAH), which assumed authority in June of 2004. The United States funds programs to help the Haitian government combat urban crime, counter drug trafficking, and address trafficking in persons. Because Haiti is a focus country under the President's Emergency Plan for AIDS Relief (PEPFAR), it has benefitted from increased assistance to combat HIV/AIDS under the Global HIV/AIDS Initiative (GHAI) account. Haiti continues to receive assistance for basic healthcare, education, environmental conservation, and sanitation programs. Haiti also receives significant amounts of food assistance through P.L. 480 Title II, which is aimed at helping improve household nutrition for vulnerable groups. Haiti received $36 million in P.L. 480 Title II food aid in FY2006 and an estimated $32.5 million in food aid in FY2007. FY2008 food aid allocations by country have yet to be determined. An increasing percentage of U.S. assistance to Haiti is supporting efforts to increase trade and employment opportunities, particularly since the recent enactment of the Haitian Hemispheric Opportunity through Partnership Encouragement/HOPE Act of 2006, (Title V, P.L. 109-432 ). The United States provided almost $226 million in overall assistance for Haiti in FY2006, including $20 million in supplemental assistance. Supplemental assistance provided $2.5 million in Child Survival and Health funds and $17.5 million in Economic Support Funds for police and judicial reform programs and job creation programs. In FY2007, U.S. assistance totaled an estimated $214.9 million. The Administration's FY2008 request was for almost $223 million, including $83 million to combat HIV/AIDS and $25.5 million for an integrated conflict mitigation program to target urban crime. The House-passed FY2008 State, Foreign Operations and Related Programs Appropriations bill, H.R. 2764 , approved June 22, 2007, would fully fund most categories of assistance for Haiti, and would provide an additional $10 million in Development Assistance and an additional $2 million in Child Survival and Health assistance above the request. It also would provide $1 million in Foreign Military Financing (FMF) funding, pursuant to the regular notification procedures discussed below. The Senate Appropriations Committee report to the FY2008 foreign operations appropriations bill ( H.R. 2764 ; S.Rept. 110-128 ) would provide $73.4 million in Economic Support Funds (ESF) for Haiti, $10 million above the Administration's request. Of that amount, no less than $5 million would be made available for programs to improve case management and reduce pre-trial detention in the Haitian judicial system, and no less than $5 million would be made available to support USAID's watershed reforestation program in Haiti. Congress has monitored aid to Haiti closely, and has established a number of conditions on this assistance over the years. Cuba Over the past several years, the United States has provided assistance, primarily through the U.S. Agency for International Development (USAID), but also through the National Endowment for Democracy (NED)—to increase the flow of information on democracy, human rights, and free enterprise to Communist Cuba. The assistance has been part of the U.S. strategy of supporting the Cuban people while at the same time isolating the government of Fidel Castro through economic sanctions. USAID's Cuba program has supported a variety of U.S.-based non-governmental organizations with the goals of promoting a rapid, peaceful transition to democracy, helping develop civil society, and building solidarity with Cuba's human rights activists. These efforts are largely funded through Economic Support Funds (ESF). Funding for such projects amounted to about $5 million for each of FY2001 and FY2002, $6 million in FY2003, $21.4 million in FY2004 (because of re-programmed ESF assistance to fund the democracy-building recommendations of the Commission to Provide Assistance for a Free Cuba), and $8.9 million in FY2005. In FY2006, $10.9 million in Cuba democracy funding was provided, including $8.9 million in ESF and $2 million in Development Assistance, while in FY2007, an estimated $13.3 million in ESF for Cuba democracy programs is being provided, about $4.3 million more than that originally requested. In mid-November 2006, the Government Accountability Office (GAO) issued a report examining U.S. democracy assistance for Cuba from 1996-2005, and concluded that the U.S. program had significant problems and needed better management and oversight. According to GAO, internal controls, for both the awarding of Cuba program grants and oversight of grantees, "do not provide adequate assurance that the funds are being used properly and that grantees are in compliance with applicable law and regulations." Investigative news reports on the program maintained that high shipping costs and lax oversight have diminished its effectiveness. For FY2008, the Administration requested $45.7 million in ESF for democracy assistance for Cuba, more than four times the amount provided in FY2006 and more than five times the amount requested in FY2007. According to the State Department's FY2008 Congressional Budget Justification (CBJ), the increase in assistance is to fulfill the recommendations of the July 2006 report of the Commission for Assistance to a Free Cuba to provide support for Cuban civil society, expand international awareness, break the regime's information blockade, and continue support for a democratic transition. That report recommended $80 million over two years for a variety of measures to hasten Cuba's transition to democracy, and not less than $20 million annually thereafter for Cuba democracy programs. Both the House and Senate-passed versions of the FY2008 State, Foreign Operations, and Related Agencies Appropriations Act, H.R. 2764 , would fully fund the Administration's request for $45.7 million in ESF for Cuba democracy programs. While the House and Senate agreed on democracy funding for Cuba, each body had different provision regarding funding for counternarcotics cooperation with Cuba. The House version would prohibit such funding, while the while the Senate version would provide $1 million. NED funding for Cuba has steadily increased over the past several years: $765,000 in FY2001, $841,000 in FY2002, $1.14 million in FY2003, and $1.15 million in FY2004. For FY2005, NED funded 17 Cuba projects with $2.4 million. For FY2006, NED funded 13 projects with almost $1.5 million, including $0.4 million from State Department ESF. Brazil and Southern Cone The countries of Brazil, Argentina, Chile, Paraguay, and Uruguay are considered middle income countries, and therefore, receive lower levels of assistance. The area received $31.2 million in FY2006, an estimated $33.7 million in FY2007, and a request of $18.5 million for FY2008. The 45% reduction from the previous year is largely due to reductions in assistance to Brazil, from nearly $16 million in FY2007 to $3.7 million in FY2008. Of the two top recipients in the area, Brazil receives Development Assistance (which is proposed to be phased out in FY2008), and Child Survival and Health programs. Paraguay receives Development Assistance, Child Survival and Health, and Economic Support Fund programs. (ESF is also planned to end in FY2008 for Paraguay.) The Peace Corps maintains a program in Paraguay. Brazil receives some ACI funding because it is a drug transit country, though it does not produce illicit drugs. Brazil borders the three cocaine producing nations of Colombia, Bolivia, and Peru, and is a transit point for drug shipments to North America and Europe. ACI funding in Brazil has focused on increasing the country's capacity to interdict drug shipments. Other assistance has centered on generating sustainable economic growth and addressing extensive poverty and social inequality issues. Nearly one-third of Brazilians live below the international poverty line. With regard to health issues, nearly 60% of all HIV/AIDS cases in South America are in Brazil, while the country also ranks high in malaria and tuberculosis cases. Another area of focus is environmental degradation, particularly in the Amazon region, where deforestation is a problem. Paraguay has suffered multiple years of stagnant growth and a large external debt. U.S. programs focus on economic growth, reproductive health, the environment, and democracy. Assistance to Paraguay would fall 20% from FY2007, from $23.4 million to $9.7 million in FY2008. Argentina, Chile, and Uruguay receive small sums of assistance for military training and anti-terrorism programs. Regional Programs The United States also maintains programs that have a regional scope. These funds are not attributed to any one country and often are focused on issues of a transnational nature, such as trade, migration, biodiversity, and anti-terrorism. Including two regional funds (Latin America and Caribbean Regional, and Western Hemisphere Regional), and the portion of the Migration and Refugee account allocated for Latin America, funding in FY2007 amounted to $110 million, and a requested $88 million for FY2008. Issues for Congress Effectiveness of Programs Congressional debate on foreign aid issues has often focused on whether it is effective in reducing poverty, and promoting U.S. interests abroad. Critics argue that aid is often wasted on countries that do not responsibly use the assistance to promote the welfare of their citizens. Others argue that programs are often ill-designed in relation to their goals. Proponents of foreign aid argue that development is a long term process that must be consistently implemented to see results. Some studies have suggested a marked lack of progress in reducing global poverty, and question the correlation between levels of development assistance and program success. Others argue that U.S. assistance, as currently structured, does not contribute as much to sustainable economic growth as does trade. One of the reasons suggested to explain this perceived lack of success is that aid programs often have objectives other than pure development, such as national security, environmental or human rights considerations. Another reason often pointed to is the nature and extent of corruption in societies that have little history of transparency. The newly created Millennium Challenge Account (MCA) seeks to address some of these concerns, in the view of the Bush Administration. The MCA links assistance to recipients' performance on a number of good governance and sound economic policy criteria. (See discussion below.) Proponents of the MCA view it as a way to reform foreign aid programs by rewarding good performers and by focusing on the objectives of poverty reduction, with limited consideration of strategic or political objectives. Critics raise concerns that by creating new aid programs, including the HIV/AIDS initiative, which coexist with traditional aid programs, there is a fragmentation of resources, and potentially a lack of coordination among the various entities administering the programs. Aid Reform In response to the evolution of an aid program that has been criticized for being fragmented, uncoordinated, incoherent, and opaque, Secretary of State Rice began a reform effort in January 2006. She created a new position and a 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. It is argued that the dual-hatted nature of the position, along with a rank equivalent to Deputy Secretary, allows 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. 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. The following are country categories with corresponding countries in Latin America and the Caribbean: Rebuilding: Colombia and Haiti. Transforming: Bolivia, Brazil, El Salvador, Honduras, Nicaragua, and Uruguay. Sustaining Partner: Argentina, Bahamas, Belize, Chile, Costa Rica, Eastern Caribbean, Mexico, Panama, and Trinidad and Tobago. Developing: Dominican Republic, Ecuador, Guatemala, Guyana, Jamaica, Paraguay, Peru, and Suriname. Restrictive: the State Department does not provide a list of restrictive countries, although the FY2008 Foreign Operations Congressional Budget Justification lists certain countries with no categorization, including Cuba and Venezuela. 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 insufficiently ambitious. 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. Article 98 Agreements During 2006, the Administration and Congress began to reassess some aspects of U.S. policy towards the International Criminal Court (ICC) because of unintended negative effects of that policy on relations with some ICC member countries, especially in Latin America. In Congress, support for aid restrictions on foreign aid to ICC member countries that have not agreed to sign Article 98 agreements exempting U.S. citizens from the court's jurisdiction has diminished. The FY2007 Defense Authorization Act ( H.R. 5122 / P.L. 109-364 ), which President Bush signed into law on October 17, 2006, modifies the American Servicemember's Protection Act or ASPA ( P.L. 107-206 , title II) to end the ban on International Military Education and Training (IMET) assistance to affected countries. Restrictions on Foreign Military Financing (FMF) and Economic Support Funds (ESF) remain in place. The Nethercutt Amendment to the FY2006 Foreign Operations Appropriations Act ( H.R. 3057 / P.L. 109-102 ) prohibited some economic assistance to the governments of ICC member countries that do not have Article 98 agreements in place. On November 28, 2006, pursuant to section 574 of P.L. 109-102 , President Bush waived Nethercutt restrictions on FY2006 Economic Support Funds (ESF) to 14 countries worldwide, including Bolivia, Costa Rica, Ecuador, Mexico, Paraguay, and Peru. Nethercutt aid restrictions continued in the FY2007 Continuing Appropriations Resolution ( P.L. 109-289 , as amended) and in the FY2008 Foreign Operations Appropriation bill ( H.R. 2764 ). HIV/AIDS in the Caribbean and Central America The AIDS epidemic in the Caribbean and Central America has begun to have negative consequences for economic and social development in several countries, and continued increases in HIV infection rates threaten future development prospects. In contrast to other parts of Latin America, the mode of HIV transmission in several Caribbean and Central American countries has been primarily through heterosexual contact, making the disease difficult to contain because it affects the general population. The countries with the highest prevalence or infection rates are Belize, the Bahamas, Guyana, Haiti, and Trinidad and Tobago, with rates between 2% and 4%; and Barbados, the Dominican Republic, Honduras, Jamaica, and Suriname, with rates between 1% and 2%. The response to the AIDS epidemic in the Caribbean and Central America has involved a mix of support by governments in the region, bilateral donors (such as the United States, Canada, and European nations), regional and multilateral organizations, and nongovernmental organizations (NGOs). Many countries in the region have national HIV/AIDS programs that are supported through these efforts. U.S.-government funding for HIV/AIDS in the Caribbean and Central America has increased significantly in recent years. Aid to the region rose from $11.2 million in FY2000 to $33.8 million in FY2003. Because of the inclusion of Guyana and Haiti as focus countries in the President's Emergency Plan for AIDS Relief (PEPFAR), funded largely through the Global HIV/AIDS Initiative (GHAI) account, U.S. assistance to the region for HIV/AIDS increased to $47 million in FY2004, $83 million in FY2005, $93 million in FY2006, and an estimated $118 million in FY2007. For FY2008, the Administration requested almost $132 million in HIV assistance for the Caribbean and Central America. This included $83 million for Haiti and $21 million for Guyana from the GHAI account and the balance for non-focus countries and programs in Central America and the Caribbean through the Child Survival and Health (CSH) account. Some Members of Congress want to expand the list of focus countries. In the 110 th Congress, H.R. 848 (Fortuño), introduced February 6, 2007, would add 14 Caribbean countries to the list of focus countries targeted for increased HIV/AIDS assistance. The additional countries are Antigua and Barbuda, Barbados, the Bahamas, Belize, Dominica, Grenada, Jamaica, Montserrat, St. Kitts and Nevis, St. Vincent and the Grenadines, St. Lucia, Suriname, Trinidad and Tobago, and the Dominican Republic. Millennium Challenge Corporation The Millennium Challenge Account, administered by the Millennium Challenge Corporation, differs from traditional aid programs in a number of respects, and could have implications for the future of assistance programs in general. First, funding is linked to performance and results. Second, the conceptualization of development projects rests with the countries themselves and their national development strategies, with the United States playing an advisory role. Third, MCA funds are intended to center exclusively on development goals without regard for other U.S. foreign policy and geostrategic objectives. While the international community and NGOs have been generally supportive of the initiative, some concerns have been expressed that funding for traditional assistance programs (DA and CSH) could end up being cut to accommodate the increased funding for MCA. The Administration has stated that it does not intend for the MCA to negatively affect its other development programs on a global scale, but that some country level funding could be affected in order to avoid duplication and enhance coordination. Funding for DA and some health programs under CSH have declined. Development Assistance in Latin America is proposed for FY2008 at 28% less than in FY2006. CSH would also decline by 27%. The countries most affected by these proposed cuts are in Central America—three of which have signed MCC compacts (Nicaragua, Honduras, and El Salvador). The MCA initiative is limited to countries with per capita incomes below $2,935. In the first two years (FY2004 and FY2005), countries with per capita incomes below $1,415, and that can borrow from the World Bank's International Development Association (IDA) in FY2004, were eligible to compete for grants. Beginning in FY2006, low-middle income countries could participate, but they can only receive 24% of the amount appropriated for the MCA in that year. However, income level is not the only criteria for participation. Some countries may not receive funding if they do not meet certain criteria relating to political rights and civil liberties. Performance indicators fall into three general categories—ruling justly, investing in people, and economic freedom. Specific measurements of each category would be taken from the World Bank, the World Health Organization, and the Freedom House annual study on civil liberties and political freedom, among others. Countries that demonstrate a commitment to meeting the MCA eligibility requirements can qualify for "threshold assistance." In June 2005, Honduras signed a five-year, $215 million compact with the MCC to promote rural development and road construction. In July 2005, Nicaragua signed a five-year, $175 million compact to strengthen property rights, construct roads, and improve rural business productivity and profitability. In November 2006, El Salvador signed a $461 million compact aimed at stimulating economic growth in the country's impoverished northern border region. Both Guyana and Paraguay are receiving threshold aid to prepare them for compacts. Narcotics Counternarcotics assistance is one of the largest components of U.S. assistance to Latin America, with one-third of the FY2008 budget request targeted for such assistance. The Andean Counterdrug Initiative (ACI) is the single largest component of U.S. counternarcotics assistance to the region. Other funds are provided through the International Narcotics Control and Law Enforcement (INCLE) account. ACI and INCLE funding are used to prevent drug trafficking, including limiting the involvement of terrorist organizations and organized criminal groups in the drug trade. Funding also aims to increase the capacity of Latin American law enforcement agencies to combat these threats and reduce corruption. INCLE funds also support drug education and demand reduction programs throughout the region. These funds are administered by the Department of State's Bureau of International Narcotics and Law Enforcement Affairs (INL). A new plan focused on Mexico, the Mérida Initiative, would further increase U.S. counternarcotics activities in the hemisphere. In FY2006, the United States provided $63.5 million in INCLE funding to Latin America. An estimated $57.3 million in INCLE aid was provided in FY2007. In FY2006 and FY2007 bilateral INCLE assistance was provided to the Bahamas, Guatemala, Haiti, Jamaica, and Mexico. Mexico received the majority of bilateral INCLE assistance both years; receiving $39.6 million in FY2006 and an estimated $36.7 million in FY2007. The Administration requested just $50.5 million in INCLE funding for FY2008. The decline in funding is largely due to cuts in bilateral assistance to Mexico and Haiti. Mexico would receive $27.8 million in the regular FY2008 budget. The Administration maintains this cut in bilateral assistance is justified because Mexico is the 13 th -largest economy in the world. However, the Mérida Initiative would increase counternarcotics aid to Mexico more than 10-fold over FY2006 levels. Haiti would receive $9 million in FY2008, down from $17.5 million in FY2006 and an estimated $14.9 million in FY2008. Interregional Aviation Support INL manages the Interregional Aviation support program that operates a fleet of 189 fixed- and rotary-wing aircraft supporting overflight drug crop imagery and counternarcotics aviation needs in Colombia, Peru, and Bolivia in Latin America. This program also supports aerial eradication programs in Colombia. Funds in this program are not limited to Latin America and include support of counternarcotics aviation programs in Afghanistan and border security operations in Pakistan. In FY2006, $62.9 million was spent on interregional aviation support programs globally. The request for FY2008 is $60.1 million. Appendix A. U.S. Assistance to Latin America, FY2006-FY2008, by Subregion, Country, and Account Appendix B. Types of Assistance Economic Assistance Economic assistance is generally provided by the U.S. government directly to other foreign governments or to nongovernmental organizations working in those countries. Bilateral economic aid to Latin America is primarily administered by the U.S. Agency for International Development (USAID) and the Department of State. USAID strives to use that assistance to alleviate poverty and to address critical transnational issues such as HIV/AIDS, the environment, and humanitarian relief. Bush Administration officials have maintained that U.S. policy towards Latin America is based on three broad objectives—strengthening democracy, encouraging development, and enhancing security. While hemispheric security is addressed by programs funded through counternarcotics and military accounts, most development programs aimed at fostering social, political, and economic progress are funded by the Child Survival and Health (CSH), Development Assistance (DA), and Economic Support Funds (ESF) accounts. Child Survival and Health CSH funds focus on combating infectious disease and promoting child and maternal health, family planning, and reproductive health. CSH funded HIV/AIDS programs focus on prevention, care, and treatment efforts, specifically targeting children affected by AIDS. They will be integrated into the overall policy framework and strategic "prevention-to-care continuum" espoused by PEPFAR. Child survival and maternal health programs strive to reduce the number of deaths in children under the age of five and save the lives of women in childbirth. Interventions used to reduce preventable child deaths include immunizations, pneumonia and diarrhea prevention and treatment, oral rehydration, safe birthing and prenatal care, nutrition, and breast-feeding initiatives. The final major component of CSH funds support expanded access to information and services concerning family planning and reproductive health. Development Assistance DA funds aim to achieve measurable improvements in key areas to foster sustainable economic growth: trade and investment, agriculture, education, environment, health, and democracy. Trade capacity-building initiatives were undertaken prior to the negotiation of the Central American Free Trade Agreement (CAFTA). Agriculture programs seek to promote non-traditional agricultural exports and find agricultural niche markets for local producers. DA funds basic education programs to strengthen preschool, primary, and secondary education, as well as the Centers of Excellence in Teacher Training (CETT) Initiative in Latin America and the Caribbean. USAID manages five Presidential initiatives addressing various aspects of sustainable development. These initiatives focus on encouraging natural resource management, developing alternative energy sources, expanding clean water access, preventing illegal-logging, and minimizing greenhouse gas emissions. There are justice sector modernization programs underway in 12 countries in the region, as well as 15 anti-corruption programs throughout Latin America. DA democracy programs also seek to strengthen Latin American democracies by supporting elections, strengthening civil society, and protecting human rights. Transition Initiatives (TI) For FY2006, the Administration requested funding for TI previously provided in the Development Assistance Account. The largest beneficiary of funding is Haiti. The program supports stabilization, reform and post-conflict reconstruction programs in fragile states, and is designed to provide short-term programming to spur a country's progress to stability. Economic Support Funds Through the security-related ESF program, the United States provides economic aid to countries of strategic interest to U.S. foreign policy. Funding decisions are made by the State Department; programs are managed by USAID and the State Department. Although Israel and Egypt receive the majority of ESF aid, 11 Latin American countries have received some ESF funding in recent years, with Bolivia, Cuba, Ecuador, Mexico, and Peru among the largest recipients. ESF assistance in the Andean region, Mexico, and Central America is used to pursue justice sector reform, facilitate implementation of free trade agreements, improve local governance, fight corruption, and promote respect for human rights. P.L. 480 Title II Food Aid This account, funded through the annual Agriculture Appropriations bill, provides the funds for USAID to respond quickly to the food assistance needs of countries facing emergency situations. Food aid is targeted at vulnerable populations, especially those coping with, or recovering from, natural or manmade disasters, including prolonged civil strife. This assistance program is administered largely by U.S. private voluntary organizations and through the United Nation's World Food Program. Migration and Refugee Assistance (MRA) This program supports refugee relief activities, and in some cases, helps resettle refugees. Most of MRA funds have been used to help the more than 2 million internally displaced persons (IDPs) in Colombia and thousands of refugees outside of Colombia. The State Department partners with the International Committee of the Red Cross and the U.N. High Commission on Refugees to provide refugee assistance. Peace Corps The Peace Corps sends U.S. volunteers to developing countries to provide technical aid and to promote mutual understanding on a people-to-people basis. Latin America Peace Corps programs include countries in the Eastern Caribbean region and Central America, the Dominican Republic, Guyana, Jamaica, Suriname, Mexico, Belize, Bolivia, Ecuador, Peru and Paraguay. Inter-American Foundation (IAF) The IAF is a small federal agency that provides grants to non-profit and community-based programs in Latin America that promote entrepreneurship, self-reliance, and economic progress for the poor. Millennium Challenge Account (MCA) The MCA is a Presidential initiative announced in 2002 that is intended to increase foreign assistance to countries below a certain income threshold that are pursuing policies intended to promote democracy, social development, and sustainable economic growth. This assistance is administered by the Millennium Challenge Corporation (MCC), in cooperation with USAID. Global HIV/AIDS Initiative In 2003, President Bush announced the President's Emergency Plan for AIDS Relief (PEPFAR), a new initiative pledging $15 billion over five years for the prevention and treatment of HIV/AIDS, tuberculosis (TB), and malaria. The Global AIDS Initiative, which constitutes the bulk of PEPFAR funding, is a Department of State program currently concentrated on 12 African countries, as well as Haiti and Guyana. Counternarcotics Assistance International Narcotics and Law Enforcement (INL) INL funds bilateral, regional and global programs to assist foreign governments in strengthening their law enforcement capabilities, including the ability to destroy drug crops, disrupt drug production, and interdict drug trafficking. Its largest single program is the Andean Counterdrug Initiative. Its other programs focus on fighting money-laundering and terrorist financing, enhancing security along the U.S.-Mexican border, and fighting trafficking in persons, corruption, and cybercrimes. It also includes programs to strengthen the rule of law and to promote demand reduction. It provides some funding to the United Nations Office on Drugs and Crime to provide support for legal frameworks to prevent and combat organized crime, and the Organization of American States Drug Abuse Control Commission (CICAD) to strengthen national drug commissions and to support the Multilateral Evaluation Mechanism (MEM). MEM is the peer review system used to evaluate national anti-drug performance. INL's current bilateral assistance to Latin America supports programs in the Bahamas, Guatemala, Haiti, Jamaica and Mexico. Interregional Aviation Support INL manages the Interregional Aviation Support program that operates a fleet of 189 fixed- and rotary-wing aircraft supporting overflight drug crop imagery and aerial eradication programs in Colombia, Bolivia, and Peru, as well as border security operations in Pakistan, and aviation programs in Afghanistan. Andean Counterdrug Initiative (ACI) The core of U.S. counternarcotics programs in Latin America is the ACI. The three primary global producers of cocaine are Colombia, Peru and Bolivia. The objectives are to eliminate the cultivation and production of cocaine and opium, build Andean law enforcement infrastructure, arrest and prosecute traffickers, and seize their assets. The countries considered a part of the ACI include Bolivia, Brazil, Colombia, Ecuador, Panama, and Peru, with the lion's share of funding allocated for programs in Colombia. Venezuela had bee included since 2000, but is slated to receive no ACI funds in FY2008. Funds are divided between programs that support eradication and interdiction efforts, as well as those focused on alternative crop development and democratic institution building. On the interdiction side, this includes programs to train and support national police and military forces, to provide communications and intelligence systems, to support the maintenance and operations of host country aerial eradication aircraft, and to improve infrastructure related to counternarcotics activities. On the alternative development side, funds support economic development programs in coca growing areas, including infrastructure development, and marketing and technical support for alternative crops. It also includes assisting internally displaced persons, promoting the rule of law, and expanding judicial capabilities. Military and Anti-Terrorism Assistance Military assistance is provided by the State Department through the Foreign Military Financing (FMF) program and the International Military Education and Training program (IMET), although both are managed by the Defense Department. Additional funding is provided from the Department of Defense for both counternarcotics and military programs. Anti-terrorism assistance is provided through the State Department. Foreign Military Financing FMF provides grants to foreign nations to purchase U.S. defense equipment, services, and training. The program's objectives are to assist key allies to improve their defense capabilities, to strengthen military relationships between the United States and FMF recipients, and to promote the professionalism of military forces in friendly countries. In the Western Hemisphere, a large portion of FMF is allocated for Colombia and the Andean region with the objective of supporting the efforts of those nations to establish and strengthen national authority in remote areas that have been controlled by leftist guerrilla organizations, rightist paramilitaries, and narcotics traffickers. The program also seeks to improve foreign military capabilities of countries that control land approaches to the United States and the Caribbean, which is referred to as the "third border." FMF also provides equipment and training for countries in the region that participate in peacekeeping operations. International Military Education and Training The IMET program provides training on a grant basis to students from allied and friendly nations. Its objectives are to improve defense capabilities, develop professional and personal relationships between U.S. and foreign militaries, and influence these forces in support of democratic governance. Training focuses on the manner in which military organizations function under civilian control, civil-military relations, military justice systems, military doctrine, strategic planning, and operational procedures. The largest IMET programs in Latin America are for Colombia, El Salvador, and Mexico. Anti-Terrorism Assistance (ATA) ATA is funded through the State Department's Nonproliferation, Anti-terrorism, Demining, and Related Programs (NADR). Other programs funded by NADR include Nonproliferation, and Regional Stability and Humanitarian Assistance. The objectives of ATA are to build the political will and operational capacity of partner countries in the fight against global terrorism. The program provides training, equipment, and advice to foreign law enforcement organizations. In the Western Hemisphere, Colombia has received training and equipment for anti-kidnapping units. Funding has also been provided for an assessment of needs study for the tri-border region of Brazil, Paraguay, and Argentina. The State Department proposed using additional funds for training and for the investigation of terrorist networks. Multilateral Economic Assistance Latin American countries benefit from a number of multilateral sources of assistance, including the World Bank, the United Nations and the International Fund for Agricultural Development (IFAD). There are also regional organizations that provide various forms of assistance, which are discussed below. Inter-American Development Bank The United States is a major donor to the Inter-American Development Bank (IDB), the primary source of multilateral financing for economic, social, and institutional development projects in Latin America and the Caribbean. The IDB makes near-market rate loans through its ordinary capital (OC) account and concessional loans to poor countries through its Fund for Special Operations (FSO). Another subsidiary of the IDB, the Inter-American Investment Corporation (IIC), makes loans and equity investments to promote the growth of private enterprises. Since 1993, the Enterprise for the Americas Multilateral Investment Fund (MIF), which is administered by IDB, has provided both grants and investments to businesses and nongovernmental organizations (NGOs) in Latin America that have demonstrated new ways to develop small enterprises, build worker skills, and strengthen environmental management. Organization of American States (OAS) The OAS is a regional organization of 35 countries in Latin America and the Caribbean that have pledged to promote democracy, advance human rights, preserve peace and security, pursue free trade, and tackle difficult problems caused by poverty, drugs, and corruption. The United States contributes roughly 59% of the regular budget of the OAS. The United States has also made substantial contributions to a few specific funds developed by the OAS through foreign operations appropriations. The OAS Fund for Strengthening Democracy supports OAS efforts to promote democracy and the Inter-American Democratic Charter throughout the region. OAS Development Assistance Programs focus on Summit of the Americas mandates pertaining to economic prosperity, social well being, and environmental health. The OAS De-mining Program (AICMA) works to ensure that the Western Hemisphere is cleared of all land mine devices. The OAS also monitors the disarmament and demobilization of Colombian armed groups through its Mission to Support the Peace Process in Colombia. Other Types of Foreign Assistance Highly-Indebted Poor Countries (HIPC) Initiative The HIPC initiative was first launched in 1996 by the IMF and the World Bank to provide relief to extremely poor countries facing unsustainable amounts of foreign debt. The HIPC initiative encompasses 41 countries, mostly in Africa, but only those that have adopted sound fiscal policies and a poverty reduction plan may qualify. Latin American beneficiaries of the HIPC initiative include Bolivia, Guyana, Honduras, and Nicaragua. Total costs of the HIPC initiative are estimated at $51 billion (nominal terms), roughly evenly divided between bilateral creditors like the United States and multilateral lenders such as the IMF and World Bank. Because only about 3% of the HIPC debt was owed to the United States, the U.S. financial commitment has been relatively small in relation to the cost to all creditors. Democracy Fund For FY2006, Congress created a new account and appropriated $95 million for it. The program is to increase the effectiveness and oversight of programs that promote democracy, governance, human rights, an independent media, and the rule of law. The $95 million provided is in addition to other bilateral assistance that promotes democracy. Congress also directed that $3 million be provided for forensic assistance to Central and South America, and $2 million be provided to the National Endowment for Democracy for programs in Venezuela.

Trends in U.S. assistance to the Latin America and Caribbean region generally reflect the trends and rationales for U.S. foreign aid programs globally. Aid to the region increased during the 1960s with the Alliance for Progress, and during the 1980s with aid to Central America. Since 2000, aid levels have increased, especially in the Andean region, as the focus has shifted from Cold War issues to counternarcotics and security assistance. Current aid levels to Latin America and the Caribbean comprise about 5.8% of the worldwide FY2007 aid budget, including both bilateral and multilateral assistance. Amounts requested for the regular FY2008 budget would increase this ratio to 6.1%, and to 7.2% if Congress approves supplemental funds for a new counternarcotics initiative in Mexico and Central America. Three countries—Honduras, Nicaragua, and El Salvador—have signed compacts for Millennium Challenge Account (MCA) funds worth a combined $851 million. Aid levels to the region could increase further as more countries become eligible for MCA. Both Haiti and Guyana are focus countries for the President's Emergency Plan for AIDS Relief (PEPFAR). For the FY2008 regular budget, the Administration has requested $1.57 billion in assistance to Latin America and the Caribbean, the largest portion of which would be allocated to the Andean region, or $823.8 million. Mexico and Central America are slated to receive $220.4 million in regular funds, plus $550 million in supplemental counternarcotics funds. The Caribbean would receive $365.5 million. Brazil and the Southern Cone of South America are to receive an estimated $18.5 million. Aid programs are designed to achieve a variety of goals, from poverty reduction to economic growth. Child Survival and Health (CSH) funds focus on combating infectious diseases and promoting child and maternal health. Development Assistance (DA) promotes sustainable economic growth in key areas such as trade, agriculture, education, the environment, and democracy. The Economic Support Fund (ESF) assists countries of strategic importance to the United States, and funds programs relating to justice sector reforms, local governance, anti-corruption, and respect for human rights. Counternarcotics programs seek to assist countries to reduce drug production, interdict trafficking, and promote alternative crop development. Military assistance provides grants to nations for the purchase of U.S. defense equipment, services, and training. The annual State Department, Foreign Operations, and Related Programs Appropriations bills are the vehicles by which Congress provides funding for foreign assistance programs. Congress will likely continue to take interest in a number of related issues, including the level of aid, the effectiveness of counternarcotics assistance, and how best to address the spread of HIV/AIDS, and address poverty in the region. This report will be updated as country level funding figures for FY2008 become available.

Introduction From the mid-1970s to the mid-1990s, economic and trade relations between the United States and the Socialist Republic of Vietnam (Vietnam) remained virtually frozen, in part a legacy of the Vietnam War. On May 2, 1975, after North Vietnam defeated U.S. ally the Republic of Vietnam (South Vietnam), President Gerald R. Ford extended President Richard M. Nixon's 1964 trade embargo on North Vietnam to cov er the reunified nation. Under the Ford embargo, bilateral trade and financial transactions were prohibited. Economic and trade relations between the two nations began to thaw during the Clinton Administration, building on joint efforts during the Reagan and George H. W. Bush Administrations to resolve a sensitive issue in the United States—recovering the remains of U.S. military personnel declared "missing in action" (MIA) during the Vietnam War. The shift in U.S. policy also was spurred by Vietnam's withdrawal from Cambodia. President Bill Clinton ordered an end to the U.S. trade embargo on Vietnam on February 3, 1994. On July 11, 1995, the United States and Vietnam restored diplomatic relations. Two years later, President Bill Clinton appointed the first U.S. ambassador to Vietnam since the end of the Vietnam War. Bilateral relations also improved in part due to Vietnam's 1986 decision to shift from a Soviet-style central planned economy to a form of market socialism. The new economic policy, known as Doi Moi ("change and newness"), ushered in a period of nearly 30 years of rapid growth in Vietnam. Since 2000, Vietnam's real GDP growth has averaged over 6% per year, second only to China. Much of that growth has been generated by foreign investment in Vietnam's manufacturing sector, particularly its clothing industry. The United States and Vietnam signed a bilateral trade agreement (BTA) on July 13, 2000, which went into force on December 10, 2001. As part of the BTA, the United States extended to Vietnam conditional most favored nation (MFN) trade status, now known as normal trade relations (NTR). Economic and trade relations further improved when the United States granted Vietnam permanent normal trade relations (PNTR) status on December 29, 2006, as part of Vietnam's accession to the World Trade Organization (WTO). Over the last five fiscal years, Congress has appropriated over $10 million each year to support Vietnam's economic reforms. In addition, the two nations have set up a ministerial-level Trade and Investment Agreement (TIFA) Council to discuss issues related to the implementation of the Bilateral Investment Treaty (BIT) and WTO agreements, as well as trade and investment policies in general. U.S. and Vietnamese official trade data are comparatively close and reflect a similar pattern in the growth of bilateral trade (see Figure 1 ). For the first few years following the end of the U.S. embargo in 1994, trade between the two nations grew slowly, principally because of Vietnam's lack of NTR. However, following the granting of conditional NTR in December 2001, trade flows between the United States and Vietnam grew quickly. Merchandise trade nearly doubled between 2001 and 2002, regardless of which nation's figures one uses. Bilateral trade rose again in 2007, following the United States granting PNTR status to Vietnam. U.S. imports from Vietnam slid 4.7% in 2009 because of the U.S. economic recession, but have rebounded sharply since 2010. Both nations are parties to the Trans-Pacific Partnership (TPP), a regional trade agreement awaiting approval of implementing legislation by the respective legislatures of both nations. For its part, Vietnam also has indicated a desire to foster closer trade relations by applying for acceptance into the U.S. Generalized System of Preferences (GSP) program and negotiating a bilateral investment treaty (BIT), but both those initiatives have receded in light of the TPP agreement. The United States also has expressed an interest in closer economic relations, including the possible elimination of restrictions on arms sales to Vietnam, but has previously told the Vietnamese government that it needs to make certain changes in the legal, regulatory, and operating environment of its economy to conclude either the BIT agreement or to qualify for the GSP program. The growth in bilateral trade also has created sources of trade friction. A rapid increase in Vietnam's clothing exports to the United States led to the implementation of a controversial monitoring program from 2007 to 2009. The growth in Vietnam's catfish exports (known as basa , swai , and tra ) also has generated tensions between the two nations. Other economic issues have had an indirect effect on bilateral relations, such as the United States' designation of Vietnam as a "non-market economy," and allegations of inadequate intellectual property rights (IPR) protection in Vietnam. Proposed Trans-Pacific Partnership (TPP) In 2008, the Bush Administration notified Congress of its intention to enter into negotiations with the four members of the Trans-Pacific Strategic Economic Partnership Agreement—Brunei, Chile, New Zealand, and Singapore—to form a larger and more ambitious trade agreement. The U.S. announcement of interest in joining the renamed Trans-Pacific Partnership was quickly followed by similar expressions of interest by Australia, Malaysia, Peru, and Vietnam. The nine countries formally agreed to accept Mexico and Canada into the ongoing negotiations on June 18 and 19, 2012, respectively. Japan was accepted into the negotiations on April 21, 2013. The 12 nations signed the agreement on February 4, 2016. Vietnam's membership in the TPP could complicate the congressional support for the trade agreement. Whereas the other parties involved in the negotiations are generally viewed as having comparatively open trade policies, Vietnam remains a mixed economy with considerable government intervention. Backers of Vietnam's participation in the negotiations maintain that it would further open a sizeable market to U.S. exports and investments, and could accelerate economic reforms in Vietnam. Opponents cite Vietnam's human rights record, including with respect to workers' rights, and alleged unfair government support for certain industries as reasons for not entering into a trade agreement with Vietnam. According to U.S. trade statistics, Vietnam is the fifth-largest U.S. trading partner (after Canada, Mexico, Japan, and Singapore, respectively) among the 12 TPP nations. Issues During Negotiations According to a CRS interview with key Vietnamese analysts, Vietnam initially pressed for the following provisions in the TPP agreement: Designation as a market economy prior to 2019; Liberalization of trade in services (including certification and licensing); Relaxation of U.S. "yarn forward" rules on clothing trade (see " Textiles and Apparel " below); Prohibition on discrimination against state-owned enterprises; and Special consideration for developing economies. Vietnam was also interested in greater market access for its agricultural and aquacultural exports, particularly in the United States. The United States, in turn, pressed Vietnam to undertake the necessary economic and regulatory reforms necessary to fulfill its obligations under the proposed TPP agreement. The United States stated that it was particularly concerned about Vietnam's ability to achieve the necessary TPP standards for such topics as sanitary and phytosanitary (SPS) measures, workers' rights, IPR enforcement, and state-owned enterprises (SOEs). Another complicating factor during the negotiations was Vietnam's negotiations with 15 other nations to form another regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP), that does not include the United States. RCEP negotiations formally began in November 2012, and are scheduled to be concluded by the end of 2016. It is uncertain how RCEP would affect Vietnam's interest and commitment to TPP, if both regional trade agreements are finalized. When the TPP negotiations were concluded in October 2015, Vietnam's government-run media lauded the agreement for the increased trade and foreign investment it will bring to the nation. Those press accounts stressed that the TPP would provide duty-free market access to the United States for Vietnam's clothing, footwear, and textile exporters, as well as attract foreign investors from Japan and the United States to set up more manufacturing facilities in Vietnam. The government-run press downplayed concerns about potential adverse effects on Vietnam's agricultural sector, possibly higher pharmaceutical prices, and required changes in Vietnam's labor laws and regulations. The TPP agreement was also viewed as another step in the normalization of relations with the United States. Key TPP Issues for U.S.-Vietnam Trade Relations The final text of the TPP agreement contains a number of provisions of particular importance to trade relations between the United States and Vietnam. The market access provisions provide for the gradual elimination of tariffs on most goods, but both nations secured safeguard measures for selected goods of domestic importance. The agreement's textile and apparel provisions utilize the "yarn forward" approach preferred by the U.S. government, but also allow for an extensive "short supply list" that will likely qualify a significant amount of Vietnamese exports to enter the United States for the TPP's preferential tariff rates. On workers' rights, the two nations signed a separate "United States-Vietnam Plan for the Enhancement of Trade and Labour Relations" in which Vietnam commits to comply with International Labour Organization (ILO) standards and requires that the Vietnamese government "ensure that its laws and regulations permit workers, without distinction, employed by an enterprise form a grassroots labour union of their own choosing without prior authorization." Both governments also open up much of government procurement to foreign suppliers, but with limits on certain goods and services considered of national security interest. On intellectual property (IP) rights, the TPP agreement commits both nations to protect and enforce IP rights, including agreed upon "geographical indicators," and obligates Vietnam to recognize IP rights for biologics. The agreement's chapter on State-Owned Enterprises (SOEs) forbids, with some specific exceptions, all TPP members from providing "non-commercial assistance" to its SOEs, and forbids its SOEs from discriminating against foreign firms. Market Access In general, chapter 2 of the TPP agreement commits each nation to afford national treatment and customs duty-free entry to the goods and services of the other member nations, unless otherwise provided in the agreement. Each nation has included a tariff elimination schedule for the phased out reduction in tariffs, which can span up to 20 years. The United States stipulated that it would establish tariff rate quotas (TRQs) for sugar (including imports from Vietnam), certain dairy products, and beef from Japan. The United States also reserved the right to impose agricultural safeguard measures for certain dairy products, but none of them applied to Vietnamese goods. Vietnam established TRQs for used engines, unmanufactured tobacco, and tobacco refuse. The United States and Vietnam also exchanged letters with regard to U.S. inspection requirements for " Siluriformes , including pangasius , tra , and basa "—which are catfish-like fish—pursuant of the Food, Conservation, and Energy Act of 2008 ( P.L. 110-246 ) and the Agricultural Act of 2014 ( P.L. 113-79 ). Vietnam has asserted that these laws constitute a form of protectionism for U.S. catfish producers (see " Catfish " below). The letters recognize the importance of pangasius , tra , and basa to Vietnamese farmers, and commit the two countries to consult with each other following the release of final U.S. regulations governing the inspection of Siluriformes . The United States also promises to consider a "transitional period for the implementation of the final rule," and "subject to the availability of appropriated funds, work with Viet Nam and other interested parties, to identify and provide technical assistance" for compliance with the final rule. Textiles and Apparel As indicated above, the U.S. and Vietnamese governments entered into the TPP negotiations with conflicting objectives. Similarly, the U.S. textile and apparel sectors were split on the treatment of their products in the TPP. In the negotiations, the U.S. Trade Representative supported a "yarn-forward" rule of origin, as had been done in previous U.S. trade agreements; the Vietnamese negotiators and U.S. apparel companies argued for a less restrictive "cut and sew" rule of origin. The TPP agreement has a separate chapter (Chapter 4) on textiles and apparel that adopts a "yarn-forward" rule of origin approach, but also provides for an extensive list of fibers, yarns, and fabrics deemed to be in "short supply." These materials that can be sourced outside of the TPP member nations and still qualify for duty-free treatment. The short supply list includes 187 items that some observers think is sufficiently extensive and could allow a significant share of Vietnamese apparel to qualify for duty-free treatment. Other analysts, however, are less certain that Vietnam's clothing and textile industry will significantly benefit from the TPP provisions. In particular, the "yarn-forward" rule of origin will present a challenge to Vietnamese apparel manufacturers who currently source the majority of their fabrics and textiles from China, a non-TPP nation. Vietnam's domestic textile industry currently lacks the capacity and expertise to supply the apparel industry with the necessary materials, but investors from China, South Korea, and Taiwan reportedly are building weaving and dyeing factories in Vietnam to comply with the "yarn forward" rule of the TPP. Some Japanese and U.S. companies are also setting up textile and apparel manufacturing facilities in Vietnam to take advantage of the TPP's benefits. Workers' Rights Current Status The U.S. government, a number of non-governmental organizations (NGOs), and human rights advocacy groups have been critical of Vietnam's restrictions on workers' rights. While they generally recognize that Vietnam has made improvements in its labor laws since the start of the century, they see ongoing problems with local government enforcement and business compliance. The State Department's 2014 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. Vietnamese workers are not legally allowed to form unions independent from 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. In addition, workers are prohibited from forming industry-wide or trade unions that represent workers in different enterprises. Some analysts have argued that restrictions of the right of association in Vietnam have impeded the improvement of labor rights. Other observers, however, counter that since the launch of doi moi , there has been progress on worker rights despite the restrictions on their 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. In 2009, Human Rights Watch raised concern about the ability of Vietnamese workers to call an official strike, especially at state-owned enterprises (SOEs). According to the State Department's most recent human rights report for Vietnam, none of the 262 reported strikes between January and November 2015 "followed the authorized conciliation and arbitration process" required by Vietnam's labor laws, and were therefore, technically illegal. Vietnamese workers did experience a few improvements in 2014 and 2015. In April 2014, the VGCL formed the Committee of Labor Relations to improve relations between local unions and their workers, improve relations between workers and managers, and avoid labor disputes. In addition, the chairman of VGCL is allegedly pushing for a higher minimum wage than the one being proposed by the Vietnamese government. Also, a week-long strike in Ho Chi Minh City in April 2015 reportedly pressured the Vietnamese government to amend a new social insurance law that would have limited lump sum payments to workers when they leave their jobs. Between 2005 and 2008, the reported number of factory worker strikes in Vietnam increased from 147 to 762. Virtually all these strikes were illegal, or wildcat strikes, organized by workers without the support or assistance of the local union. The reported number of strikes declined in 2009 to 216, but then quickly rose to 981 in 2011. After the rise in wildcat strikes, the Vietnamese government appeared tacitly to accept that enforcement of its labor laws have been problematic. Vietnam's official news agencies— Thanhnien News , Vietnam Net, and Voice of Vietnam News—ran a series of reports in 2008 and 2009 describing problems with Vietnam's protection of workers' rights, the flaws of the VGCL, and efforts to improve working conditions in Vietnam. The humanitarian aid agency of the Australian Council of Trade Unions, which has worked closely with the VGCL on workers' education, wrote in a letter to Human Rights Watch, "Our experience in workers' education in Vietnam also leads us to believe that the government, far from trying to lower workers' conditions or repress workers, is sensitive to the needs of women and men workers." Since then, the Vietnamese government has worked with various international organizations to improve its labor laws, regulations and enforcement. Vietnam's Ministry of Labour, Invalids, and Social Affairs (MOLISA) and the VGCL worked with the International Labor Organization (ILO) to finalize a new Labour Code and Trade Union Law. In June 2012, Vietnam's National Assembly approved the new law, which took effect on May 1, 2013. The ILO and MOLISA are also working with Spain's Agency for International Development Cooperation on a program to eliminate child labor in Vietnam. In addition, the United Nations provided $2 million for a program to help the VGCL improve its grassroots relations. Vietnamese workers continue to face constraints on their right of association, their ability to form unions of their choice, and their ability to address grievances over their working conditions. Labor organizers, such as Do Thi Minh Hanh, Doan Huy Chuong, and Nguyen Hoang Quoc Hung, have been arrested and jailed for attempting to organize independent labor unions. In January 2015, the Vietnamese government reportedly issued new guidelines that establish procedures for settling wildcat strikes, but are seen as cumbersome and potentially costly for the striking workers. Workers in some foreign-owned factories (particularly Taiwanese and South Korean-owned clothing factories) face "authoritarian" factory managers who reportedly violate Vietnamese laws on working hours and conditions, and hire under-aged workers. TPP Labor Provisions Chapter 19 of the TPP requires all parties to the agreement make sure their laws and regulations are in compliance with the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (1998), including: freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labor, a prohibition on the worst forms of child labor and other labor protections for children and minors; the elimination of discrimination in respect of employment and occupation; and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health. In addition, all TPP members have promised to "encourage enterprises to voluntarily adopt corporate social responsibility initiatives on labour issues" and promote public awareness of their respective labor laws. The TPP agreement also creates a Labour Council consisting of "senior governmental representatives" that will meet every two years to discuss labor issues and review compliance with the TPP's labor provisions. Five years after the TPP enters into force, the Labour Council will review the implementation of Chapter 19 and make recommendations to the TPP Commission. The United States-Vietnam Plan for the Enhancement of Trade and Labour Relations (the Plan) obligates the Vietnamese government to enact legal reforms to ensure that it is incompliance with Chapter 19 of the TPP agreement, as well as implement a number of specific reforms. These include amending existing laws, decrees or resolutions such that: "workers, without distinction, employed by an enterprise" may form a grassroots labor union of their own choosing without prior authorization; the grassroots labor unions may be formed across enterprises "and at levels above the enterprise"; the grassroots labor unions can register with its choice of either the VGCL or a "competent government body"; "A grassroots labour union registered with the competent government body shall have the right autonomously to elect its representatives, adopt its constitution and rules, organize its administration, including managing its finances and assets, bargain collectively, and organize and lead strikes and other collective actions related to the occupational and socio-economic interests of the workers at its enterprise"; "A grassroots labour union registered with the competent government body shall have no lesser rights in law and practice with regard to the labour rights as stated in the lLO Declaration than a grassroots labour union under the VGCL"; Vietnam's laws do not mandate that "A labour union registered with the competent government body to operate according to the Statutes of Viet Nam General Confederation of Labour"; all labor union officials are elected by that labor union's membership, and union can employ persons to assist with its activities; and Vietnam's laws allow for rights-based strikes, consistent with ILO guidance. The Plan requires Vietnam change its labor laws and establish the necessary institutional changes prior to the date the TPP agreement enters into force between the United States and Vietnam. The Plan also establishes a process whereby the two nations review Vietnam's implementation of the TPP's labor provisions and those contained in the Plan. If, after a five-year transition period, the United States determines that Vietnam is not complying with its obligations, the United States "may withhold or suspend any tariff reductions that are scheduled to come into effect thereafter." In addition, the Vietnamese government will develop and implement a strategy for targeting inspection and other enforcement activities to sectors where forced labor or child labor has been identified, and "allow independent experts legally operating in Viet Nam to carry out research studies in sectors where forced labour or child labour has been identified and to publicly release their findings, source data and methodology." The Plan also establishes a Senior Officials Committee (SOC): composed of senior officials from the Office of the U.S. Trade Representative and the Department of Labor for the United States and from the Ministry of Industry and Trade and the Ministry of Labor, Invalids, and Social Affairs for Viet Nam to monitor, assess and facilitate rapid response to any concerns about compliance with and implementation of the legal and institutional reforms under this Plan. The SOC is to meet every year for 10 years, and conduct a joint review during the third, fifth, and tenth year after the TPP agreement comes into force. Critics of the Plan point to several perceived shortcomings of its provisions. A Minority Staff Report of the House Ways and Means Committee asserts that the Plan does not contain sufficient mechanisms to ensure Vietnam's compliance with its obligations with respect to workers' rights. Other critics note that the Plan does not contain provisions pertaining to the identification or definition of the "competent government body" with which the independent grassroots labor unions are to register, or assurances that the "competent government body" will not attempt to exert inappropriate pressure on the labor unions. Government Procurement Chapter 15 of the TPP agreement requires all parties to provide national treatment and utilize nondiscriminatory practices in the provision of goods and services procured by government entities, unless otherwise provided in the TPP agreement. Both the United States and Vietnam stipulated exceptions for the procurement of certain types of goods and services. The United States, for example, used a "negative list" approach, excluding certain types of agricultural, nuclear, shipbuilding, and defense-related goods and services from its government procurement obligations. Vietnam, by contrast, used a mixture of a "negative list" and a "positive list," excluding some goods and services (for example, construction services for the Ministry of Transport) and enumerating which goods and services are included for other government entities. Intellectual Property Rights Chapter 18 of the TPP Agreement obligates the member nations to abide by several international intellectual property rights agreements and provide national treatment to the intellectual property of other nations. The Agreement also states, "The obligations of this Chapter do not and should not prevent a Party from taking measures to protect public health," and permit the nations to "promote access to medicines for all." The chapter also provides for the recognition of "geographical indications" (i.e., goods identified with a specific location, such as "Tennessee Whiskey" or "Phu Quoc Fish Sauce). Trademarks are protected, and renewable "for a term of no less than 10 years." Copyrights are granted for 70 years after the death of the author or performer. Data exclusivity for biologics is protected for 5-8 years following the first date of marketing approval. In a separate letter exchange, the United States and Vietnam agreed that Article 9.6 of Chapter II of the "Agreement of the United States of America and Socialist Republic of Vietnam on Trade Relations" will apply to "any new pharmaceutical product that is or contains a biologic." Article 9.6 provides no less than five years protection for pharmaceutical or agrochemical products. State-Owned Enterprises Chapter 17 of the TPP Agreement requires that the state-owned enterprises (SOEs) and designated monopolies for each nation afford national treatment to foreign companies in their commercial activities. The chapter also prohibits the provision to or by state-owned enterprises of "non-commercial assistance." Non-commercial assistance includes debt or liability forgiveness; loans or loan guarantees "on terms more favourable than those commercially available to that enterprise"; "equity capital inconsistent with the usual investment practice"; and "goods or services other than general infrastructure on terms more favourable than those commercially available to that enterprise." Each nation is permitted to exempt the SOEs and designated monopolies of sub-central levels of government from certain provisions in the agreement. The United States identified the following entities as SOEs or designated monopolies, and provided for the exemption from certain provisions in the agreement: the Federal National Mortgage Association; the Federal Home Loan Mortgage Corporation; the Government National Mortgage Association; and the Federal Financing Bank. Vietnam included all its SOEs and designated monopolies as being included in the exemption provisions. Implications for the 114th Congress Congress has to pass implementing legislation to amend any U.S. law inconsistent with the terms of the TPP agreement in order for the TPP to enter into force in the United States. Unlike the ratification of international treaties, the implementing legislation for trade agreements must be approved by both the House of Representative and the Senate. Vietnam's National Assembly reportedly will consider the TPP agreement in July 2016. Congressional consideration of TPP implementation legislation is likely to be influenced by Vietnam's participation in the trade agreement. TPP supporters see several potential economic and strategic benefits of Vietnam's membership. U.S. companies exporting certain goods—such as beef, dairy products, poultry, cotton and cotton cloth, and telecommunications products—anticipate greater access to Vietnam's consumer markets. U.S. retailers expect to be able to import lower cost/higher quality consumer goods from Vietnam, in some cases replacing imports currently coming from China. The conclusion of a trade agreement between the two nations may also signal the further normalization of bilateral relations, and foster greater cooperation on various geopolitical issues, such as regional security and environmental protection. According to several assessments of the estimated impact of the trade agreement, including those done by the Vietnamese government, Vietnam is likely to be among the greatest economic beneficiaries of the TPP. The Vietnamese government anticipates the TPP agreement will not only bring a short-term boost in merchandise trade, but also substantial inward foreign direct investment. Some U.S. observers contend that could translate into a loss in U.S manufacturing jobs and a rising trade deficit with Vietnam. In addition, the increase in Vietnam's exports may also benefit China, which is a leading provider of raw materials, parts, and components used by Vietnam's leading export sectors. Some Members of Congress and analysts have also expressed concern about the trade agreement's implications for human rights in Vietnam, and more specifically, workers' rights. Some of these analysts are skeptical that the Vietnamese government will abide by the terms of the United States-Vietnam Plan for the Enhancement of Trade and Labour Relations (the Plan), and that Vietnamese workers will not be allowed to form independent trade unions or be afforded fair treatment during labor disputes. Others critics maintain that accepting Vietnam as a TPP member would reduce U.S. leverage on Vietnam regarding human rights in general. Other analysts, however, think that the Plan is sufficiently strong to enhance workers' rights in Vietnam, and that the resulting influx of U.S. investment will foster a general improvement in working conditions in Vietnam. Catfish Catfish have been and continue to be a regular source of trade friction between the United States and Vietnam. Vietnam is a major exporter of frozen fish fillets using certain varieties of fish—known as basa , swai , and tra in Vietnamese—that are commonly referred to as catfish in the global fish market. Since 1999, Vietnamese exports of basa , swai , and tra frozen fish fillets have secured a growing share of the U.S. market, despite the objections of the U.S. catfish industry and the actions of the U.S. government. In 2015, the United States imported over $320 million of bas a , swai , and tra from Vietnam. Over the last 13 years, the United States has taken several actions that have had an impact on the import of Vietnamese basa , swai , and tra . In 2002, Congress passed legislation that prohibited the labeling of basa , swai , and tra as "catfish" in the United States. In August 2003, the U.S. government imposed antidumping duties on "certain frozen fish fillets from Vietnam," including basa , swai , and tra . In June 2009, the ITC determined to keep the duties in place "for the foreseeable future." According to the Vietnam Association of Seafood Exporters and Producers (VASEP), the number of companies exporting catfish to the United States declined from 30 to 3 following the imposition of antidumping duties. Despite the reported decline in exporters, U.S. imports of basa , swai , and tra from Vietnam continued to rise. The ongoing tensions around catfish trade were heightened by the passage of the 2008 Farm Bill ( P.L. 110-246 ) by the 110 th Congress in June 2008 . The 2008 Farm Bill transferred catfish inspection (including basa , swai , and tra ) from the Food and Drug Administration (FDA) to the U.S. Department of Agriculture (USDA). The transfer was confirmed in the Agriculture Act of 2014 ( P.L. 113-79 ). As discussed in more detail below, the new inspection regime took effect on March 1, 2016. In the eyes of the Vietnamese government, the U.S. response to the growth of Vietnam's basa , swai , and tra exports constitutes a case of trade protectionism designed to shelter U.S. catfish producers from legitimate competition. Vietnam also points to U.S. anti-dumping measures on Vietnamese shrimp and plastic bags as an indication of U.S. protectionism (see " Non-Market Economy Designation "). Supporters of U.S. trade policies against Vietnam's exports of basa , swai , and tra say the measures are designed to defend U.S. consumers and businesses from the unsafe products and unfair business practices of Vietnam. 2008 Farm Bill The legal status of Vietnam's basa , swai , and tra exports to the United States was brought into question by the provisions of Section 11016 of the 2008 Farm Bill ( P.L. 110-246 ) in June 2008. The section, entitled "Inspection and Grading," established a voluntary fee-based grading program for "catfish (as defined by the Secretary)." The law also stipulated specific aspects of the examination and inspection of catfish, including the conditions under which the fish were raised and transported. By these provisions, the 2008 Farm Bill effectively transferred the regulation of imported catfish from the FDA to the USDA, which is generally viewed as maintaining stricter inspection standards than the FDA. The possibility that the Secretary of Agriculture could have redefined catfish to include basa , swai , and tra , thereby making them subject to the stricter USDA inspection standards, brought forth objections from Vietnam's Ambassador to the United States, its Minister of Agriculture and Rural Development, and Vietnam's catfish industry (including VASEP). Then-Ambassador to the United States Le Cong Phung sent a letter to nearly 140 Members of Congress, suggesting that a reclassification of basa and tra as catfish would call into question the U.S. commitment to the WTO and endanger the jobs of more than 1 million Vietnamese farmers and workers. In addition, an opinion article in the Wall Street Journal referred to the possible reclassification of basa , swai , and tra as catfish as "protectionism at its worst." Supporters of the provisions of the 2008 Farm Bill state that it provides greater protection to U.S. consumers. New Catfish Regulations The issuance of new catfish inspection regulations proved to be an extended process spanning more than five years. The Secretary of Agriculture sent draft regulations to the Office of Management and Budget (OMB) in November 2009; the final regulations were published in December 2015. Drafting the Regulations Draft regulations for catfish food safety inspection were delivered to the Office of Management and Budget (OMB) by the USDA in November 2009. On February 24, 2011, the USDA published in the Federal Register its proposed rule for mandatory inspection of catfish and catfish products. The USDA was "proposing to apply the requirements for the inspection of imported meat products (21 U.S.C. 620) to the inspection of imported catfish products…." The proposed rule, however, left some of the key issues related to Vietnamese imports unresolved, including the definition of catfish. The USDA requested public comments on the proposed rule, to be delivered on or before June 24, 2011. The catfish controversy reemerged after the passage of the Agricultural Act of 2014 ( P.L. 113-79 ). Section 12106 amended Section 1(w) of the Federal Meat Inspection Act (21 U.S.C. 601(w)) to require "all fish of the order Siluriformes" be inspected by the USDA, confirming the change made in the 2008 Farm Bill, and effectively including basa , swai , and tra under the definition of catfish, and superseding the 2002 law. In addition, the Agricultural Act of 2014 requires that the FDA and the USDA coordinate their inspection activities to avoid duplication of efforts. Based on the provisions of P.L. 110-246 and P.L. 113-79 , the USDA submitted the final version of the catfish inspection regulations to OMB on June 2, 2014. OMB officially had 90 calendar days—or until September 1, 2014—to complete its review of the final rule. The USDA's Food and Safety Inspection Service (FSIS) published the final regulation in the Federal Register on December 2, 2015, more than six years after draft regulations were first delivered to OMB. The new regulations took effect on March 1, 2016, but provide a transition period lasting until September 1, 2017, before full implementation takes place. Provisions of the New Regulations The new regulations require all imported catfish and catfish products (defined as all fish of the order Siluriformes) come from a facility that complies with USDA sanitation standards. To qualify for import into the United States, foreign countries would have to demonstrate that their laws, regulatory administration, evaluation system, and standards are equivalent to U.S. standards administered by the FSIS. In addition, the FSIS will review the inspection systems of other nations to determine their equivalency with U.S. standards; these reviews may include periodic onsite visits to overseas catfish facilities. Prior to March 1, 2016, foreign countries wishing to export catfish to the United States had to provide to FSIS a list of establishments (with the establishment name and number) "that currently export and will continue to export Siluriformes fish and fish products to the United States." The foreign countries were also required to provide: documentation showing that they currently have laws or other legal measures in place that provide authority to regulate the growing and processing of fish for human food and to assure compliance with the Food and Drug Administration's (FDA) regulatory requirements in 21 CFR part 123, Fish and Fishery Products. During the transition period that will last until September 1, 2017, FSIS will inspect all U.S. establishments that slaughter, or slaughter and process and distribute catfish or products containing catfish, as well as conduct species and residue sampling on imported catfish shipments at U.S. import establishments on a random basis. During the same period, foreign countries wishing to export catfish to the United States must submit "adequate documentation showing the equivalence of their Siluriformes inspection systems with that of the United States." If the FSIS requests additional equivalency documentation, the foreign country will have 90 days to submit the additional information. To demonstrate the equivalence of their inspection standards, foreign governments must provide information regarding the inspection program's administration, the relevant laws and regulations, copies of inspection documents and forms, and procedures to maintain inspection standards. Vietnam's Response As a possible preparation for heightened U.S. inspection requirements, starting in 2010, Vietnam's Ministry of Agriculture and Rural Development (MOARD) tightened export hygiene standards for basa , swai , and tra . Effective April 12, 2010, all basa and tra exported from Vietnam needed certificates for hygiene and food safety issued by the National Agro-Forestry-Fisheries Quality Assurance Department. In addition, MOARD and the Ministry of Industry and Trade contracted U.S.-based Mazzetta Company to train Vietnamese fish breeders how to comply with U.S. standards. In 2011, then Prime Minister Dung reportedly approved a 10-year, $2 billion "master plan" for the development of Vietnam's fish farming industry that will promote infrastructure and technological development, disease control, and environmental improvement. Following the publication of the new catfish regulations, a spokesperson for Vietnam's Ministry of Foreign Affairs reportedly expressed disappointment, stating the new regulations are unnecessary, could constitute a non-tariff trade barrier, reduce Vietnamese exports, and harm the lives of Vietnamese farmers. Vietnamese officials also reportedly indicated that the 18-month transition period is much shorter than the customary five years granted to developing nations, and suggested that the new regulations may violate the WTO sanitary and phytosanitary agreement. Following U.S. Secretary of Agriculture Tom Vilsack's two day visit to Vietnam in April to discuss the new catfish inspection requirements, a "top Vietnamese trade official" reportedly insisted that the United States revoke the new catfish inspection regulations, or potentially face a formal WTO challenge. Dao Tran Nhan, the Commercial Counselor for Vietnam's U.S. embassy, told a reporter, "The use of unjustifiable and discriminatory phytosanitary accusations is a disappointing tactic that may need to be addressed by WTO litigation." In 2014, 10 nations, including Vietnam, reportedly informed the Office of the U.S. Trade Representative that the then-proposed catfish regulations could hamper TPP negotiations and were a violation of U.S. WTO obligations. On March 14, 2016, Vietnam submitted to the WTO's Committee on Sanitary and Phytosanitary Measures comments on the U.S. catfish regulations, stating, "Therefore, at this important session of the SPS Committee, Viet Nam reiterates our deep concerns that the new catfish inspection regulation of the United States is likely in violation of the WTO SPS Agreement." None of the nations, however, have filed a WTO case. The Antidumping Sunset Review on Catfish While the USDA prepared the new catfish rule, the ITC issued on June 15, 2009, a final determination in its five-year (sunset) review of the existing antidumping duties on "certain frozen fish fillets from Vietnam." In a unanimous decision, the six ITC commissioners voted to continue the antidumping duties "for the foreseeable future." The Vietnamese government and the Vietnam Fishery Association expressed their opposition to the ITC's decision. Vietnam's deputy minister of trade and industry, Nguyen Thanh Bien, was quoted as saying, "in this economic context, this decision shows the heavy protectionism of the U.S. judicial and executive agencies." In April 2014, the Department of Commerce lowered the antidumping duties on Vietnam's catfish exports to the United States. Arms Sales Restrictions on the sales of military equipment and arms are one of the few U.S. trade restrictions with Vietnam that remains in place since the end of the Vietnam War in 1975. In 1975, U.S. military sales to all of Vietnam were banned as part of the larger ban on bilateral trade. In 1984, the U.S. government included Vietnam on the International Traffic in Arms Regulations (ITAR) list of countries that were denied licenses to acquire defense articles and defense services. The restrictions on arms sales remained in effect after President Clinton lifted the general trade embargo in February 1994. To the Vietnamese government, the continuing restrictions on trade in military equipment and arms are a barrier to the normalization of diplomatic relations and constrain closer bilateral ties. In April 2007, the Department of State amended ITAR to permit "on a case-by-case basis licenses, other approvals, exports or imports of non-lethal defense articles and defense services destined for or originating in Vietnam." Vietnam was subsequently permitted to participate in the Foreign Military Financing (FMF) program, administered by the State Department. Vietnam was able to purchase spare parts for Huey helicopters and M113 Armored Personnel Carriers captured during the Vietnam War. Until 2013, the Obama Administration generally tied arms sales to human rights conditions. In 2010, then U.S. Ambassador to Vietnam Michael Michalak said: We would very much like to expand our military to military relationship to include the sale of arms, but until we are more comfortable with the human rights situation in Vietnam, that's just not going to be possible. Since 2013, another factor has inserted itself into the U.S. debate over arms sales to Vietnam: rising U.S. concerns about China's increased assertiveness over disputed islands and waters in the South China Sea have led the Obama Administration to see Vietnam as a partner on maritime security issues. As a result, on October 2, 2014, the State Department announced that the United States would "allow the future transfer of maritime security-related defense articles to Vietnam." The announcement came alongside the official meeting of Secretary of State John Kerry and Foreign Minister Pham Binh Minh in Washington. The State Department and the Defense Department reportedly await details from their Vietnamese counterparts in terms of the types of maritime security-related defense articles the nation would like. In November 2015, the White House announced that it would provide $19.6 million in maritime assistance to Vietnam in FY2015 and would seek to provide $20.5 million in FY2016. The Administration says that it hopes to use the funds to help Vietnam "bolster its maritime Intelligence, Surveillance, and Reconnaissance (ISR)" and boost "command and control within Vietnam's maritime agencies." In a February 2016 hearing before the Senate Armed Services Committee, Admiral Harry Harris Jr., the head of U.S. Pacific Command, said: I believe that we should improve our relationship with Vietnam. I think it's a great strategic opportunity for us, and I think the Vietnamese people would welcome the opportunity to work closer with us as their security partner of choice. Since the partial lifting of the arms sales embargo, the Vietnamese government, and some U.S. observers, have called for a complete end to the arms sales restrictions. During a joint presentation in Washington with U.S. Ambassador to Vietnam Ted Osius, Vietnam's Ambassador to the United States Pham Quang Vinh said the end of the arms embargo would show that relations were fully normalized. Ambassador Osius proceeded to state that human rights remain a difficult issue in bilateral relations, and that more progress on human rights is needed for the relationship to reach its fullest potential. Speaking in Hanoi in August 2015, Secretary of State Kerry stated that additional relaxation of the arms sales restrictions would be "tied to further progress" on human rights. There are reports that the United States and Vietnam are discussing whether to end the restrictions on bilateral arms sales before or during President Obama's scheduled trip to Vietnam in May 2016. The sale of arms to Vietnam may be a source of some controversy for Congress. While some Members support the provision of lethal assistance, others object in part because of Vietnam's alleged human rights record. For now, the provision of maritime security-related defense articles appears acceptable because of the tensions in the South China Sea. Until Vietnam indicates in more detail the types of military assistance it seeks, the issue is likely to remain on a back burner. Some sources indicate that Vietnam may request advanced radar equipment, which may test the limits of partial lifting of the restrictions on arms sales for both the Obama Administration and Congress. Non-Market Economy Designation Vietnamese leaders would like the United States to change Vietnam's official designation under U.S. law from "nonmarket economy" to "market economy." Under U.S. trade law (19 U.S.C. 1677), the term "nonmarket economy country" means "any foreign country that the administering authority determines does not operate on market principles of cost or pricing structures, so that sales of merchandise in such country do not reflect the fair value of the merchandise." "Nonmarket economy" status is particularly significant for antidumping (AD) and countervailing duty (CVD) cases heard by the U.S. International Trade Administration. In making such a determination, the administrating authority of the executive branch is to consider such criteria as the extent of state ownership of the means of production, and government control of prices and wages. However, the General Agreement on Tariffs and Trade (GATT) implicitly defines a "non-market economy" for purposes of trade as "a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State." For over 20 years, Vietnam has been transitioning from a centrally planned economy to a market economy. Under its doi moi policy, Vietnam has allowed the development and growth of private enterprise and competitive market allocation of most goods and services. Although most prices have been deregulated, the Vietnamese government still retains some formal and informal mechanisms to direct or manage the economy. State-Owned Enterprises For the United States, one of the main concerns about Vietnam's economy is the continued importance of state-owned enterprises (SOEs) in the nation's industrial sector. Between 1995 and 2013, the portion of Vietnam's real industrial output produced by SOEs declined from 50.3% to 16.3%. However, SOEs continue to dominate key sectors of Vietnam's economy, such as mining and energy. In addition, according to a study by the Vietnam Report Company, 46% of the 500 largest enterprises in Vietnam are SOEs. The five largest enterprises—Vietnam Oil and Gas Group, Vietnam National Petroleum Corporation, Vietnam Electricity, Vietnam Post and Telecommunications Group, and Vietnam National Coal and Mineral Industries Group—are all SOEs. Many of Vietnam's SOEs have been converted into quasi-private corporations through a process known as "equitization," in which some shares are sold to the public on Vietnam's stock exchange, but most of the shares remain owned by the Vietnamese government. Twenty years ago, there were about 12,000 SOEs in Vietnam. By the end of 2011, the number of SOEs had been reduced to 1,309 by either restructuring or equitization. Attempts to sell shares in 25 SOEs in early 2014 via initial public offerings (IPOs) resulted in over 70% of the offered shares remaining unsold. The Vietnamese government reports that it equitized 143 SOEs in 2014, and plans on equitizing about 280 in 2015. To some analysts, however, the retention of a controlling interest in the shares of the companies provides the Vietnamese government with the means to continue to manage the operations of the equitized SOEs. Price and Wage Controls The doi moi process has led to the gradual deregulation of most prices and wages in Vietnam. However, the Vietnamese government maintains controls over key prices, including certain major industrial products (such as cement, coal, electricity, oil, and steel) and basic consumer products (such as meat, rice, and vegetables). In December 2010, then-Prime Minister Dung tightened controls on various products to reduce inflationary pressure, which was spiking at the time. Those price controls were loosened in early 2012, but temporarily reinstated at the end of 2013 because of the approaching lunar new year holiday. On wage control, Vietnamese government workers are paid according to a fixed pay scale, and all workers are subject to a national minimum wage law. Workers for private enterprises, foreign-owned ventures, and SOEs receive wages based largely on market conditions. Vietnam's recent inflation has given rise to upward pressure on wages. The Prime Minister's anti-inflation policy is supposed also to curb wage increases. The Vietnamese government asserts that most of the prices and wages in Vietnam are market-determined, especially the prices of goods exported to the United States. In addition, Vietnamese exports face strong competitive pressure from other Asian nations, such as Bangladesh, China, Malaysia, and Thailand. As such, the Vietnamese government maintains that it should be considered a market economy, particularly in anti-dumping and counterveiling duty cases. Vietnam's View The Vietnamese government maintains that its economy is as much a market economy as many other nations around the world, and actively has sought formal recognition as a market economy from its major trading partners. A number of trading partners—including ASEAN, Australia, India, Japan, and New Zealand—have designated Vietnam a market economy for purposes of international trade. Under the terms of its WTO accession agreement with the United States, Vietnam is to remain a non-market economy for up to 12 years after its accession (i.e., 2019) or until it meets U.S. criteria for a "market economy" designation. Designation as a market economy has both symbolic and practical value for Vietnam. The Vietnamese government views market economy designation as part of the normalization of trade relations with the United States. In addition, Vietnam's designation as a nonmarket economy generally makes it more likely that AD and CVD cases will result in adverse rulings against Vietnamese companies. In theory, the 114 th Congress could consider legislation weighing in on the designation of Vietnam as a market or nonmarket economy by amending or superseding existing U.S. law. Vietnam's Generalized System of Preferences (GSP) Application76 In May 2008, Vietnam formally requested to be added to the U.S. Generalized System of Preferences (GSP) program as a "beneficiary developing country" (BDC). The U.S. GSP program authorizes the President to grant duty-free treatment for any eligible product from any beneficiary country. On June 20, 2008, the office of the U.S. Trade Representative (USTR) announced that it was initiating a formal review of Vietnam's eligibility for GSP benefits and would accept public comments on the application until August 4, 2008. Since then, there has been no formal announcement from USTR regarding the status of Vietnam's GSP application. U.S. officials have indicated that they told the Vietnamese government that its labor standards must improve in order to qualify for the GSP program. Vietnam has already been accepted into several other GSP programs, including those of Canada, the European Union (EU), and Japan. Vietnam continues to inquire about the status of its GSP application, but reportedly sees inclusion in the proposed TPP as a preferable alternative. According to sources in Vietnam's Ministry of Foreign Affairs (MOFA), the Vietnamese government sees its acceptance into the GSP program as another step in the normalization of bilateral relations. Vietnam's interest in qualifying for the U.S. GSP program waned as the TPP negotiations neared completion, presumably because the conclusion of the trade agreement would provide better trade conditions than afforded under GSP. If the TPP agreement is not implemented in the near future, the Vietnamese government's interest in the GSP program may revive. Also, if Vietnam complies with the bilateral labor agreement accompanying the TPP agreement, it is uncertain if Vietnam's labor standards will be sufficient to qualify for the GSP program. Role of Congress Under Title V of the Trade Act of 1974, Congress has no direct role in the determination of whether Vietnam is to be accepted into the U.S. GSP program; the act delegates that authority to the President of the United States. The President is required to notify Congress of his intention. There are, however, several ways by which Members of Congress could indicate their preferences on this issue. In addition to hearings and communications to the Administration from Members, Congress could authorize or instruct the President to designate—or not to designate—Vietnam as a beneficiary developing country (BDC), either as part of the legislation to reinstate the GSP program or in separate legislation. Alternatively, Congress could pass legislation stipulating additional eligibility criteria for the President to consider when deciding to confer BDC status to Vietnam. Each chamber of Congress could also pass a resolution calling on the President to approve or deny Vietnam's application for inclusion in the U.S. GSP program. In the 113 th Congress, the Fostering Rights through Economic Engagement in Vietnam Act ( H.R. 1682 ) would have denied Vietnam's acceptance into the GSP program unless the President certified to Congress that Vietnam has met certain human rights conditions. Bilateral Investment Treaty (BIT) Negotiations During their June 2008 meeting, President Bush and Prime Minister Dung announced the launch of talks to establish a bilateral investment treaty (BIT). BITs are designed to improve the climate for foreign investors by establishing dispute settlement procedures and protecting foreign investors from performance requirements, restrictions on transferring funds, and arbitrary expropriation. The United States currently is a party to 40 BITs in force; Vietnam has signed over 50 BITs. The first round of BIT negotiations was held in Washington, DC, on December 15-18, 2008. The Vietnamese delegation included representatives from the Ministry of Planning and Investment, the Ministry of Industry and Trade, the Ministry of Finance, the Ministry of Justice, and the State Bank of Vietnam. The U.S. delegation included representatives of the U.S. Trade Representative's Office, the Department of State, the Department of Commerce, and the Department of the Treasury. Since then, two more rounds of talks have been held—one on June 1-2, 2009, in Hanoi, and another on November 17-19, 2009, in Washington, DC. A proposed fourth round of talks that was to be held in early 2010 did not happen. According to the State Department, bilateral BIT talks have not been held since the two nations joined the TPP negotiations, presumably because the TPP agreement would encompass those issues that would be addressed in the BIT. If implementation of the TPP agreement appear to be running into problems, Vietnam may seek to restart the BIT talks. The existing 2001 Bilateral Trade Agreement (BTA) between the United States and Vietnam included provisions in Chapter 4 governing investment and the future negotiation of a bilateral investment treaty. Article 2 commits both nations to providing national and MFN (NTR) treatment to investments. Article 4 provides for a dispute settlement system for bilateral investments. Article 5 requires both nations to ensure that the laws, regulations, and administrative procedures governing investments are promptly published and publicly available. Article 11 pertains to compliance with the provisions of WTO Agreement on Trade-Related Investment Measures (TRIMs). Article 13 states that both nations "will endeavor to negotiate a bilateral investment treaty in good faith within a reasonable period of time." The Role of Congress If the United States and Vietnam successfully complete the negotiations of a BIT during the 114 th Congress, the treaty would be subject to Senate ratification. Action on the part of Congress as a whole may be required if the terms of the BIT require changes in U.S. law. Other Economic Issues The preceding issues are topics where there has been or continues to be direct bilateral interaction. In addition, there are several economic issues that influence relations between the United States and Vietnam indirectly. Of these, the most prominent issues for the 114 th Congress likely include clothing imports from Vietnam and IPR protection. U.S. Clothing Imports from Vietnam Vietnam's clothing exporters to the United States were among the greatest beneficiaries of the U.S. decision to grant Vietnam conditional NTR status in December 2001 (see Figure 2 ). Vietnam has become a major source of U.S. clothing imports, second only to China. Up until 2002, U.S. imports of clothing from Vietnam were small both in value (below $50 million) and as a share of total imports from Vietnam (below 10%). Following the U.S. extension of conditional NTR to Vietnam, U.S. clothing imports from Vietnam shot up in value and share. As a share of total bilateral imports, clothing peaked in 2003 at 51.4%. The value of U.S. clothing imports from Vietnam continued to rise every year until 2009, with the largest year-on-year increases occurring in 2003 and 2007—the first full years after the U.S. granted Vietnam conditional and permanent NTR status, respectively. Following a slight decline in 2009, the value of clothing imports from Vietnam once again began to rise. U.S. clothing imports from Vietnam in 2015 totaled more than $10.5 billion. However, since its peak in 2003, the share of clothing in total U.S. imports from Vietnam has declined. In 2015, 27.6% of U.S. imports from Vietnam were clothing. The two spikes in clothing imports gave rise to efforts to restrict clothing trade with Vietnam, first in the form of a separate bilateral textile agreement and later in the form of a unilateral monitoring program that expired in January 2009. In both cases, Vietnam initially protested U.S. efforts to restrict clothing trade, but in the end complied with the U.S. policies. Several Members of Congress, and in particular Members with significant clothing and textile manufacturing in their districts or states (such as Georgia, North Carolina, and South Carolina) voiced concern that a "surge" in Vietnamese clothing exports to the United States could cause damage to U.S. textile companies and workers. However, major U.S. apparel retailers and importers maintained that these two programs would restrict trade from Vietnam, causing harm to U.S. companies and consumers. There continues to be congressional and commercial interest in the growth of clothing imports from Vietnam. According to some observers, industrial concerns that the TPP agreement could create another possible sharp increase in Vietnamese clothing imports was a major factor in USTR support for "yarn forward" provisions in the proposed trade agreement. Some major U.S. retailers and importers, however, supported rule of origin provisions in TPP that would allow more Vietnamese clothing imports to qualify for preferential treatment. IPR Protection The U.S. government remains critical of Vietnam's record on intellectual property rights (IPR) protection. Vietnam was included in the "Watch List" in the U.S. Trade Representative's 201 6 Special 301 Report , an annual review of the global state of IPR protection and enforcement. Vietnam remained on the Watch List because of its continuing problems with online piracy and the sales of counterfeit goods. The report states: Online piracy and sales of counterfeit goods over the Internet continue to be common.… Counterfeit goods—including counterfeits of high-quality—also remain widely available in physical markets, and, while still limited, domestic manufacturing of counterfeit goods is emerging as an issue. In addition, book piracy, software piracy, and cable and satellite signal theft persist. Enforcement continues to be a challenge for Vietnam. The perceived continuing problems with Vietnam's IPR protection may have played a role in the TPP negotiations, as well as in any consideration of Vietnam's GSP application. Key Trends in Bilateral Trade The preceding sections of the report have focused on current and past issues in U.S.-Vietnam trade relations. The final section of the report attempts to identify potential sources of future trade friction by examining trends in bilateral trade figures. The focus will be on three aspects of recent trade relations—merchandise trade, trade in services, and foreign direct investment (FDI). Merchandise Trade Over two decades has passed since trade relations between the United States and Vietnam have opened. As previously mentioned, the rapid growth in Vietnam's export of two types of products—clothing and catfish—quickly made them sources of trade tension between the two nations. However, other commodities that contribute more to U.S.-Vietnam trade flows could also become touch points for trouble in bilateral trade relations. According to U.S. trade statistics, the top U.S. imports from Vietnam in 2015, besides clothing, were (in order): electrical machinery; footwear; and furniture and bedding (see Table 1 ). The top U.S. exports to Vietnam included (in order) aircraft; electrical machinery; cotton; machinery and mechanical appliances; and oil seeds. The juxtaposition of these two lists reveals product categories that may warrant watching, as well as a connection between some of the top trade commodities. Particularly noticeable in 2015 was the jump of electrical machinery as the leading import from Vietnam; in 2014, it was the 3 rd largest import after the two apparel categories. Similarly, footwear rose from being the 4 th largest import in 2014 to the 3 rd largest import in 2015. Product Interplay There is also a discernable interplay between Vietnam's top exports to the United States and the top U.S. exports to Vietnam. Vietnam imports substantial amounts of cotton from the United States, which is then used to manufacture clothing to be exported to the United States. Similarly, Vietnam imports wood from the United States that may end up in the furniture that is imported by the United States from Vietnam. There is also a significant amount of cross-trade in electrical machinery as parts and components are shipped back and forth across the Pacific Ocean. Electrical machinery is among the top five exports for both countries to each other. The implication is that efforts to curtail the growth of certain top exports of Vietnam to the United States could result in a decline in U.S. exports to Vietnam and possible job losses in the United States. Electrical Machinery Vietnam's electrical machinery exports to the United States has grown dramatically since 2001, from less than $1 million to just under $1 billion in 2011 and then increasing to more than $8.3 billion in 2015. Electrical machinery constituted nearly 22% of total U.S. imports from Vietnam in 2015. According to interviews with foreign investors in Vietnam, there is great potential for growth in this sector because of Vietnam's relatively inexpensive, skilled workers. Vietnamese economic officials have indicated that expanding the nation's production of higher-valued consumer electronics and other electrical devices is a priority for the nation's transition to a middle-income economy. Footwear While most of the focus has been on clothing imports from Vietnam, footwear constituted nearly 12% of total U.S. imports from Vietnam in 2015. Vietnam was the second-largest source of footwear imports for the United States in 2015 (after China), more than three times the size of imports from Indonesia (the next largest source). Over a decade ago, the U.S. footwear industry reached a general agreement on its trade policy position in trade agreements. Under this agreement, the membership of the American Apparel and Footwear Association (AAFA) and the Rubber and Plastics Footwear Manufacturers Association (RPFMA) supported the elimination of nearly all footwear tariffs immediately in future trade agreements, except for tariffs on certain types of rubber/fabric and plastic/protective footwear that were determined to be manufactured in the United States. Pursuant to this agreement, the two associations are supporting the TPP. Furniture and Bedding Since 2004, Vietnam has risen from being the 62 nd -largest source for furniture and bedding imports for the United States to being the 4 th -largest source—surpassing past leaders such as Italy, Malaysia, and Taiwan. Furniture and bedding provided over 10% of total U.S. imports from Vietnam in 2015. Trade in Services The United States perceives a trade advantage in several of the services sectors, especially financial services. In the latest U.S. National Trade Estimate (NTE), the Office of the U.S. Trade Representative indicated that as part of the implementation of the 2001 BTA, Vietnam has committed to greater liberalization of a broad array of its services sectors, including financial services, telecommunications, express delivery, distribution services, and certain professions. It is likely that the United States will press Vietnam for more access during talks over the TPP, as well as during the BIT negotiations. Foreign Direct Investment In 2014, Vietnam licensed 1,843 foreign direct investment (FDI) projects worth $21.9 billion. The leading source of FDI in 2014 was South Korea, with 588 projects worth $7.7 billion. The United States was the 10 th -largest source of FDI in 2014 with 43 projects worth $310 million. The accumulated value of FDI in Vietnam for the period 1989-2014 is $252.7 billion. South Korea was the leading investor during this period, followed by Japan and Singapore. The United States was the 7 th - largest investor, with 725 projects worth $11.0 billion. Growing U.S. interest in investment opportunities in Vietnam could have an impact on the TPP and BIT negotiations. In addition, as more U.S. companies invest in Vietnam, there is the possibility of more business-to-business disagreements between U.S. and Vietnamese companies, and more constituent pressure on Congress to address perceived shortcomings in Vietnam's treatment of foreign-owned enterprises. Appendix. Bilateral Merchandise Trade Data The table below provides the official merchandise trade data for the United States and Vietnam.

The year 2015 was a memorable year in U.S.-Vietnam relations, marking the 40th anniversary of the end of the Vietnam War, the 20th anniversary of the reestablishment of diplomatic relations, the first U.S. visit by a Chairman of the Vietnamese Communist Party (VCP) (in July), and the conclusion of the Trans-Pacific Partnership (TPP) trade negotiations (in October). This year also will be marked with historical events, including the 15th anniversary of the United States granting Vietnam permanent normal trade relations (PNTR), the February signing of the TPP, and President Obama's first official visit to Vietnam in May. According to U.S. trade statistics, bilateral trade has grown from about $220 million in 1994 to $45.1 billion in 2015, transforming Vietnam into the 13th-largest source for U.S. imports and 37th-largest destination for U.S. exports. Vietnam is the second-largest source of U.S. clothing imports (after China), and a major source for electrical machinery, footwear, and furniture. Much of this rapid growth in bilateral trade can be attributed to U.S. extension of normal trade relations (NTR) status to Vietnam in 2001. Another major contributing factor is over 20 years of rapid economic growth in Vietnam, ushered in by a 1986 shift to a more market-oriented economic system. Vietnam's incentive to join the TPP largely is contingent on greater market access in the United States, particularly for agricultural goods, aquacultural goods, clothing, and footwear. For the United States, Vietnam offers a significant market for U.S. exports, but some parties are concerned about Vietnam's protection of workers' rights, protection of intellectual property rights, and potential unfair competition from state-owned or state-controlled enterprises. Vietnam is also a party to negotiations to the Regional Comprehensive Economic Partnership (RCEP), a pan-Asian regional trade association that currently does not include the United States. It is uncertain how RCEP would affect Vietnam's interest and commitment to TPP, if both regional trade agreements are finalized. Congress would have to consider implementing legislation for the United States to comply with the TPP. The growth in bilateral trade has not been without accompanying issues and problems. Vietnam would like the United States officially to recognize it as a market economy and to further relax U.S. restrictions on arms sales to Vietnam. In addition, the two nations have disagreed over U.S. treatment of the import of catfish-like fish known as basa, swai, or tra, from Vietnam. In 2008, the 110th Congress passed legislation that transferred the regulation of catfish from the Food and Drug Administration to the U.S. Department of Agriculture (USDA), which many analysts contend maintain stricter inspection standards than the FDA. The Vietnamese government strongly protested the law as a protectionist measure. The Agricultural Act of 2014 (P.L. 113-79) confirmed the transfer of inspection to the USDA, and explicitly included basa, swai, and tra as catfish. In November 2015, the USDA released final regulations for the import of catfish that went into effect in March 2016. While Vietnam continues to object to the regulatory change, it is making efforts to comply with the new U.S. inspection regime. The 114th Congress may play an important role in one or more of these issues, as have past Congresses. The Human Rights Act of 2016 (S. 2632) opposes the "further easing of the prohibition on the sale of lethal military equipment to the Government of Vietnam" unless certain human rights conditions improve. The House report accompanying the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (H.R. 1890), cites a perceived lack of a "mechanism to ensure compliance by TPP parties" to international standards for labor laws and practices, and in particular Vietnam. Vietnam's compliance with a bilateral trade and labor relations side agreement to the TPP may factor in congressional consideration of the larger TPP agreement. This report will be updated as circumstances require.

Introduction Sharp increases in U.S. oil exports in recent years has led to perceptions that these exports are not in the national interest, and have drawn Congressional attention. Oil exports from the United States, which averaged 1.4 million barrels daily (mbd) in 2007, and have increased to a daily average of 1.9 mbd during the period of January-September 2008. This represents roughly 10% of total daily consumption of oil products in the United States. A significant volume of these exports are of heavier oil products that U.S. markets cannot absorb. These include petroleum coke used in the making of steel, and residual fuel that is often used as ship fuel. Exports of these products averaged, respectively, 40,000 b/d and 362,000 b/d annually during the first nine months of 2008. There would be no advantage to keeping these products in the United States as it would be costly or impractical to further refine them into products that could be used in the automotive or residential heating sectors. Some have argued that restricting U.S. oil exports would lower product prices. However, because oil is a commodity in a global market, a prohibition on U.S. exports would not lower crude oil prices. Allowing for oil quality differentials, regional anomalies and the policies of the governments of producing and consuming nations, the price for crude oil and refined products is primarily set by world demand, and not by a nation's dependence on imported oil. Prohibiting U.S. oil exports would compel those purchasing these products to seek elsewhere the supply no longer available from the United States. This would bring about a re-balancing in the flow of oil worldwide, but would have no bearing on world demand and would not materially affect price. However, if the re-balancing in oil trade brings about higher transportation costs and other inefficiencies in world trade, it is possible that some additional pressure could be placed on prices. Additional processing, if feasible, of heavier petroleum products for which there is insufficient domestic demand, would also increase costs. A widespread but erroneous impression persists that the United States is continuing to export crude oil from the Alaska North Slope (ANS). Exports of crude oil from Alaska ended in 2000. The only crude exported from the United States is an insignificant amount which does not originate from Alaska; it averaged 25,000 barrels per day (b/d) during the period of January-September 2008. This report summarizes the history and current trends of U.S. oil exports, and examines proposals to restrict U.S. oil exports as a policy option to lower gasoline and diesel prices. (For information on the ANWR debate, see CRS Report RL33872, Arctic National Wildlife Refuge (ANWR): New Directions in the 110th Congress , by [author name scrubbed], [author name scrubbed], and [author name scrubbed].) Alaskan Oil Exports: History and Policy When the Arab oil embargo began in late 1973, oil development on Alaska's North Slope had not yet commenced. Oil at Prudhoe Bay was discovered in 1968, but no agreement had been reached on a pipeline destination. Two plans were under consideration. One favored by many policy makers envisioned the oil transiting Canada to a Chicago-area destination. Proponents of this plan pointed out that the Midwest had no indigenous source of crude; those opposing it cited the high cost of such a lengthy and expensive pipeline construction project. The other plan, which ultimately became the route of choice for the Trans-Alaska Pipeline System (TAPS), was to transport crude oil to the southern Alaska seaport of Valdez, where it would be shipped to refiners by tanker. Proponents cited large cost savings and the timeliness of the smaller construction project. Opponents of this plan contended that TAPS sponsors' true intent was to export North Slope crude, a contention denied by TAPS supporters. Midwest destination proponents asserted that exports would run counter to the principle that U.S. oil should be used domestically and remain available for consumption in the United States as a matter of energy security. A pipeline from Prudhoe Bay required transiting a route where much of the right-of-way was on federal lands. The 1973-74 Arab oil embargo brought a new sense of urgency to the debate, and legislation was required to end the stalemate over the route. The compromise, the Trans-Alaska Pipeline Act ( P.L. 93 - 153 ), authorized right-of-way for the shorter pipeline to Valdez. However, the law included a proviso that crude oil transiting the right-of-way granted by Congress would not be exported. TAPS was completed in 1977, and initial oil shipments began to flow by year-end. With continued oilfield development on the North Slope, production climbed steadily for 10 years, peaking at 2.0 million barrels per day (mbd) in 1988. In subsequent years, Alaska North Slope (ANS) output declined, falling to 1.5 mbd in 1995 and continuing downward to current flows of roughly 700,000 bd. During the mid-1990s, California produced about 800,000 bd of crude oil. The combination of California's indigenous production, ANS crude, and foreign oil imports resulted in a regional oil surplus, in part because the West Coast market is isolated from the rest of the country. The local glut depressed prices for both California and ANS producers. Since more crude was available on the West Coast than was needed there at that time, about 300,000 bd of crude were shipped via the Panama Canal to the U.S. Gulf Coast and U.S. Virgin Islands. Congress Lifts ANS Export Ban The West Coast oil glut elicited persistent expressions of concern from oil producers who argued that the ban on the export of Alaskan oil production was distorting the market and causing a decline in the price of West Coast production. However, this was a much different oil market than witnessed in 2008.The price for U.S. production on the mainland had fallen to $15.30 per barrel by 1993; California production was roughly $2-$3 per barrel cheaper. California oil producers argued that an increase of $1-$2 per barrel would be sufficient incentive to increase production and create jobs. A June 1994 DOE study, Exporting Alaskan North Slope Crude Oil—Benefits and Costs , found that exporting Alaska crude would increase producer receipts for both California and Alaska oil. The increased producer receipts would be the result of transportation savings realized by avoiding a trip through the Panama Canal. Additionally, DOE estimated that lifting the ban would create 16,000 jobs in the near-term, and predicted that larger producer revenues at the wellhead would result in 100,000 bd more output from Alaska and California than would be the case with continued export restriction. Interest in revisiting the statute prohibiting Alaskan oil exports grew in 1995, when low world oil prices, a relatively benign level of net oil imports (8.0 mbd, in contrast to a current level exceeding 12 mbd), and a supportive Department of Energy (DOE) coincided with renewed legislative efforts in both Houses of Congress. Bills introduced in the 104 th Congress to repeal the ban ( H.R. 70 and S. 395 ) passed by large margins, 324-77 and 74-25 respectively. The Clinton Administration supported ANS crude exports and the President signed P.L. 104 - 58 in November 1995. The first commercial tanker carrying ANS oil to a foreign country departed Valdez on May 31, 1996, approximately six months after the legislation lifting the ban was enacted. In a 1999 report, the General Accounting Office estimated that lifting the ban on Alaskan oil exports had increased California crude oil prices by $.98-$1.30 barrel higher than they would have been had the ban remained in place. Exports of ANS oil totaled 36,000 bd in 1996; they grew to 66,500 bd in 1997, dipped slightly to 52,900 in 1998, and rose to a high of 74,000 bd in 1999. According to unpublished DOE figures, during 1999, Korea (50%), Japan (36%), and China (12%) imported nearly all ANS exports. The list of customers for this oil remained the same throughout the period. Before ANS exports stopped in May 2000, the result of ownership changes and falling output, about 7% of North Slope output was shipped abroad. Viewed relative to total domestic consumption of 19.3 mbd in 2000, these exports comprised less than one-half of one percent. U.S. Oil Product Exports: 2008 While the export ban was under debate during 1995, the United States was already exporting nearly 900,000 bd—28% in the form of petroleum coke, which is used in making steel. During the period of January through June 2008, exports have averaged 1.7 mbd, of which petroleum coke exports have averaged roughly 22%. Finished motor gasoline represents roughly 9.5% of exports, distillates (the portion of the barrel from which diesel fuel and home heating oil are refined) comprise a little less than 25%. Residual fuel oil averaged less than 22%. During this period, approximately 35% of total U.S. oil exports went to Canada and Mexico in cross-border trades. Oil Export Restrictions And Price Oil is a commodity in a global market. Restricting U.S. oil exports would not lead to lower prices for products such as gasoline and diesel fuel. Except in nations where the price of petroleum products is controlled, consumers worldwide pay the prevailing market price, taking into account the quality of the crude, the refining process, taxes, and distribution to points-of-sale. In an unregulated market, economic theory holds that commodities find the most efficient and economic pattern of distribution at market prices. As has been noted, most U.S. oil exports are of products the U.S. market cannot use or absorb. Additionally, prohibiting U.S. oil exports would compel customers for those exports to seek the supply no longer provided by the U.S. elsewhere. This would have no bearing on world demand for crude oil. Price is primarily determined by demand, and by expectations that world supply will be able to satisfy it in the future. Consequently, restrictions on U.S. oil exports are highly unlikely to place downward pressure on world crude prices. However, upward pressure might be placed on oil prices. The current worldwide import and export patterns would need to find a new equilibrium, and it could prove to be less economically efficient than currently. For example, the transportation costs of bringing products from elsewhere might be greater than from the United States. While a reduction in U.S. dependence on petroleum imports could reduce anxiety about the adequacy of supply during an incident that reduced world oil production for a time, a disruption in production from any supplier will affect the price for oil paid by all, no matter how dependent or independent they may be on imported oil.

Concern about exports of United States crude oil, gasoline, diesel fuel and home heating oil periodically draws Congressional attention to the level of these exports, recently observed to increase from 1.4 million barrels daily in 2007, to nearly 1.9 mbd during January-September 2008. Some policymakers have suggested that prohibiting oil exports would lower prices. Legislation introduced in the 110th Congress (H.R. 6515, S. 2598) included provisions prohibiting some or all oil exports, or would have reimposed the ban on Alaskan oil exports; but no bills received major attention. Virtually all U.S. oil exports are of refined products, and no crude is exported from the West Coast. A trickle of crude oil, in a range of 25,000 barrels per day during the first nine months of 2008, is sent to Canada from the upper Midwest. However, as Canada is the largest supplier of crude oil to the United States, providing nearly 1.9 mbd in 2008 (also through September), the U.S. crude sent to Canada is of limited significance. The United States does export some gasoline to Canada and Mexico, and middle distillates to Latin America, but some of this product would not meet U.S. environmental standards. An additional roughly 40% of U.S. oil exports are of "heavier" products, such as residual fuel oil and petroleum coke, for which there is insufficient market in the United States. Because the market for oil is global, a prohibition on U.S. oil exports would have negligible effect on price. Such a restriction would only cause a rebalancing in the movement of petroleum because countries that had purchased U.S. oil products would need to find them from other suppliers. Restrictions on exports might, in fact, create inefficiencies in the movement of world oil supplies that could foster less optimal distribution of oil and possibly lead to higher prices in some markets.

Background Industry observers have raised concerns about perceived gaps in food import safety over the past few years. One particular area of concern focuses on imported goods that are released into the United States market after the Food and Drug Administration (FDA) detains them under an import alert. Generally, these goods may be released into the market after an importer "provides evidence that the entry is in compliance with federal laws and regulations." The proof can be provided by private laboratories that have tested samples of the detained imported goods, and importers can present results indicating that the goods are FDA-compliant. Currently, the FDA does not have express statutory authority to regulate the private laboratories that sample or test these imported goods, although the FDA regulates the importer and imported products. This report focuses on proposals for FDA regulation of the private laboratories that analyze imported, FDA-regulated goods. It provides background on the relationship between the FDA and the private laboratories, as well as information about agency and Bush Administration proposals and legislative responses in the 110 th Congress (particularly the Dingell Draft, S. 2418 , H.R. 5904 , and H.R. 5827 ) to the current lack of regulation. The FDA and Private Laboratories Administrative responsibility for regulation of certain types of imported food is delegated to the FDA under Chapter VIII of the Federal Food, Drug and Cosmetic Act (FFDCA). Generally, the FFDCA provides that an article must be refused admission into the United States, with some exceptions, on the following bases: [i]f it appears from the examination of [samples of food, drugs, devices, and cosmetics which are being imported or offered for import into the United States] or otherwise that (1) such article has been manufactured, processed, or packed under insanitary conditions ..., or (2) such article is forbidden or restricted in sale in the country in which it was produced or from which it was exported, or (3) such article is adulterated, misbranded, or in violation of section 505. Under the FFDCA, the FDA can automatically detain a product without physically examining it. Automatic detention occurs as a result of the issuance of import alerts, which "identify problem commodities and/or shippers and/or importers and provide guidance for import coverage," such as if "those products or shippers ... have met the criteria for automatic detention." Importers whose products have been detained because of import alerts can petition for the release of their products by presenting testimony from private, or third-party, laboratories that shows that their products are compliant. In order to do this, they submit either their products or samples of their products for testing to the private laboratories. For the products to be released, the private laboratories must then present test results that indicate that the products do not violate the FDA's entry standards. The test results can be returned to the importer, who will give it to the FDA, or the lab can turn in the results directly to the FDA. The FDA may then use this data "to determine whether the imported food complies with the [FFDCA] and can be released into the United States." The FDA has recognized these private laboratories as an integral part of food import safety. According to the FDA, the third-party labs help ensure that the food reaching the market complies with agency standards and allow agency laboratory resources to be devoted to other regulatory matters. However, there has been criticism regarding the autonomy given to the importers and private laboratories. Such criticism varies from the manner in which the samples are collected for testing to the reporting of test results by the importers to the FDA. For example, at a 1998 hearing before a Senate Governmental Affairs subcommittee, a former customs broker testified regarding the abuses of the private laboratory system in relation to the product samples given to the private laboratory. He recounted how some importers selected samples for testing that were from shipments that had not been detained or they submitted multiple samples for testing until a sample was found to be compliant. As the FDA has noted, "[b]oth of these activities permit importers to market adulterated or misbranded foods in the United States, representing a health hazard." Another example occurred early in 2008, when the chairman of a private laboratory that samples and tests FDA-regulated goods testified at a House Energy and Commerce subcommittee hearing. His testimony concerned encounters with importers who deleted information from test results that evidenced FDA violations and then submitted the altered results to the FDA, as well as suggestions for improving the FDA's regulation of imported foods via the use of laboratories and existing FDA programs. Additionally, he stated that the FDA should be able to visit and audit laboratories at their physical location at any time. Currently, the FDA may conduct voluntary, on-site assessments of such laboratories. Recent agency, administration, and legislative proposals address various ways to curb the potential for such abuses by monitoring private laboratories. Agency and Bush Administration Proposals The FDA Office of Regulatory Affairs publishes a Laboratory Manual with a section on Private Laboratory Guidance. The Guidance "seeks to establish a uniform, systematic, and effective approach to ensuring that private labs performing analyses on FDA-regulated imported commodities submit scientifically sound data." To that end, the Guidance provides recommendations on sampling techniques, information regarding the training and experience of private lab analysts, considerations for reviewing the analytical packages, and suggested criteria for collecting audit samples. In general, a guidance document is a type of policy statement, "issued by an agency to 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 are "not finally determinative of the issues or rights to which [they are] addressed." In April 2004, the FDA proposed a rule to regulate imported food product sampling services and private laboratories. It was withdrawn without comment on August 5, 2005. Some of the recommendations from the FDA's Laboratory Guidance were put forth in the proposed rule. The proposed rule would have required "samples to be properly identified, collected and maintained." The proposed sampling requirements outlined specific provisions for identification, collection, and documentation from the time the sample was collected to the time the sample was delivered to a private laboratory. Particularly, the proposed rule placed an emphasis on an "independent" execution of the sampling, to ensure that the sampling and the tests are conducted without the importer's influence. It went further to require "laboratories to use validated or recognized analytical methods, and to submit analytical results directly to FDA." It purposefully omitted a laboratory accreditation requirement. In November 2007, the FDA prepared a report entitled the Food Protection Plan . The FDA's plan is integrated with a separate plan, prepared for President Bush by the Interagency Working Group on Import Safety, called an Action Plan for Import Safety . Both reports highlight how the Bush Administration would like to improve food import safety. The Food Protection Plan recommends legislation that would give the FDA the authority to accredit private laboratories. The Action Plan for Import Safety notes that the FDA plans to issue guidance "that would set standards for the sampling and testing of imported products, including the use of accredited private laboratories submitting data to FDA to assist in evaluating whether an appearance of a violation may be resolved." Legislative Proposals from the 110th Congress Several bills introduced in the 110 th Congress addressed the issue of private laboratory regulation. One common theme among these legislative proposals is the accreditation or certification of private laboratories. The Food and Drug Administration Globalization Act (Dingell Draft) Representative Dingell of the House Committee on Energy and Commerce began circulating a bill in draft form in April 2008. The draft sought to alter the FFDCA in a variety of ways, including by requiring new sampling and testing protocols for food shipments. The Dingell draft would have added a new section to the FFDCA dedicated to the testing of food shipments. The new section would have addressed three areas of food shipment testing: (1) testing in facilities that manufacture, process, pack, or hold food that would not have been certified under the provisions that the bill would have established (in which case accredited laboratories would conduct sampling and testing of each shipment and simultaneously submit the sampling results electronically to the Health and Human Services (HHS) Secretary and the facility owner); (2) testing in like facilities that would have been certified under the bill's provisions (accredited laboratories would conduct sampling and testing of shipments "on a periodic basis specified by the Secretary" and submit the sampling results electronically to the HHS Secretary and the facility owner); and (3) accreditation of laboratories by the HHS Secretary "for the purpose of conducting sampling and testing." The section would have required the Secretary to establish a standard for accreditation and mandated that all certified and non-certified facilities submit all their samples to accredited labs only. The accredited labs would then return the results simultaneously to the FDA and to the importer. Ending Agricultural Threats: Safeguarding America's Food Supply for Everyone (EAT SAFE) Act of 2007 (S. 2418) The EAT SAFE Act was introduced by Senator Casey in December 2007. The bill would have required private laboratories that conduct tests on FDA-regulated imports to be certified by the agency under a fee-funded certification and audit process developed by the FDA. Laboratories would have had to submit to the agency the results of all tests conducted. Safe Food Enforcement, Assessment, Standards, and Targeting (FEAST) Act of 2008 (H.R. 5904) The Safe FEAST Act was introduced in April 2008 by Representative Costa. In particular, it would have allowed the HHS Secretary to recognize "qualified" laboratories to test imported foods, once the laboratories have established, to the recognizing agency's satisfaction, that they maintain internal quality systems and meet other criteria. The Secretary would also have been required to establish a registry of such laboratories. Alternative laboratories would have been allowed to test samples as well, but additional requirements, such as the submission of evidence to the Secretary to establish the laboratory's qualifications and the submission to the FDA of all testing results and data, would have been imposed on such laboratories. Keeping America's Food Safe Act of 2008 (H.R. 5827) This bill was introduced by Representative Roskam in April 2008. Among other things, the bill would have required the addition of a section to the FFDCA that would have required the HHS Secretary to certify all private laboratories and sampling services that test imported FDA-regulated goods. Laboratories would have had to allow audits and submit all test results directly to the FDA. In addition, importers, laboratories, and sampling services would have faced civil penalties for knowingly falsifying test results.

Industry observers have raised concerns about perceived gaps in food import safety over the past few years. One particular area of concern focuses on imported goods that are released into the United States market after the Food and Drug Administration (FDA) detains them under an import alert. Generally, these goods may be released into the market after an importer "provides evidence that the entry is in compliance with federal laws and regulations." Currently, the FDA does not have express statutory authority to regulate the private labs that test these imported goods for compliance, although the FDA has authority over the importer and imported products. This report focuses on obstacles to and legislative proposals for FDA regulation of the private laboratories that analyze imported FDA-regulated goods. It provides background to that relationship, as well as information about agency and Bush Administration proposals and legislative responses from the 110th Congress (particularly the Dingell Draft, S. 2418, H.R. 5904, and H.R. 5827) to the lack of regulation.

Introduction The federal government consumed roughly 57.4 million megawatt-hours (0.1958 quads) of electricity to operate all of its U.S. facilities in FY2007 (the latest information available), making it the single largest U.S. electric consumer. The Department of Defense (DOD) alone consumed more than half, some 29 million megawatt-hours. However, the federal Power Marketing Administrations (PMAs) generate hydropower at more than twice the volume of annual federal power consumption, over 127 million megawatt-hours. EPAct 2005 required federal agencies to reduce energy consumption and improve energy efficiency through increased use of renewable energy. Specifically, Section 203 of EPAct required federal agencies to increase renewable energy purchases to a minimum of 7.5% of overall energy purchases by 2013. Since most renewable forms of energy available substitute for conventionally generated electric power (including hydropower), federal agencies will likely meet the 7.5% goal through purchases of wind and solar photovoltaic generated power; an equivalent of 4.3 million megawatt-hours based on FY2007 consumption. Agencies will receive double credit toward achieving the 7.5% goal for renewable energy generated on their facility sites. Due to radar interference problems associated with wind turbines operating near military installations, solar photovoltaic power represents the most likely prospect for achieving site-generated power on DOD facilities (the largest federal consumer). The General Services Administration (GSA) has general statutory authority to enter into utility service contracts of up to 10 years for all federal agencies. It has delegated this authority to the DOD and other federal agencies. DOD also has the authority to enter into contracts of up to 30 years for power generation on military bases. Other laws authorize federal agencies to take advantage of privately financed energy efficiency improvements paid through savings in energy costs for minimum contract lengths of 25 years. Utilities also offer incentives to their agency-customers for reducing energy demand. The PMAs already sell a small percentage of their power to federal agencies, and have the authority to assist federal facilities in meeting their renewable energy goals. Executive Order (EO) 13423 ( Strengthening Federal Environmental, Energy and Transportation Management, January 24, 2007) followed up by requiring federal agencies to purchase at least one-half of their annual renewable energy from new renewable energy sources (i.e., placed in service after January 1, 1999), preferably from projects located on agency property where feasible. EO 13423 also allows agencies to use new "non-electric" renewable energy sources to meet the requirement for new renewable energy. More recently, Executive Order 13514 ( Sustainability and Greenhouse Gas Emissions Reduction ) directs federal agencies to establish greenhouse gas reduction targets through reduced energy intensity in buildings, increased renewable energy use, and renewable energy projects on agency property. As federal agencies work to meet their renewable energy goals, they encounter a number of options and barriers in contracting with small renewable power generators. The small generators, in turn, need federal contracts with much longer terms than the typical 10-year utility service agreement to convince investors of their project's viability. The typical utility agreement also provides firm uninterruptible power that the utility guarantees through its base-load generators, peaking plants, and power purchase agreements with merchant generators. When federal agencies previously purchased "renewable energy certificates" (RECs) to satisfy renewable energy goals, they received firm power backed by their service agreement. Agencies desiring to contract directly with small renewable power generators may not find similar guarantees. This report summarizes the various statutes and regulations authorizing the General Services Administration (GSA), the Department of Defense (DOD), and other federal agencies to enter into contracts for their electric utility services and purchase of renewable generated electricity. It also discusses the potential for expanding the role of the PMAs in meeting future renewable energy goals. The renewable energy industry is a subject in its own right and beyond the scope of this report; for some background discussion on the industry refer to CRS Report R41954, U.S. Renewable Electricity Generation: Resources and Challenges , by [author name scrubbed] and [author name scrubbed]. The Appendix to this report summarizes energy purchasing authorities ( Table A-1 ) and renewable energy contracting options ( Table A-2 ). Multiyear Contract Authority to Acquire Services Federal agencies may acquire goods and services using multiyear contracts under the authority of the Federal Property and Administrative Services Act of 1949 (Section 304B), as codified in 41 U.S.C. 254(c). DOD has similar authority to acquire property using multi-year contracts under 10 U.S.C. 2306(b). General military laws governing the Armed Forces acquisition process fall under 10 U.S.C. Chapter 137– Procurement. The term "acquisition" means the process of using appropriated funds to contract for the purchase or lease of property or services that support the missions and goals of an executive agency, as defined in 41 U.S.C. 403 (Public Contracts). The general "procurement" process includes all the steps agencies take in acquiring property or services, beginning with determining a need for property or services and ending with contract completion and closeout. In a departure from some traditional contracting practices, contracting officers have the authority to sole-source energy service improvements to an electric utility company or electricity provider under 42 U.S.C. 8256. Agencies may enter into multi-year contracts for services or supplies for up to five program years (unless further authorized by statute) even though the total funds ultimately to be obligated may not be available at the time of contract award. A multi-year contract may include the provision that performance under the contract during the second and subsequent contract years is contingent upon the appropriation of funds, and may provide for a cancellation payment to the contractor if Congress does not appropriate funds. If Congress does not appropriate funds to support the succeeding years' requirements, the agency must cancel the contract. All federal agencies must follow the Federal Acquisition Regulations (FAR) System in Title 48 of the Code of Federal Regulations (C.F.R.). Individual federal agencies may also develop their own internal guidance beyond the FAR System, as has DOD under the Defense Federal Acquisition Regulation System (DFARS). Contract Authority for Public Utility Services GSA has authority to enter into contracts for public utility services for terms not exceeding 10 years (in 40 U.S.C. 501). Utility services include electricity, natural gas, water, sewerage, thermal energy, chilled water, hot water, and steam. The contracts may take the form of basic utility service agreements, or area-wide contracts. Agencies typically pay for the services through annually appropriated operation and maintenance funds. GSA, in turn, has delegated to DOD the authority to enter into utility service contracts on behalf of the military departments. The contract period cannot exceed 10 years. However, the Secretary of Defense may exempt the DOD from any action taken by the GSA Administrator in the interest of national defense. Utility Service Agreements Utility service agreements provide rate-paying customers with public utility services. This form of agreement represents the traditional means by which a federal facility or military installation contracted with a local utility to provide electric power, natural gas, water, and sewer service. Generally, the agreement required annual renewal. However, the agreement (contract) may extend up to 10 years under any of the following circumstances: (1) The federal government will obtain lower rates, larger discounts, or more favorable terms and conditions of service. (2) There is a reduction or elimination of any proposed connection charge, termination liability, or any other facilities charge that the federal government must pay. (3) The utility service supplier refuses to render the desired service except under a contract exceeding a one-year period. Area-Wide Contracts Area-wide contracts (AWCs) essentially provide public utility services on an indefinite-delivery, indefinite-quantity basis (an IDIQ contract). The FAR describes an "area-wide contract" as a "contract entered into between the GSA and a utility service supplier to cover utility service needs of Federal agencies within the franchise territory of the supplier" (the utility's geographically regulated service area). Generally, AWCs provide federal agencies with a means for ordering utility services at rates approved or established by a regulatory body and published in a tariff rate schedule. Apart from the authority that GSA has delegated to DOD and the Department of Energy (DOE), other federal agencies may request GSA to delegate similar authority. Once delegated, agencies may negotiate other rates, terms, and conditions of service. Energy Incentive Programs Apart from directly contracting for utility services, federal agencies may take advantage of several programs to reduce their energy demands directly through sponsored utility programs, or indirectly through programs authorized by Congress. Typically funded out of annually appropriated operation and maintenance (O&M) accounts, these programs eliminate the need for requesting direct appropriations for an energy-related improvement. For example, agencies may find opportunities under these programs to install renewable-generated energy projects (for example roof-top photovoltaic systems) that offset electricity use during peak electric rate periods, and also help directly satisfy renewable energy goals in lieu of purchasing RECs. Although these programs may reduce energy use, they do not necessarily guarantee energy cost savings. Demand-Side Management Demand response and load management programs are a form of utility incentive programs. In these programs, utility companies typically provide rate incentives and/or cash payments to their customers in exchange for curtailing their energy demand during peak usage periods. This helps increase the utility's system reliability and reduce the need for constructing new generation facilities. Demand-side management includes energy conservation, energy efficiency, and load management techniques. Customers who choose these programs may install back-up generators or fuel cells to meet their needs during curtailment episodes. Federal agencies can take advantage of this opportunity through their utility service provider. Utility Energy Service Contracts Utility energy service contracts (UESCs) enable federal agencies to enter contracts with utilities to implement energy- and water-related improvements at their facilities. Agencies may fund projects with appropriations, or the utility may arrange to finance the project and recover the cost through its billing charge. In the latter case, the customer's utility charges may remain unchanged. The end benefit of UESCs to federal agencies is the ability to implement energy projects with no initial capital investments, minimal net costs, and savings of time and resources. These improvements ultimately serve federal goals for reducing energy use. Energy Savings Performance Contracts The National Energy Conservation Policy Act authorized federal agencies to enter into multi-year contracts with energy service providers that implement energy savings measures in exchange for a share of the energy savings directly resulting from the implemented measures (42 U.S.C. 8287(a)(1)). Energy savings performance contracts (ESPCs) enable federal agencies to install energy efficiency improvements with no upfront capital expenditure, thus eliminating the need for directly appropriating funds for the energy efficiency improvement. Instead, the agency pays an energy service company (ESCO) through its annually appropriated budget for operation and maintenance, which typically pays for utility costs (energy, water, or wastewater treatment). ESPCs must meet three statutory funding limitations: The contractor must incur the total costs of implementing the energy conservation measures (ECMs). (42 U.S.C. 8287(a)(1)) Agency payments to a contractor cannot exceed the amount that agency would have paid for utilities and related expenses absent an ESPC. (42 U.S.C. 8287(a)(1(2)(B)) Any amount an agency paid under an ESPC can come from funds appropriated or otherwise made available for the payment of utility costs, and related operation and maintenance expenses. (42 U.S.C. 8287a) The Congressional Budget Office (CBO) views ESPCs as imposing a future financial obligation on the federal government. CBO began scoring ESPCs as mandatory spending, coinciding with the expiration of the 1990 Budget Enforcement Act ( P.L. 101-508 ) pay-as-you-go (PAYGO) rules. CBO scoring reflects how ESPCs create future commitments to appropriations. The Government Accountability Office (GAO) finds that the benefits of ESPCs could be achieved using upfront funds (that is, fully funded in advance) and with lower financing costs, but agencies generally do not receive sufficient funds upfront for doing so and see ESPCs as a necessary supplement to upfront funding in order to achieve the energy savings benefits. The Energy Independence and Security Act of 2007 ( P.L. 110-140 —EISA) established federal policy prohibiting ESPC contract periods of less than 25 years. EISA also authorized federal agencies to combine appropriated funds with ESCO private financing for ESPCs' improvements. EISA provided no clarification on implementing the funding provision, however. In the absence of DOE rulemaking or guidance from the Office of Management and Budget, agencies thus far have been able to combine funding under the 2009 American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ). In the case of DOD, Military Construction appropriations directly fund energy improvements through the Energy Conservation Investment Program. Contracts for Energy for Military Installations DOD has the unique authority to enter into contracts for up to 30 years for services that provide and operate energy production facilities on military installations, and, in turn, purchase the energy generated from such facilities (in 10 U.S.C. 2922a—Contracts for Energy or Fuel for Military Installations). The costs of the contract for a particular year must be paid from annual appropriations for that year. The Defense Logistics Agency (Energy) acts as the executive agent for purchasing fuel and electricity for DOD (and other federal agencies) and offers assistance in purchasing renewable energy through its Renewable Energy Initiatives team. Out of necessity, many military bases and installations relied on their own electric power plants at one time, as their isolated locations placed them beyond utility service territories. In many cases, military installations continued to operate their World War II-era power plants and utility systems well into the late 20 th century. The plant and utility systems' inefficiencies and the expense of modernizing them led DOD to begin selling them off or privatizing them in the late 1990s and buy back the generated power (similar to a leaseback). As an alternative to updating or replacing some of the lost generating capacity, DOD has begun making underutilized land available for privately financed energy projects. Underutilized Land Lease for Renewable Energy Projects Interest in offsetting power consumption and reducing vulnerability to power supply disruption has prompted DOD to offer underutilized land for privately financed, renewable energy generation projects. Under such an arrangement, a developer installs a renewable energy system on agency property under an agreement that the agency will purchase the power generated by the system. The agency pays for the system through these power payments over the life of the contract. After installation, the developer owns, operates, and maintains the system for the life of the contract. Contract terms determine energy prices and buyback options for the system. Such arrangements, if successful, provide a mutual benefit to the three parties involved. The installation benefits by reducing its power costs. The project developer benefits by generating a steady revenue stream and tax benefits. The local utility benefits through the avoided cost of new generating capacity, thus freeing up generating capacity for peak demand/peak rate periods. Ultimately, the taxpayer benefits when a government facility reduces its energy costs, which is reflected in a decreased energy budget request. DOD may enter into multiyear contracts for supplies if the use of such contracts will promote national security of the United States (10 U.S.C. §2306b (a) (6)). DOD's authority allows leases for military lands under terms that either promote national defense or are in the public interest, paid in cash or in-kind at not less than the fair market. DOD lease authority under 10 U.S.C. 2667 is limited to land not needed at the time for public use or defined as excess property (under 40 U.S.C. 102). The lease may not exceed five years unless a longer lease period would promote national defense or the public interest. The lease payment must be based on fair market value (in cash or in-kind). The lease terms cannot provide for a leaseback in excess of $500,000 annually. In-kind consideration offered by the private developer may include: facility/real property maintenance, repair, improvement, or restoration (including environmental restoration); new facilities construction; providing or paying for utility services; or providing other services that may be appropriate. Under these terms, military installations have undertaken major energy projects that directly benefit them by offsetting the cost of their energy use, as illustrated in the following examples. Nellis Air Force Base Photovoltaic Array Nellis Air Force Base, NV, hosts a 14-megawatt solar photovoltaic array that provides the base with renewable solar power utility service. The solar array provides an annual energy output of 30.1 megawatt-hours, which meets up to 25% of the base's total electricity needs. SunPower Corporation financed, constructed, operates, and maintains the array. As an incentive for constructing and operating the array, Nellis conveyed 140 acres of unused real property through a 20-year site access agreement (straight land lease) at a nominal annual fee. SunPower has guaranteed a rate for up to 20 years, but Nellis' contract with SunPower commits the government to no more than 12 months service at a time and allows the government to terminate the contract with a one-year notice. SunPower's rate saves Nellis an estimated $1 million annually, compared to the rates charged by Nevada Energy (the local utility). For reliability and safety reasons, the solar array transmits power through Nevada's distribution system; Nellis does not take direct delivery from the array. Although the electricity qualifies as renewable power, Nellis cannot claim RECs for the power purchase. SunPower owns the RECs, which the government offered as an incentive for privately financing the solar array's construction. SunPower in turn has the contractual right to sell them to Nevada Energy. SunPower also benefits from investment tax credits in the project. The Nellis array represents a unique project that other military installations may not easily duplicate. Nevada established a renewable portfolio standard as part of its 1997 restructuring legislation. Under the standard, Nevada Energy must use eligible renewable energy resources to supply a minimum percentage of the total electricity it sells. In 2001, Nevada increased the minimum requirement by 2% every two years, culminating in a 15% requirement by 2013, and subsequently increased the requirement to 25% by 2025. Coso Geothermal Project, China Lake Under authority granted by 10 U.S.C. 2917, the DOD may develop any geothermal energy resource within lands under the DOD's jurisdiction, including public lands, for the use or benefit of the military. DOD benefits by offsetting its energy utility costs with the lease payments. A geothermal energy project developed under this authority cannot deter commercial development and use of other portions of such resource if offered for leasing. The Coso Geothermal Field, located on the Naval Air Weapons Station, China Lake (east central California), hosts four geothermal power-generators that have been continuously operated since 1987 by the China Lake Joint Venture (Guy F. Atkinson/Mitsubishi Heavy Industries of America, Inc.). Under the 1978 Public Utilities Regulation Policies Act (PURPA), the Southern California Edison (SCE) must buy the power. (See PURPA in the discussion below). Thus, Coso does not physically wheel (directly transmit) power to China Lake. At its peak generating capacity, Navy Unit 1 produces more than 270 megawatts of electricity that it sells to the local utility grid under a long-term power sales agreement. The field has produced more than 26 million megawatt-hours of electricity since 1987. According to a 2004 Government Accountability Office (GAO) report, Coso generated an average of $14.7 million annually in royalties and other revenues for the Navy between 1987 and 2003. The Navy's contract with the China Lake Joint Venture established three sources of annual revenue: (1) royalty payments on the sale of electricity, (2) payments toward the base's electricity bill, and (3) bonus payments for voluntarily conserving electricity usage at the base. In total, the power plant operator received about $2.3 billion from the sale of electricity produced by the China Lake power plants between 1987 and 2003 and paid approximately $249 million, or about 11%, to the Navy. PURPA, Qualified Facilities and Merchant Generators, and Power Purchase Agreement The Public Utility Regulatory Policies Act of 1978 (PURPA, P.L. 95-617 ) established electric utility service practices and ratemaking standards for state regulatory authorities and non-regulated utilities. PURPA defined a new class of generating facilities that would receive special rate and regulatory treatment. Qualifying facilities (QFs) under the definition included "small power" production facilities that generate less than 80 megawatts using solar, wind, geothermal, biomass, or waste. PURPA also required utilities to buy power from QFs within their service territory (with some exceptions) at the utility's "avoided cost" of power production via a state authorized "power purchase" contract—more commonly referred to as a "power purchase agreement." Avoided cost is the regulatory-determined incremental cost a utility would have to pay if the utility purchased or generated the electricity itself. The Energy Policy Act of 1992 ( P.L. 102-486 ) later created a new class of wholesale generators (independent power producers) exempt from regulation under the Public Utility Holding Act of 1935 (PUCHA, 15 U.S.C. 79) and allowed them to sell electricity to the wholesale market. In 1995, the Federal Energy Regulatory Commission (FERC) issued Order No. 888 allowing open access to the electrical transmission system, which allowed independent (or merchant) power producers a method of shipping their power to market. The DOE Federal Energy Management Program (FEMP) describes a power purchase agreement somewhat differently than the PURPA-inferred definition. (FEMP provides guidance on federal laws and regulations to assist federal energy managers in complying with energy management requirements and goals.) Under the FEMP definition, a developer installs a renewable energy system on an agency's property under an agreement that the agency will purchase the power generated by the system. The agency pays for the system through monthly (or annual) payments for power over the life of the agreement. The developer owns and continues to operate and maintain the system for the life of the contract. FEMP offers to assist federal agencies in writing agreements with renewable energy project developers. Although FERC is responsible for implementing PURPA, it allows state public service commissions or public utility commissions certain regulatory roles regarding power purchase agreements. However, state laws and regulations vary on allowing small qualified generators to sell the agreements. States are more likely to permit their use for renewable generated power when the purchaser is a utility, because the utility is responsible for providing firm uninterrupted power to its customers. Because wind- and solar-generated power may be variable and intermittent, the utility must also be able to bring "peaking" power plants online to make up power losses. While DOD can take direct advantage of underutilized lands to attract and site renewable energy projects, other federal agencies may be able to take advantage of indirect opportunities through the federal Power Marketing Administrations. The Power Marketing Administrations and the Tennessee Valley Authority Federal power marketing originated in early 20 th century federal water reclamation and flood control projects as a means to recoup their construction costs through the sale of hydro-generated power at wholesale rates to regional consumers. Power generation was a secondary opportunity, as most dams were constructed for flood control or navigation purposes. At about the same time, the Depression-era Rural Electrification Administration, essentially a government financing agency, provided subsidized loans to private companies, public agencies, or cooperatives to construct electrical supply infrastructure in rural regions as a means of economic development. The Department of Energy Organization Act of 1977 ( P.L. 95-91 ) transferred management of the federal power marketing administration (PMA) functions from the Department of the Interior to DOE. This included the power marketing activities authorized under Section 5 of the Flood Control Act of 1944 and all other functions of the Bonneville Power Administration, the Southeastern Power Administration, the Southwestern Power Administration, and the power marketing functions of the Bureau of Reclamation that have been transferred to the Western Area Power Administration. The Alaska Power Administration was privatized in 1996, but is still considered to be a PMA. The Tennessee Valley Authority is a separate agency which serves similar functions, and is not considered a PMA. Operations of the Bonneville Power Administration are financed principally under the authority of the Federal Columbia River Transmission System Act ( P.L. 93-454 ). Under this act, the Bonneville Power Administration is authorized to use its revenues to finance the costs of its operations, maintenance, and capital construction, and to sell bonds to the Treasury if necessary to finance any additional capital program requirements. The remaining three PMAs are funded annually with appropriations. The four federal PMAs are responsible for marketing and distributing hydropower—primarily produced by federal dams and projects operated by the Corps of Engineers and the Bureau of Reclamation—to 60 million people in 34 states. They have a combined generating capacity of 34,305 megawatts, and reported gross power sales of roughly 127.1 million megawatt-hours. All four PMAs give preference in the sale of their power to publicly owned and cooperatively owned utilities. FERC may issue an order requiring the physical connection of any small power production facility or the transmission facilities of any electric utility with any PMA upon application by either party (16 U.S.C. 824(i). Interconnection Authority). The cost of interconnection, that is, building new transmission lines, is a separate matter. The 2005 Energy Policy Act (EPAct) directed a study to determine the economic and engineering feasibility of combining wind generated energy with hydropower and a demonstration project that uses wind energy generated by Indian tribes. The Western Area Power Authority has the authority to supply federal agencies in its service territory (facilitated through contracting assistance by FEMP). The roles that other PMAs may have in supplying federal agencies are not so clearly delineated. A detailed discussion of the PMAs' legislated authority is outside the scope of this report. However, their capabilities are briefly discussed below. Although the Tennessee Valley Authority was privatized, it has been added to this discussion for historical background purposes. Bonneville Power Administration The Bonneville Power Administration (BPA), created by the Bonneville Project Act of 1937 (16 U.S.C 832 et seq.), is headquartered in Portland, OR. BPA markets wholesale electrical power generated by 31 federal hydroelectric projects owned and operated by the U.S. Army Corps of Engineers and Bureau of Reclamation, one nonfederal nuclear plant, and some small nonfederal resources. BPA supplies about one-third of the electric power used in the Northwest and operates over three-fourths of the region's high-voltage transmission lines. Roughly 80% of its capacity is hydropower. BPA reached an all time 60-minute peak generating capacity of 18,139 megawatts in 2002, and gross power sales exceeded 76.5 million megawatt-hours in FY2010. In 2010, BPA reported that it had integrated 3,000 megawatts of wind energy capacity into its transmission system and that it expects to reach 6,000 megawatts by 2013. Assuming an average availability of 33%, the future capacity potentially represents 17 million megawatt-hours annually. BPA's commitment to buying renewable wind-generated power came under fire recently, however. Near-flood conditions in the Columbia River forced the agency to divert the high water through its hydroelectric turbines. The excess generated power forced BPA to cut fed-in wind-generated power until the water level subsided. BPA does not receive government appropriations, but does borrow from the U.S. Treasury. It recovers all of its costs through sales of electricity and transmission services, which it also uses to repay any money it borrows with interest. Southeastern Power Administration The Southeastern Power Administration (SEPA) was created in 1950 by the Secretary of the Interior to carry out the functions assigned to the Secretary by the Flood Control Act of 1944. Headquartered in Elberton, GA, SEPA markets electric power generated at reservoirs operated by the U.S. Army Corps of Engineers in a 10-state region in the southeast and mid-Atlantic region of the United States. It does not own transmission facilities and must contract with other utilities to provide transmission, or "wheeling" services, for the generated power. With a total generating capacity of 3,392 megawatts, SEPA reported gross power sales of 5.9 million megawatt-hours in FY2009 (the most current information available). Southwestern Power Administration The Southwestern Power Administration (SWPA) markets hydroelectric power in a six-state region from 24 U.S. Army Corps of Engineers multipurpose dams with a total generating capacity of 2,174 megawatts. SWPA uses its annual revenue to pay the operation and maintenance expenses of its generation and transmission facilities, and to repay the principal and interest on the federal investment in the hydroelectric facilities. SWPA markets power primarily to public entities such as rural electric cooperatives and municipal utilities, representing over 8 million end-use customers. SWPA reported gross power sales of 7.4 million megawatt-hours in FY2008 (the most current information available). Western Area Power Administration The Western Area Power Administration (WAPA) markets hydroelectric power and related services within a 15-state region of the central and western United States. Its transmission system carries electricity from 55 hydropower plants with a combined capacity of 10,600 megawatts. The plants are operated by the Bureau of Reclamation, U.S. Army Corps of Engineers, and the International Boundary and Water Commission. WAPA reported gross energy sales of 37.3 million megawatt-hours of power in FY2010, with roughly 3% going to federal agencies. WAPA's Renewable Resources for Federal Agencies (RRFA) program works with the FEMP to help federal agencies in the region meet renewable energy goals. RRFA coordinates the purchase of renewable energy and/or its benefits for federal facilities with a streamlined purchase process that is intended to contain costs and give agencies greater choice in the type of renewable projects they support. WAPA issues the "request for proposal" for renewable energy products, which federal agencies pay for at cost plus FEMP's administrative fees. FEMP is empowered to cover the administrative cost of acquiring renewable resources from suppliers as a savings to agency participants. Tennessee Valley Authority Congress created the Tennessee Valley Authority (TVA) to improve the navigability of and provide flood control for the Tennessee River in the 1933 TVA Act. TVA stopped receiving direct federal funds to manage the Tennessee River system after 2000. However, it retains a long-term debt obligation to the federal government. TVA finances all of its programs, including those for environmental protection, river management, and economic development, through power sales and the sale of bonds in the financial markets. In 2005, federal legislation altered TVA's corporate governance structure from a three-member full-time board to a nine-member part-time board. The law also created the position of chief executive officer, which is filled by board appointment. Policy Considerations Electricity consumption in FY2007 cost the federal government $4.4 billion, or more than 0.5% of the $843 billion federal discretionary budget. Congress has enacted various laws, since the 1970s, to reduce federal agencies' energy consumption by mandating improved energy efficiency. The 2005 Energy Policy Act (EPAct) included provisions to reduce energy and water use in congressional buildings, install advanced meters to reduce electricity use in federal buildings, enact performance standards to improve federal buildings, and allow for the creation of renewable energy offsets to reduce the federal government's electric energy consumption. The 2007 Energy Independence and Security Act (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. Federal agencies can take advantage of private financing through ESPCs and UESCs to make energy efficiency improvements without increasing their annual operating budgets. 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 ESPCs could further energy efficiency improvements, but the lack of definitive federal regulations delays implementation. In meeting past goals for using renewable-generated electricity, federal agencies were able to purchase RECs without purchasing the associated power. Merchant renewable energy generators in some jurisdictions can usually sell RECs in one megawatt-hour blocks, and may be able to sell them separately from the physical electricity with which they are associated. This provides customers with the flexibility to offset a percentage of their annual energy use with RECs generated elsewhere (but not necessarily transmitted through the grid to them). In 2008, GAO reported that federal agencies continued to rely on RECs rather than site-generated renewable energy to meet EPAct goals. Given the need for firm uninterruptable power, it might be argued that agencies may have been better served buying RECs than taking physical delivery of an intermittent and variable power supply. The DOE Renewable Energy Working Group developed guidance for federal agencies on meeting EPAct goals as modified by EO 13423. Specifically, To comply with the wording of EPAct, agencies must consume renewable energy to count it toward the goal. Simply producing renewable energy on a federal site does not count as use. Purchasing renewable energy certificates (RECs) is equivalent to purchasing and consuming renewable electricity and does count toward the goal (until 2012). After 2012, federal agencies will be no longer be able to count RECs toward meeting EPAct energy-intensity reduction goals, as the REC credits will be phased out. To take credit toward meeting the goal, agencies must take direct delivery of renewable generated electricity. To take double credit, for new renewable small generators, the federal facility must host the generator (provide land) and directly purchase the power (with the additional burden of providing backup power). Federal agencies may find themselves reluctant to make underutilized land available for new renewable generation projects if not permitted to credit the projects toward meeting EPAct goals (as in the case of Nellis Air Force Base, which must buy the electricity from Nevada Power). Roof-top photovoltaic generation would meet the double credit criteria, with the advantage of acquisition through an ESPC (paid through annual operation and maintenance budgets). Alternatively, installations may be able to take credit for purchasing power from new small or merchant generators, if their local utility service provides the necessary grid-connection and power purchase agreements with the generator, notwithstanding the additional cost of providing the grid-connection. Utilities may be reluctant to sign up new small and merchant renewable generators in states lacking a renewable portfolio, however. States with renewable portfolio standards (RPS) play a significant role in influencing wind power development, in particular. As of June 2011, 29 states and Washington, DC, had instituted mandatory RPS programs. In 2010, U.S. wind generated capacity exceeded 40,000 megawatts. (For comparison, coal-fired generating plants range may average 500 megawatts in capacity, and nuclear power plants upwards of 1,000 megawatts.) In aggregate, these states are estimated to require roughly 100,000 megawatts of new renewable capacity by 2035, representing 7% of total U.S. retail electricity sales. U.S. solar photovoltaic generated power reached 1,100 megawatts in 2008, with nearly 64% made up by rooftop installations. Most of DOD's solar photovoltaic projects have been rooftop installations in the United States. Even in states with renewable portfolio standards, the opportunities for new small and merchant generators may be decreasing. New wind energy projects dropped off in 2010 due to a variety of factors including limited availability of investment capital and the slumping overall demand for energy. Relatively low natural gas and wholesale electricity prices have contributed to utilities' reduced demand for wind-energy power purchase agreements. A major challenge facing the wind industry is the time it takes to build transmission lines needed to send power to customers. A wind farm can take a year to build compared to five years to build the transmission lines (not including any permitting delays). The lack of transmission line access to markets or willing buyers may also delay wind project expansion. One solution proposed to incentivize new small renewable generators is the offer of a long-term or multi-year contract with a commitment for full contract funding upfront (through a one-time appropriation). Multi-year contracts are currently limited to five years and are contingent upon the annual appropriation of funds. If Congress does not appropriate funds to support the succeeding years' requirements, the agency must cancel the contract. Contracts for public utility services have terms up to 10 years, funded through annual appropriations. Energy Savings Performance Contracts cannot be less than 25 years, but funding depends upon annual appropriation. DOD can enter into 30-year contracts to operate facilities that generate electricity on military facilities, also funded through annual appropriation. In all cases, the contractor understands the risk that the federal government may terminate a contract for convenience. Agencies pursuing long-term contracts with new small or merchant renewable energy generators face certain barriers imposed by PAYGO rules. Annually appropriated operation and maintenance budgets pay for utility spending. Commitments for long-term spending must come from a different account, fully authorized and appropriated in advance. The 1990 Budget Enforcement Act (BEA, P.L. 101-508 ) created the "pay-as-you-go" (PAYGO) rules, later amended by the 2010 Statutory Pay-As-You-Go Act (Title I of P.L. 111-139 ). Under PAYGO rules, any increases in mandatory spending as scored by the Congressional Budget Office must be offset by mandatory spending cuts or increased revenues. In addition, the BEA imposed limits on discretionary spending, that is, on funds provided through the annual appropriations process. Long-term contracts proposed for purchasing power from renewable energy projects potentially represent future unfunded commitments if funded through annual appropriations (much the same way that ESPCs do). Nevertheless, the DOE Renewable Energy Working Group encourages federal agencies to enter into contracts for periods of 10 years or longer (with the caveat "where not prohibited by law"), but offers no further guidance on obtaining full upfront funding in advance of the contract commitment that renewable generators would prefer. In the House Report to the 2012 Energy and Water Development Appropriations bill, the committee reminded DOE of the constitutional provision that "No money shall be drawn from the Treasury but in consequence of Appropriation made by law." Finally, the federal PMAs already market renewable power in the form of hydropower (as defined in 42 U.S.C. 7372) at a wholesale cost basis. Bonneville Power has already integrated wind-generated power and projects a future annual capacity of 17 million megawatt-hours (6,000 megawatts at 33% availability), which would far exceed the EPAct renewable goal of 4.3 million megawatt-hours. Although PURPA established an opportunity for small renewable generators to sell power and required utilities to purchase the power, the cost to utilities sometimes exceeds the avoided cost. Federal customers could request a PMA to apply to FERC to purchase new renewable power and resell it through their local utility, notwithstanding the additional cost of interconnection. Applying wholesale power rates to offset the cost of interconnection and above- avoided-cost renewable power could provide some federal customers an alternative to upfront multi-year contracting. In considering whether renewable energy goals are sufficient reason to amend contract laws and authorize federal agencies to commit scarce budget resources up front, Congress may also wish to consider whether expanding the role for the federal PMAs might offer federal agencies an alternative to direct contracting. Appendix. Summary of Energy Purchasing Authorities The following table summarizes the various federal statutes and regulations that authorize federal agencies to enter into contracts for energy services. Further References CRS Report R41493, Options for a Federal Renewable Electricity Standard , by [author name scrubbed], Options for a Federal Renewable Electricity Standard , by [author name scrubbed]. CRS Report R41197, Green Procurement: Overview and Issues for Congress , by [author name scrubbed], Green Procurement: Overview and Issues for Congress , by [author name scrubbed]. CRS Report R41040, Identifying Incentives and Barriers to Federal Agencies Achieving Energy Efficiency and Greenhouse Gas Reduction Targets , by [author name scrubbed] and [author name scrubbed]. CRS Report R40974, Executive Order 13514: Sustainability and Greenhouse Gas Emissions Reduction , by [author name scrubbed] and [author name scrubbed] CRS Report R40806, Energy Projects on Federal Lands: Leasing and Authorization , by [author name scrubbed], Energy Projects on Federal Lands: Leasing and Authorization , by [author name scrubbed] CRS Report R40175, Wind Energy: Offshore Permitting , by [author name scrubbed], Wind Energy: Offshore Permitting , by [author name scrubbed]. CRS Report R40111, Department of Defense Facilities Energy Conservation Policies and Spending , by [author name scrubbed], Department of Defense Facilities Energy Conservation Policies and Spending , by [author name scrubbed]. CRS Report RS22564, Power Marketing Administrations: Background and Current Issues , by [author name scrubbed], Power Marketing Administrations: Background and Current Issues , by [author name scrubbed]. CRS Report RS22536, Overview of the Federal Procurement Process and Resources , by [author name scrubbed], Overview of the Federal Procurement Process and Resources , by Elaine Halchin.

The federal government purchases roughly 57 million megawatt-hours of electricity annually (based on FY2007 data, the latest information available), making it the single largest U.S. energy consumer. The Department of Defense (DOD) alone consumes over 29 million megawatt-hours. The federal Power Marketing Administrations (PMAs) sell electricity at more than twice the volume of federal power purchases, over 127 million megawatt-hours of hydropower annually, and are projected to produce wind-generated energy far in excess of the 2005 Energy Policy Act (EPAct) mandates for increasing federal use of renewable energy. Various statutes and regulations authorize federal agencies to enter into contracts for their utility services and designate the General Services Administration (GSA) as the lead federal contracting agency. Utility services include electricity, natural gas, water, sewerage, thermal energy, chilled water, hot water, and steam. GSA may enter into "area-wide contracts" for up to 10 years with electric utility service suppliers to cover the needs of federal agencies within the supplier's franchise territory. GSA has delegated certain authority to DOD to enter into utility service contracts on behalf of the military departments, and delegated similar authority to other federal agencies. DOD can also enter into contracts for up to 30 years for services to operate energy generating facilities on military installations. To meet the EPAct renewable energy goals, multi-year "power purchase agreements" (upwards of 10 to 20 years) are proposed with small and merchant renewable power generators. The agreements would fully commit funds up front, contrary to the pay-as-you-go rules of the 1990 Budget Enforcement Act. In addition to utility service contracts, federal agencies can also take advantage of utility sponsored incentive programs for reducing energy demand. Demand response and load management programs provide rate incentives and/or cash payments to utility customers in exchange for curtailing their energy demand during peak usage periods. Utility energy service contracts (UESCs) enable federal agencies to enter into contracts with utilities to implement energy and water related improvements at their facilities. Agencies may also fund energy-savings improvement projects with appropriations, or the utility may arrange to finance the project's capital cost up front and recover the investment through its rate charge. Energy saving performance contracts (ESPCs) enable federal agencies to install energy efficiency improvements with no upfront capital costs. The 2007 Energy Independence and Security Act (EISA) authorized federal agencies to combine appropriated funds and energy service companies' (ESCO) private financing for ESPCs. The authority expands agencies' opportunities to install solar energy generation. The 1978 Public Utilities Regulation Policies Act (PURPA) defined a new class of small renewable energy generators that produce less than 80 megawatts and required electric utilities to purchase the electricity generated at the utility's "avoided cost" of power production via a state-authorized "power purchase" contract (also referred to as a power purchase agreement). However, state laws and regulations vary on the use of the contracts. States are more likely to permit the contracts when the purchaser is a utility, because the utility is responsible for providing firm uninterrupted power to the customer. Four PMAs market and distribute hydropower in 34 states to public utility districts and cooperatives at cost-based rates. EPAct directed the PMAs to study the economic and engineering feasibility of combining wind-generated energy with hydropower and to conduct a demonstration project that uses wind energy generated by Indian tribes. Short of amending federal contract authority, federal agencies may have recourse to meet EPAct mandates by purchasing power through the PMAs.

Introduction Policymakers have expressed concern about the ability of small and young firms, in particular, to secure equity financing for growth and job creation. Indeed, over the past decade, many sources have reported a precipitous decline in the number of initial public offerings (IPOs) in the United States—particularly for small companies. The recent decline in IPOs raises several questions: what has caused such a decline? What are the implications for the U.S. economy, and particularly for job creation? Are foreign exchanges outcompeting U.S. exchanges? At the same time, while IPOs appear to have fallen in the United States for a variety of reasons, the amount of private stock offerings has increased during this period. To what extent is this a viable replacement for IPOs? This report analyzes the factors contributing to the decline in IPOs and discusses whether that decline is significant; the differences between an IPO involving the sale of shares to the public versus a private stock offering for sophisticated investors; and the potential economic implications of a rise in private versus public stock offerings. On April 5, 2012, the Jumpstart Our Business Startup Act (JOBS Act; P.L. 112-106 ), which is broadly aimed at boosting capital formation, was enacted. This report describes key elements of the JOBS Act and provides a background discussion of key policy issues of relevance to the legislation. Public vs. Private Markets Companies can be categorized into two groups: privately held companies and publicly held companies. Most businesses are privately held companies that have either not distributed any ownership shares or have a small number of shareholders with limited ability to transact in shares. Although the preponderance of larger companies, such as Apple, General Electric, Google, and Facebook, are publicly held firms, a number of larger companies, like IKEA, Hallmark Cards, and Mars Candy, are privately held. Among other things, the JOBS Act seeks to make it easier for firms to list publicly traded shares through IPOs. At the same time, while the number, and total dollar amount, of IPOs in the United States has fallen noticeably, the dollar amount of private, or restricted, stock offerings has risen. A study by the SEC's chief economist in 2011, which focused on the aggregate size of securities offerings, found that private offerings grew by nearly 50% from 2009 to 2010, from about $950 billion to about $1.4 trillion. The study also found that between 2009 and 2010, aggregate public equity issuances fell by 11%, from $1.27 trillion to $1.133 trillion. In addition, the SEC study also found that aggregate amount of private stock issuances (at more than $905 billion) surpassed debt issuances (about $851 billion) in 2010, a trend that reportedly continued through the first quarter of 2011. When a privately held firm conducts an IPO, its first widespread sale of company stock to the investing public, it becomes a publicly held firm whose shares are then subsequently traded on the secondary securities market through a securities exchange. IPOs enable such firms to raise equity capital, which may enable them to expand. In exchange for the right to broadly distribute their shares, the publicly held companies are subject to an assortment of rules and regulations, such as a board of directors requirement, and having to comply with various Securities and Exchange Commission (SEC) enforced registration and financial disclosure filing requirements (such as filing quarterly and annual reports). Although many privately held firms go public on their own, others become publicly held companies as part of the exit-payoff strategy of venture capital firms who have been incubating them through funding and managerial support. According to IPO data published by a law firm, venture capital-backed IPOs accounted for 46 of the 142 IPOs in 2010. Another kind of private to public strategy can involve an independent or venture capital-backed privately held company becoming part of an existing publicly held firm through an acquisition by such an entity. There is also a corporate "middle ground" between the privately held companies with no shared equity ownership and the publicly held firms with widely dispersed equity ownership. These are generally small companies who pursue specific limited or restricted stock offerings, sometimes known as private stock offerings. Because of the limited nature of the offerings, they are not subject to the full array of SEC registration and disclosure requirements and the attendant compliance costs associated with unlimited public offerings. Such "private stock offerings" cannot be sold widely to the public, but only to certain "sophisticated" investors. The purpose of allowing such restricted stock offerings is to make it easier for small or growing companies to raise capital, while continuing to protect ordinary retail investors. As such, the SEC has established certain exemptions from the registration and disclosure requirements of the federal securities laws for companies that either seek to raise only a small amount of equity capital (less than $5 million) or to sell shares only to a limited number of sophisticated investors, rather than to the general public. Among the SEC regulations that exempt certain small businesses from some of the registration and disclosure requirements of the federal securities laws, Regulation A and Regulation D are especially important. Regulation A allows the SEC, through the issuance of rules and regulations, to exempt any class of securities from registration under the Securities Act of 1933 if it finds that the exemption is in the public interest and the issue of securities does not exceed $5 million during any 12-month period. The JOBS Act increases this threshold to $50 million, a potential boost to the ability of small firms to raise equity capital. However, it also increases the number of potential firms who in conducting such offerings would do so in the context of reduced required disclosures and thus potentially reduced investor protections. SEC's Regulation D9 Regulation D contains three rules that provide exemptions from registration. Rule 504 allows an exemption from registration for some companies when they offer and sell up to $1 million of their securities within a 12-month period. To qualify for a Rule 505 exemption within Regulation D, a company can offer and sell only up to $5 million of its securities in any 12-month period, to an unlimited number of defined "accredited investors" and up to 35 other investors who do not satisfy the sophistication or wealth standards. The company must inform purchasers that they have received restricted securities that cannot be sold for six months or longer without registration, and the company cannot use general solicitation or advertising to sell the securities. Rule 506 of Regulation D allows a private offering under the Section 4(2) registration exemption of the 1933 act if criteria such as the following are met: (1) general solicitation or advertising to market the securities is not used; (2) an unlimited number of defined accredited investors and up to 35 other investors may purchase the securities, but the other purchasers must have sufficient knowledge and experience to be able to evaluate the merits and risks of the investment; (3) accredited and non-accredited investors must receive similar disclosure documents; (4) the company must be available to answer questions from prospective investors; and (5) purchasers cannot sell the securities for at least a year without registration. The rise in private stock offerings, alongside the decline in public listings, has been marked. From 1991 to 1997, nearly 80% of U.S. IPOs were of less than $50 million in market capitalization, but by 2000, their share had fallen to 20% or less of all IPOs. In 2010, IPOs of under $50 million comprised only around 18% of all IPOs. At the same time, the amount of private offerings has risen sharply. SEC Commissioner Elise Walter estimated that in 2010, more than $900 billion in private securities were sold under Regulation D alone. In addition, the SEC's chief economist estimated that since the beginning of 2009, there have been roughly 37,000 Regulation D offerings reported to the SEC, with a median size per offering of about $1 million. Observers have noted that smaller issuers are displaying a preference for private offerings over IPOs—whether because they have no choice, due to market structure, or for other reasons. Financial experts argue that companies generally would probably prefer to issue publicly traded stock through an IPO, as such stock can be traded freely, has liquidity, and thus carries a "liquidity premium"—meaning investors are willing to pay more for the freedom to quickly sell their stock freely on the open market. The vice president of the NASDAQ exchange, for instance, estimated that discounts on private corporate shares, due to lack of marketability or liquidity, range from 30% to 75%, on the principle that "the higher the number of bidders for an asset, the higher the sales price." Yet, for a multiplicity of reasons discussed below, it has become more difficult for smaller companies to do IPOs. Although size estimates vary, some have argued that the level of liquidity desired by institutional investors probably begins with a public offering of market capitalization $500 million or more. Advantages and Disadvantages of Going Public or Remaining Private Several advantages are often associated with remaining a privately held company vis-à-vis becoming a public company. By the same token, other advantages are commonly ascribed to companies that have gone public via an IPO in contrast to remaining a privately held company. Key advantages associated with each of these are described below. Advantages of Remaining Private Frequently cited advantages of remaining private vis-à-vis going public through an IPO include the following: Public companies may face added market-based pressures to emphasize short-term results over long-term growth. Private company founders and insiders invariably lose a certain amount of control when their company goes public. Unlike private companies, public companies are at risk from unsolicited takeover attempts. Becoming a public company can be an expensive undertaking (with costs of IPOs that can range between $250,000 and more than $1 million). In addition, if the offering does not succeed, as is sometimes the case, the company will have nothing to show for those expenditures. Because they must comply with extensive financial disclosure requirements, public companies operate under closer scrutiny than do private companies. Some of the mandatory disclosures may be items that a public company would prefer not to reveal and that private companies are under no obligation to disclose. Compared with private companies, the decision-making process for public companies may be more formal and less flexible due to the presence of shareholders. Research on the impact on corporate innovation of transitioning from a private to a public company found that after going public, such companies tend to select less novel research projects; tend to rely on a narrower set of technologies; and tend to see an exodus of key inventors. Advantages of a Public Listing Frequently cited advantages of being a public company include the following: Public companies can benefit from raising equity capital associated with IPOs, which can then be used to fund research and development, fund capital expenditure, or pay off existing debt. Some post-IPO company-held stock can later be used to make potentially advantageous corporate acquisitions. A company's debt-to-equity ratio often declines after an IPO, which means that the company may be able to obtain more favorable terms for loans. A commonly held view is that the stock of public companies benefit from a "liquidity premium," which can translate into better share pricing compared to stock from comparable privately held firms. Research on the impact on corporate innovation of going from a private to a public company found that access to public equity markets allows firms to partially offset declines in the level of internally generated innovation by enabling them to attract new human capital and to acquire externally generated innovations through mergers and acquisitions. The JOBS Act of the 112th Congress Members of the 112 th Congress introduced an assortment of bills with a number of broadly connected goals. The bills address the perceived decline in IPOs by modifying various federal securities laws and attempt to stimulate markets for both public and private stock offerings by amending federal securities laws. Several such bills helped form the basis for the Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106 ), which was signed into law on April 5, 2012. Among other things, the JOBS Act relaxes statutory restrictions on launching IPOs, eases the regulatory and disclosure obligations of firms it identifies as "emerging growth companies," reduces restrictions on promotional communications surrounding private offerings, and establishes a higher shareholder number requirement before a private company becomes subject to public company reporting requirements. This section summaries key provisions of the JOBS Act and describes both their implementation timetable and developments to date. Title I. Reopening American Capital Markets to Emerging Growth Companies What is an Emerging Growth Company ? Title I of the JOBS Act establishes a new category of companies, termed emerging growth companies (EGCs). A company can opt to be defined as an EGC, and then enjoy certain regulatory exemptions as a result of that status, until the earliest time it meets any one of the following conditions: (1) it reports $1 billion or more in annual gross revenues—an amount that will periodically be indexed for inflation; (2) it becomes a "large accelerated filer," which SEC regulations define, among other factors, as a company with a global market float of $700 million or more; (3) the company reaches the fifth anniversary of its IPO's offering date; or (4) the date on which the company has, within the previous three years, issued more than $1 billion in non-convertible debt. The act amends provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 to provide regulatory exemptions, some of which are discussed below, from certain mandatory public company requirements for this new category of corporate issuers. All of the provisions on EGCs described below became effective on April 5, 2012, the day the JOBS Act was enacted. Accounting and Auditor Liberalizations . Except for public companies with a market capitalization of less than $75 million, Section 404(b) of the Sarbanes-Oxley Act of 2002 provides that an outside auditor must assess and audit a public company's internal control structures. Under the JOBS Act, EGCs are exempt from compliance with the section. The act also exempts EGCs from any future rules of the Public Company Accounting Oversight Board (PCAOB, a non-profit organization that regulates auditors of publicly traded companies established under the Sarbanes-Oxley Act) that may require mandatory audit firm rotation or periodic changes in a public firm's external auditor. Some believe that mandatory auditor rotation, which the PCAOB has been considering, would improve the independence of external corporate auditors. Others, however, perceive the measure to be unnecessary and potentially burdensome. Also, under the JOBs Act, all PCAOB promulgated rules adopted after the act will only apply to an EGC in the event that the SEC determines that the application of such additional rules is necessary or in the public interest. Under the act, EGCs are required to provide audited financial statements for the two years prior to registration rather than the previously required three years. With respect to any of an EGC's financial disclosure to and registration statements with the SEC, an EGC is not required to comply with any new or revised financial accounting standards (such as those issued by the Financial Accounting Standards Board, FASB) applicable to public companies until the time when private, non-public companies are also subject to the standards. If, however, an EGC opts to comply with such new or revised accounting standards, it cannot selectively comply with them; it must comply with all of them. Exemptions from Dodd-Frank Act's "Say on Pay" Requirements , Executive-Worker Pay Ratio, and Executive P ay-for- P erformance C ompensation D isclosure Requirements . The JOBS Act exempts EGCs from compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act's (Dodd-Frank Act; P.L. 111-203 ) "say on pay" provision under which public companies must hold a non-binding stockholder advisory vote at least once every three years on executive compensation and a shareholder vote on executive severance payments called "golden parachutes." In addition, EGCs are exempt from provisions in the Dodd-Frank Act that require public companies to (1) calculate and publicly disclose the ratio of the median compensation for all their employees compared with that of their chief executive officer; and (2) disclose information on the relationship between paid executive compensation and the company's financial performance. Provisions to Help Facilitate an EGC's IPO . The JOBS Act also makes other changes that are likely to affect the process of underwriting and offering an IPO to the public. Specifically, EGCs are able to file draft IPO registration statements and subsequent registration statements on a confidential basis to the SEC for agency review if the filing is done at least 21 days prior to the beginning of its IPO "road show." This will enable EGCs to test the IPO waters without divulging potentially sensitive information about themselves. Under the JOBS Act, EGCs can meet with institutions who are accredited investors and qualified institutional buyers to preliminarily ascertain potential investor interest in an IPO prior to an offering while avoiding current restrictions on pre-offering communications. Historically, federal securities regulation has limited the use of broker-dealer research reports as selling tools in a company's registered stock offerings. Under the JOBS Act, such restrictions on the use of such broker-dealer research, even when the broker-dealer is or will participate in the offering, do not apply when the issuer is an EGC. During the early 2000s, in an effort to minimize the risk of potentially biased analysis, restrictions were imposed on the ability of broker-dealer securities analysts, who analyze the financial status of a company preparing for an IPO, to interact with firm colleagues involved in facilitating the company's IPO. As described in more detail below, concerns have arisen that this corporate firewall between securities analysts and those involved in promoting an IPO has led to these analysts reducing their coverage of small and medium sized IPOs, thus diminishing their attractiveness. In response, the JOBS Act prohibits the SEC, or a national securities association (like the Financial Industry Regulatory Authority, FINRA, which regulates broker-dealers under the auspices of and in conjunction with the SEC) from adopting or maintaining any rule or regulation with respect to an IPO of an EGC that (1) restricts persons associated with a broker-dealer or a member of a national securities association; (2) may arrange for communications between a securities research analyst and a potential investor; or (3) restricts a securities research analyst from communicating with the management of an EGC during a meeting in which there are persons who are associated with a broker-dealer, or persons who are members of a national securities association, and who are not research analysts. As discussed above, although JOBS Act provisions pertaining to EGCs became effective on April 5, 2012, as part of the implementation of the aforementioned provision on research analysts behavior, FINRA is required to rescind its rules restricting research analysts from attending meetings with an EGC pertaining to its IPO at which investment banking personnel are also present. As of mid-September 2012, FINRA had not yet done so. Decimalization . In 2000, the SEC mandated that domestic exchanges switch from larger fractional stock trading increments to smaller decimal stock trading increments (or ticks) of one penny. By various accounts, the change has led to smaller stock trade spreads and thus reduced profits for broker-dealers. As a result of the subsequent diminished spreads and per trade profits, as discussed later in this report, many argue that decimalization has resulted in reduced broker-dealer trading interest in small and medium capitalized companies. It has been argued that as a consequence, the trading liquidity for such firms has diminished, which has helped to discourage their interest in pursuing IPOs. The JOBS Act directed the SEC to conduct a study on the impact of decimalization on the liquidity of small- and medium-capitalized companies and to provide the analysis to Congress by July 4, 2012 (90 days after the act's enactment). It also says that if the study finds that EGCs' securities should be quoted in increments of greater than a penny, the SEC could adopt rules by October 2, 2012 (180 days after the enactment of the JOBS Act) requiring the use of minimum stock trading increments of up to 10 cents on domestic exchanges. Released on July 20, 2012, the required SEC staff study, Re port to Congress on Decimalization , observed that it was hard to quantify, or even confirm, the process by which decimalization may have impeded capital formation. The report advised against the agency pursuing rulemaking designed to increase tick sizes for EGCs. It nevertheless recommended that the agency consider other steps that could help it determine the merits of the rulemaking on the possible adoption of larger EGC tick sizes in the future by first soliciting the views of stakeholders, including investors, companies, market professionals, and academics. Communications to "Test the Waters." Under the JOBS Act, an EGC or a person acting on its behalf may engage in oral or written communications with potential investors that are qualified institutional buyers (QIBs) as defined in the SEC's Rule 144a, to determine if such investors may have an interest in a securities offering being considered by the EGC. The communications may generally take place before or following the date in which the EGC's registration statement is filed. By June 2012, about eight weeks after the EGC provisions had gone into effect, media sources reported that while most of the hundreds of companies that had opted for EGC status were small biotech, technology, retail, and energy companies. Of the companies, 17 described themselves as blank-check companies or special-purpose acquisition companies (SPACs). Blank-check companies and SPACs are described as essentially "empty shells" with virtually no employees. Such companies are sometimes used in mergers or as an easy way to gain a listing on a domestic exchange. SEC Review of Regulation S-K . The SEC's Regulation S-K provides specific disclosure requirements for companies that go through the IPO process. The JOBS Act requires the SEC to analyze registration requirements under Regulation S-K and formulate how the registration protocol under it can be simplified and modernized. The act directs the agency to report the results of the review to Congress by October 2, 2012 (within 180 days of the law's enactment). As of mid-September, 2012, the study had not yet been released. Title II. Access to Capital for Job Creators R ule 506 and Rule 144a Relaxing General Solicitation Limits . Companies that seek to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Generally, SEC rules that provide such exemptions also prohibit such exempt companies from engaging in general solicitation or general advertising in connection with securities offerings (through traditional media and Internet advertising). Rule 506 under the SEC's Regulation D is one such exemption, an exemption that is described as the broadest of the safe harbors under the regulation. Rule 506 permits securities offerings to be made to an unlimited number of accredited investors without having to register them. The significance of Rule 506 offerings as a vehicle for raising capital is reflected in SEC estimates that in 2011, total capital raised through such offerings was slightly more than $1 trillion, a figure that the agency indicated was comparable to the amount of capital raised through registered securities offerings during the year. Under the JOBS Act, the SEC is directed to amend Rule 506 to permit general solicitation or general advertising when all purchasers of the securities are accredited investors. Toward this end, it says that "[s]uch rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." Currently, corporate issuers subject to Rule 506 have not been subject to such a verification requirement. In addition, the JOBS Act requires the SEC to revise the agency's Rule 144A. Rule 144A provides a safe harbor from SEC registration for issuers and placement agents who conduct securities offerings and resales of those offerings of any size that can involve an unlimited number of qualified institutional buyers. Traditionally, securities offerings or securities resales under Rule 144A have been prohibited from general solicitations and advertising. The JOBS Act changes that by directing the SEC to amend Rule 144A so that the prohibitions on solicitations and advertising are relaxed. Under the JOBS Act, the SEC was required to promulgate the Rule 506 and Rule 144A amendments by July 4, 2012 (within 90 days after the act's enactment). On August 29, 2012, the SEC issued a proposed rule "Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings." The proposed rule would allow companies to use general solicitation and general advertising to offer securities under Rule 506 of Regulation D of the Securities Act and under Rule 144A of the Securities Act. After a 30-day period of public comment, the SEC will vote on whether to adopt the rule as a final rule. The SEC's proposed amendments to Rule 506 do not provide for a specific verification protocol for determining that securities purchasers are accredited investors. Instead they would require companies to take objectively reasonable steps in determining if an investor is accredited based on the specific facts and circumstances surrounding a given transaction. Among the factors that the proposal indicated could be used as part of this calculation are information that a company has about an acquirer of its securities as well as the "nature of the offering." The SEC's proposed amendment of Rule 144A recommend that a securities offering subject to the rule could be solicited to any entities, but could only be sold to investors that the issuing company "reasonably believe[s]" are qualified institutional buyers. In her opening speech before the SEC commissioners voted on the proposals, SEC Chair Schapiro observed that "[n]ew technologies have caused many to question the feasibility and continued desirability of communication restrictions in private offerings… [and that before] ... the JOBS Act, I had instructed the staff to take a fresh look at the prohibition in Rule 506 and develop ideas to reduce regulatory constraints on capital formation in a manner wholly consistent with investor protections…" Chair Schapiro also noted that "the proposed rules fulfill Congress's clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings." However, she also indicated "that there are very real concerns about the potential impact of lifting the ban on general solicitation." According to media reports, SEC Chair Schapiro also observed that the agency had initially planned to vote on interim rules, but noted that when "serious commenters raised concerns about not having an opportunity to comment on a specific proposal, and would rather be left with an interim final rule, it was my view that it would be wrong not to give them that opportunity to be heard." The decision to initially promulgate a proposal rather than formal rules found agreement from Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations. The chairman wrote, "Thankfully, the SEC decided to follow its normal procedures and open the rule up for comment before its implementation." By contrast, in a letter to SEC Chair Schapiro dated August 16, 2012, Representative Patrick McHenry, chairman of the TARP and Financial Services Subcommittee of the House Oversight Committee and a sponsor of legislation that was incorporated into the JOBS Act, criticized the agency's decision to promulgate proposals instead of rules: [T]hat "by issuing a proposed rule, rather than an interim final rule, the Commission is unlikely to finalize the rule until next year. By kicking the can down the road, you are abdicating your responsibility to follow the law…. We are now over four months since the JOBS Act was enacted and over one month past your statutory deadline to implement this section removing the ban on general solicitation…. In the letter, Chairman McHenry also asked SEC Chair Schapiro to respond to several document requests, including communications between SEC commissioners or staff and outside entities related to the rulemaking, and documents prepared by the SEC's Office of the General Counsel related to the rulemaking. At the start of the meeting in which the SEC commissioners voted on the proposal, Chair Schapiro spoke of her views on the proposal and attendant public policy issues: I believe the proposed rules fulfill Congress's clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings. Nonetheless, I recognize that there are very real concerns about the potential impact of lifting the ban on general solicitation. Indeed, some of those concerns were noted in several of the letters submitted as part of our pre-rulemaking JOBS Act comment process. I appreciate the many thoughtful letters suggesting both specific and broad reforms to Rule 506 offerings and Regulation D more generally. Some observers have criticized the Rule 506 accredited investor verification proposal for being ambiguous. For example, two observers who are involved in the crowdfunding industry commented, Rather than stick with the current self-certification path or providing a mechanism for investors to prove accreditation, the SEC said that different investors may need to supply the government with different information based on the "type" of investor they are. This is concerning because according to the law, there is only one type of accredited investor (someone with a net worth of at least $1 million or an annual income of at least $200,000). What the new proposed regulation did was make the rules harder to interpret by saying the verification of an accredited investor's status will change depending on the amount, type of information, and the way in which the purchaser is solicited. Markets look for certainty before they act. The content of this proposed rule doesn't provide the markets with confidence but instead creates more questions. Currently, corporate issuers subject to Rule 506 have no such verification requirement. The proposed rule also would revise Form D, the required form for such private placements to include a check box for issuers seeking to market their offerings pursuant to the new exemption. In Congress, however, Senator Carl Levin raised concerns over what he saw as significant investor protection shortcomings in the SEC proposal: Today, the SEC began undermining significant investor protections and putting ordinary Americans' investments at risk. Just a few years after the financial crisis, it is disappointing that the SEC is proposing a rule that ignores years of experience and the law… For instance, the SEC rule should require those who advertise private deals to take specific steps to ensure that investors have the wherewithal and expertise to make these risky investments. And it should require that the content of the advertising meets some minimum standards, such as those that mutual funds are subject to today. The proposed rule does neither…. Echoing Senator Levin's concerns, SEC Commissioner Luis Aguilar, the sole dissenting vote in the SEC's 4-1 adoption of the proposal, argued that the proposal "fails to address the acknowledged increased vulnerability of investors" after the advertising prohibitions are rescinded. He also asserted that the proposal did not capture earlier commenters' recommendations on the need to provide ways in which to insulate investors from potential securities fraud. Title III. Crowdfunding Crowdfunding refers to the financing of an activity through the collective cooperation of people who pool their money or other resources, sometimes through a networking site on the Internet. Common goals of crowdfunding involve activities such as disaster relief, political campaigns, and investing. In the investment area, crowdfunding typically involves relatively small individual monetary contributions from a group of investors to meet a specific goal. Current SEC regulations prohibit general solicitation and advertisements for non-registered offerings and cap the number of shareholders for nonregistered companies at 500, proscriptions that are alleged to impede crowdfunding. The JOBS Act limits the total amount that a company can raise through crowdfunding to $1 million annually. Under the act, the size of an individual's investment is limited by their income and wealth. In the event that both an investor's annual income and net wealth are under $100,000, he or she would be able to invest the greater of either $2,000 or 5% of their income or net wealth over a 12-month period. If an investor makes more than $100,000 annually, he or she would be able to invest up to 10% of their income or net wealth, with a maximum of $100,000 total over a 12-month period. Under the JOBS Act, a crowdfunding investment must be made through an intermediary that will be required either be a registered broker-dealer or a newly created entity known as a funding portal (which is established by amending the Securities Exchange Act of 1934). All such intermediaries must be members of a national securities exchange, which are also known as a self-regulatory organization. They must also ensure that each investor reviews investor education information (to be later determined by the SEC) and confirm that each investor knows that he or she is risking the loss of his or her entire investment. In addition, corporate issuers involved in crowdfunding will be required to file a "mini-prospectus" with the SEC, which among other things should identify their officers, business plan, and financial condition. The JOBS Act requires the SEC to issue rules needed to implement the crowdfunding provisions by December 31, 2012 (270 days after its enactment). Two broadly divergent perspectives on the impact of the crowdfunding provisions come from those who tend to focus on their potential for helping to expand small business access to capital and those who have concerns that the probable expansion of crowdfunding will result in more investor fraud. Below is a typical example of the view that the crowdfunding provisions in the JOBS Act are likely to enhance access to capital: [T]he JOBS Act, which was signed into law earlier this month, set the stage for a major expansion in crowdfunding…. Until the passage of the JOBS Act crowdfunding was seriously limited by securities laws designed to protect 'unaccredited' investors – ordinary people – from securities scams. The JOBS Act reversed many of those laws and makes it much easier for individuals to invest in companies. Small and mid-size startups, which are the most likely to seek crowdfunded investment, will likely benefit the most from the growth in crowdfunding, as they will now have a new pool of capital available to help expand their ventures…. However, principally concerned with the implications of the crowdfunding provisions on investor protection, the North American Securities Administrators Association (NASAA), a group of state and provincial securities regulators, warns that, [T]he JOBS Act provisions related to crowdfunding, a much-publicized method for startups seeking capital, are not yet available – and will not be until sometime in 2013 – to legitimate businesses. Even when the relaxed rules and registration exemptions are effective, they will not make investments in small businesses less risky – just more prevalent. And the JOBS Act provisions do not eliminate fraud, an unfortunate common feature of Internet securities activity. Many states and provinces report a recent increase in active investigations or recent enforcement actions involving Internet fraud, and JOBS Act-triggered activity is likely to elongate this trend. Investors must remember that small startups are among the riskiest of investment categories under the best of situations. The crowdfunding and Internet investing marketplaces in North America will develop and undergo major changes in the next year, and investors should monitor this emerging capital formation community with a wary eye. Title IV. Small Company Capital Formation Expanding the Regulation A Exemption. Among the SEC regulations providing exemptions for certain small businesses from some of the registration and disclosure requirements of the federal securities laws, Regulation A is especially important. It allows the SEC to exempt any class of securities from registration under the Securities Act of 1933 if it finds that the exemption is in the public interest and the issue of securities does not exceed $5 million during any 12-month period. Securities offerings under the exemption are not limited to any kind of investors. The $5 million cap has been in effect for about two decades. Possibly due to this cap, the total amount of Regulation A offerings have historically been much smaller than have Regulation D offerings. The JOBS Act increases the offering ceiling under Regulation A to $50 million in the course of a year. The act has no deadline for when the SEC must adopt rulemaking to implement the expansion of the Regulation A offering cap to $50 million annually. According to a report released by the U.S. Government Accountability Office (GAO), Regulation A offerings cleared by the SEC have fallen significantly since the late 1990s. According to the study, after peaking at 116 in FY1997, the number of Regulation A offerings fell to 19 by 2011. Regarding the benefits of the Regulation A reform in the JOBS Act, House Financial Services Committee Chairman Spencer Bachus, observed, Amending Regulation A to make it viable for small companies to access capital will permit greater investment in these companies, resulting in economic growth and more jobs. By reducing the regulatory burden and expense of raising capital from the investing public.… A similarly optimistic view on the likely benefits from the Regulation A reform comes from two lawyers who are involved in raising small business capital: [Due to the JOBS Act] Regulation A likely could become the dominant avenue for small and medium-size businesses to form capital. Moreover, as those businesses grow, funded by the capital from their Regulation A offerings, they will find appealing the IPO on-ramp [as EGCs]…. With what is expected to be an exponential increase in the use of Regulation A to form capital, there is every reason to believe the financial markets will develop a robust secondary market for these securities. The aforementioned GAO reported, however, was more qualified in its discussion about the potentially positive impact that the Regulation A reform's may have on capital markets: The number of small business that seek exemption through Regulation A may increase as a result of the JOBS Act's requirement for SEC to increase the maximum offering amount to $50 million, according to staff from some state securities administrators' offices, a small business advocate, and securities attorneys whom we interviewed. A small business advocate with whom we met stated the higher ceiling increase could attract those businesses for which the $5 million ceiling was too low. Moreover, this advocate noted that some small businesses may want to enter the securities market but are not yet prepared to register an offering with SEC; thus, Regulation A would be a good way for them to enter the market. The higher ceiling also could increase underwriters' interest in Regulation A, according to some stakeholders we interviewed. While investment banks are not interested in $5 million offerings, they are more likely to be interested in offerings that are closer to $50 million…. Under the JOBS Act, future Regulation A offerings generally remain subject to state blue sky laws, which may deter future use by small businesses… addressing and complying with securities registration requirements of states can be costly and time-consuming, according to several stakeholders with whom we met. Recent Regulation A issuers, a small businesses advocate, and securities attorneys we interviewed stated that researching individual state laws and registering with multiple states significantly increased the legal and accounting costs associated with Regulation A offerings. As a result, even with the increased attractiveness of the $50 million ceiling, blue sky requirements may still dampen small business' interest in Regulation A. However, some stakeholders also noted that with the increased ceiling, a Regulation A offering's transaction costs (attorney fees and accounting costs) will represent a smaller proportion of the overall offering costs…. Title V. Private Company Flexibility and Growth and Title VI. Capital Expansion The Securities Registration Threshold Trigger for Compan ies in General . The Securities Exchange Act of 1934 requires a private company to register its securities with the SEC in the event that the holders of record (the registered owner of a security) exceed 500 and the company's total assets exceed $10 million, thresholds that have existed for decades. The JOBS Act amends the Securities Exchange Act by raising the number of shareholders of record who can invest in a private company from 500 to either 2,000 or 500 who are all non-accredited investors (individual investors with relatively low incomes and net worth), excluding employee-held stock, before triggering the registration requirement. In addition, the JOBS Act mandates that the "held of record" be defined to include securities holders who received the securities as part of an employee compensation plan through transactions that are exempt from the registration requirements of Section 5 of the Securities Act, the part of the federal securities law that contains the basic registration requirements for securities offerings and rules. This "shareholder trigger" under Section 12(g)(1) of the Securities Exchange Act of 1934 has been subject to debate and scrutiny in recent years. One academic complained that "the practical effect of this rule is to force certain types of firms into the public markets earlier than is desirable." Indeed, Google noted in its registration statement for its public share offering that "the deadline imposed by this requirement accelerated our decision [to go public]." Some have argued that raising the Section 12(g) threshold would better enable firms to find other sources of financing beyond venture capital, and avoid conducting an IPO before they may be ready to do so. Officials at a venture capital trade group, the National Venture Capital Association, however, have said that there are probably only a very limited number of firms that are close to triggering the 12(g) shareholder threshold and would thus potentially benefit from a more liberalized trigger. In response to such concerns, SEC staff has been examining whether current 12(g) thresholds and standards are effective for implementing the securities laws' registration and reporting requirements. The Securities Registration Threshold Trigger for Banks . The JOBS Act also raises the threshold for triggering mandatory registration under the Exchange Act for banks and bank holding companies to 2,000 holders of record (subject to no limit on the number of non-accredited investors). The act also raises the threshold that permits an entity to terminate its securities registration and to suspend its SEC reporting requirements for banks and bank holding companies that have as few as 1,200 holders of record. These reforms were of particular interest to community banks. The JOBS Act requires the SEC to implement the aforementioned changes to the Exchange Act threshold triggers no later than April 4, 2013, a year after enactment. In addition, the agency is required to revise the definition of held of record, a directive that has no deadline. Examining the Decline in IPOs Since 2000 Broad consensus among academics is that since about 2000, there has been a marked decline in IPOs in the United States, particularly by domestic companies, as compared with the period from about 1980 to 2000. In many respects, this observed decline has been a significant impetus behind much of the aforementioned legislation—both in its own terms and as a symbol of the perceived erosion of domestic capital markets, particularly for small- and medium-sized firms. The following sections examine various perspectives on both the nature of the IPO decline, its possible causes, its implications, and questions over its ultimate significance. On the issue of the IPO decline, a 2011 study, for instance, found that in the period from 1980 to 2000, there were, on average, 311 IPOs per year; but in the decade since 2000, an average of only 102 firms per year have gone public. The study also noted that of the 7,443 IPOs identified from 1980 to 2009, only 12% of them, or 921 IPOs, occurred between 2001 and 2009. The drop in IPOs is even more marked if economic growth is taken into account. All else equal, a larger economy would be expected to have more IPOs, rather than fewer. The recent decline in IPOs is also confirmed by the data presented in Figure 1 and Figure 2 below, collected by the law firm Wilmer Cutler Pickering Hale & Dorr LLP, using SEC data. Other studies have found a similar, pronounced drop in IPOs. For instance, the financial advisory firm Grant Thornton, using another dataset, found an annual average of roughly 500 IPOs during the years before the dotcom bubble burst around 2000; but that figure fell to just 61 IPOs in 2009, and 153 IPOs in 2010. Reports also indicate that companies are waiting longer to do IPOs. Between 1997 and 2001, the average age of a domestic company that did an IPO was about five and a half years, compared with an average of nine years for companies that went public between 2006 and 2011. Although most research has found a decline in U.S. IPOs, there are differences in how observers define the notion of "decline." Some studies challenge the view that there is a broad "decline" in U.S. public stock markets more generally, focusing instead on various aspects of the U.S. stock markets beyond the number of, and proceeds from, U.S. IPOs. This includes some research published by the Federal Reserve Bank of New York, commentary by Securities and Exchange Commission (SEC) officials based on their review of studies of public equities markets, and reports that a significant number of China-based firms have listed on the NASDAQ and the New York Stock Exchange in recent years (which is discussed further below). Nevertheless, research suggests a particularly pronounced drop in the numbers of IPOs and market share of IPOs for small companies—an issue addressed in a number of the capital markets bills in Congress. Small companies have seen the average volume of their IPOs decline from 165 IPOs per year from 1980 to 2000 to 72 IPOs per year from 2001 to 2009. Before 1998, according to observers, smaller IPOs constituted about 80% of the total number of yearly IPOs, but since 1998, that percentage has been in the 20% range. How does this compare with trends for other markets overseas? Some have argued that the ability of some foreign stock exchanges, such as the United Kingdom's Alternative Investment Market (AIM), to successfully market and brand themselves as lower-cost, attractive venues for smaller firms has helped to lure IPOs away from U.S. exchanges. Another study in 2011 found that firms in countries with weaker governance, investor protections, and other legal institutions are less likely to go public with an IPO in their home country, and are more likely to go public globally, in a country with stronger institutions. If true, this trend should tend to boost U.S. listings by companies from some foreign countries. Indeed, it could be argued that an example of this is evidence that suggests that former state-owned Chinese firms that have gone public have become a growing portion of global and U.S. IPOs in recent years. Another study found that the market share of U.S. IPOs by foreign companies as a percentage of the total has increased in this decade, partly due to the low number of U.S. companies going public. For instance, in 1988, 8.3% of the total of 109 IPOs in the United States were by foreign companies, and none of the total IPOs were by Chinese companies in particular. By 2010, 34.4% of the total of 128 domestic IPOs were by foreign companies, and 25.8% of the IPOs were by Chinese companies. While there is little evidence that supports concerns that foreign companies are fleeing the United States, the domestic IPO market does not appear to have kept pace with the United States' share of economic growth worldwide. A 2011 study by Doidge et. al. found that in the 1990s, the yearly average number of U.S. IPOs comprised 27% of all IPOs in the world, while the United States accounted for 27% of world Gross Domestic Product (GDP). Since 2000, however, they found that the U.S. share of all IPOs has fallen to 12% whereas the U.S. share of worldwide GDP has averaged 30%. Analysis such as the Doidge study generally suggests that there has been an overall numerical decline in the number of yearly domestic IPOs and the nation's share of overall IPOs as well. The Doidge study and others have tended to attribute the drop in U.S. IPO activity vis-à-vis the rest of the world to a combination of lower U.S. IPO activity by U.S. firms, and the growth of IPOs in other countries during this period, particularly in emerging markets. Some evidence suggests that other developed countries may face a similar situation. For example, both Germany and France saw their respective IPO volumes drop by more than 50% from 2002 to 2007 relative to the 1994- 2001 period, even as average IPO proceeds in those countries more than doubled, according to one study. This may indicate that, as in the United States, some other developed countries may also be losing smaller IPO deals. At the same time, however, others have noted an increase in the number of IPOs in Hong Kong, Tokyo, and Australia, and some have observed slight increases in the United Kingdom and Italy. An apparent decline in the U.S. share of IPOs worldwide leads to several corollary questions: what are the implications, if any, for the U.S. economy, and particularly for job creation? What are the causes of this decline? Are legislative measures such as the JOBS Act helpful for addressing it? Implications: Decline in IPOs and the Question of Job Creation Those proposing to streamline the process of raising equity finance, including some supporters of various capital market bills currently being considered by Congress, argue that improving the ability of companies to do both public and restricted stock offerings will benefit the nation through expanded job creation. For example, a widely cited report, Rebuilding the IPO On-Ramp , presented to the Department of the Treasury by the IPO Task Force in October 2011, stated that the apparent slowdown in IPOs may have been responsible for 22 million jobs not being created. The IPO Task Force includes CEOs, public investors, venture capitalists, securities lawyers, academicians, and investment bankers who were tasked with identifying key factors holding back the growth of emerging public companies and making recommendations to alleviate those constraints. In this context, some observers argue that it has become more difficult, and expensive, to conduct an IPO in recent years, leading many privately held emerging growth companies to opt to be acquired instead of going public. Some contend this lacks the beneficial job-creating impact of an IPO. Others, such as veteran IPO researcher and University of Florida finance professor Richard Ritter, reportedly criticized the Task Force's estimate of 22 million jobs not created as a groundless "mechanical calculation." Professor Ritter also reportedly asserted that while IPOs do create jobs, larger companies who absorb smaller, growing firms do so as well. Similarly, a 2009 study of job creation by the Kauffman Foundation found that "nearly all net job creation since 1980 has occurred in firms less than five years old" and that if the jobs from new firms were excluded, the U.S. net employment growth rate would be negative, on average. Young firms have been the most dynamic in terms of adding jobs to the U.S. economy, the study found. However, the study did not directly address the question of whether the way in which a young company raised capital was a factor in employment growth. It did not conclude that the choice of a young company to grow via a public stock listing, as opposed to being acquired by a larger firm, led to more job creation. Instead, the authors concluded that, "we suspect that the net addition of jobs in larger companies comes from their symbiosis with younger firms," and that such job creation may be a result of mergers and acquisitions of young companies. Similarly, a study by Professor Haltiwanger also concluded that startups contribute substantially to both gross and net job creation. The study stressed the important role of business startups and of young businesses in U.S. job creation. But it did not address the question of whether the form of financing or growth for young firms and startups was a factor in job creation. What Has Caused the Decline in IPOs? When examining legislation like the JOBs Act, which is aimed at stimulating IPOs, it is useful to analyze some of the major arguments as to why IPOs have fallen. Broadly speaking, arguments as to the root causes of the decline in U.S. IPOs tend to fall into two camps. The first camp argues that regulatory factors are to blame and that the United States has a burdensome, costly regulatory scheme affecting public companies. The second camp focuses on developments in market infrastructure—some of which derive from regulatory changes affecting stock trading, but some of which do not, and might be more difficult to address through legislation alone. Regulatory Factors Cited A common premise behind several capital market bills in Congress is that the corporate offering "ecosystem" would better nurture offerings if a number of regulatory impediments were rolled back or liberalized. Several of these de-regulatory perspectives are examined below. Sarbanes-Oxley Section 404(a) of the Sarbanes-Oxley Act of 2002 (SOX) requires publicly registered companies to include in their annual reports a statement from management on the effectiveness of a company's internal controls over its financial reporting. Section 404(b) requires such company's outside auditor to attest to and report on such assessments. Initially, after SOX went into effect, the SEC granted small cap firms known as non-accelerated filers (basically, firms with less than $75 million in market capitalization) an exemption from implementing Section 404(a) until the fiscal year ending on or after December 2007. The agency allowed small-cap firms with less than $75 million in market capitalization to delay implementation of Section 404(b), the auditor attestation requirement, until 2010. By that time in 2010, however, Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank), and its provision exempting public companies with less than $75 million in market capitalization from implementation of Section 404(b), had already taken effect. Many advocates of expanding the Section 404(b) exemption have said that there are medium-sized companies with $75 million or more in market capitalization who are discouraged from going public because they would face the costly and burdensome prospect of having to comply with Section 404(b). Arguments against broadening the Section 404(b) exemption can be found in a 2011 SEC staff study mandated by the Dodd-Frank Act. The analysis addressed the question of whether the Section 404(b) exemption should be expanded to firms with up to $250 million in market capitalization and argued against doing so. Among other things, it based its conclusion on it findings that the costs of SOX 404(b) have declined since the SEC first implemented the requirements of the section; investors generally view the auditor's attestation as beneficial; financial reporting is more reliable when the auditor is involved with ICFR assessments; and there is no conclusive evidence that links the requirements of the section to listing decisions of the range of corporate issuers that were studied. The JOBS Act exempts EGCs from compliance with the auditor attestation requirement of Section 404(b). Disclosure and Registration Requirements99 The key federal and registration and disclosure laws for public companies are the Securities Act of 1933 and the Securities Exchange Act of 1934. Various people who have advocated for greater access to capital for small and medium-sized businesses often cite the existence of comparatively costly and burdensome domestic registration and disclosure requirements as one reason why some companies may resist going public, which would enable them to tap shareholder capital from those markets. As described earlier, among other things, the JOBS Act broadens the total amount that an issuer can raise in securities offers that are exempt from registration under Regulation A to up to $50 million a year; permits EGCs to provide audited financial statements for the two years prior to their SEC registration, rather than the previously required three years; and with respect to their financial disclosure and registration statements to the SEC, EGCs can opt out of compliance with new or revised financial accounting standards promulgated by standard setters such as FINRA. The Appendix in this report describes key aspects of the registration and disclosure provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Shorter "Holding Period" For Restricted Shares As described earlier in this report, Rule 144A, provides an exemption from registration for the sale and resale of certain securities. In the late 1990s, the SEC amended Rule 144, enabling those who purchased private offering securities under the rule to resell them into the public market after holding them for one year, which superseded the previous holding period of two years. It has been argued that if smaller companies are concerned with avoiding the higher liability and greater amount of SEC oversight associated with an IPO, the lessening of this restriction on selling privately offered shares makes a private offering even more attractive relative to an IPO. Some observers, such as John Coffee, Jr., a law professor at Columbia University School of Law, say that a marked recent increase in private placements under Regulation D, lend support to the argument. The JOBS Act does not change the Rule 144A holding period. Cost of Registering Public Shares With Multiple States At a November 2011 SEC Government-Business Forum on Small Business Capital Formation, a number of private-sector participants noted that the cost of registering securities offerings with multiple state regulators could be expensive, particularly for small companies, and potentially overlapping or duplicative with federal regulation. They called for federal preemption of some requirements to register securities offerings at the state level, particularly for small offerings below the Regulation A exemption threshold. For small securities offerings under the Regulation A exemption, participants urged federal preemption of state securities filings in some of the prior year's written recommendations as well. As discussed above in the section on " Title III. Crowdfunding ," the JOBS Act preempts state securities registration laws for small securities offerings subject to the "crowdfunding" restrictions, but does not restrict state regulators' right to discover, halt, and prosecute fraudulent offerings. Market Infrastructure Changes Cited The second set of arguments aimed at explaining the decline in U.S. IPOs focuses on changes in market infrastructure that have made it costlier to bring small IPOs to market. Except for a liberalization of some of the restrictions on securities analyst research at investment banks surrounding IPOs and mandating certain studies, the JOBS Act generally does not address these factors, which are discussed below. Underwriting Costs When a company seeks to list an initial public offering on a U.S. stock exchange, or issue bonds, it will generally use an underwriter to conduct due diligence, sell the securities to investors, and make a market in the securities. There are several ways that a firm doing an IPO incurs costs through underwriting. First, there are the direct costs, in terms of fees to underwriters, advisers, lawyers, and accountants. Some studies have estimated that a small company undertaking an IPO in the United States will, on average, pay a typical rate of roughly 7% of the size of the offering to an underwriter as a fee. In addition, a small company may pay 3% or more of the offering size to lawyers, accountants, and advisers. On top of this expense, there are indirect costs to underwriting, particularly the practice of underpricing shares listed in IPOs so that they will rise immediately following the onset of trading. One study found that, on average, IPO share offerings on the New York Stock Exchange (NYSE) rose 5.1%, and on the NASDAQ exchange 6.6%, within the first day of trading. Money gained from this "underpricing" of shares ends up in the pocket of initial shareholders, rather than going to the company listing the shares. By comparison, the study found that first day IPO price gains on the UK's Alternate Investment Market rose 11.2% and on the UK's main market rose 4.4%. The concern that underwriting costs are significantly higher in the United States and are depressing U.S. IPOs is bolstered by a study that found median underwriting fees on the Hong Kong Stock Exchange to be 2.5% of the offering proceeds, 3.3% on the London Stock Exchange, 3.6% on the Euronext Exchange, and 4.8% on the Deutsche Borse, compared with 6.5% on the New York Stock Exchange and 7.0% on the NASDAQ. Although the U.S. securities laws do not mandate that a company seeking to list shares use an underwriter, it has become standard practice for firms to do so. Indeed, investors may rely on the reputation of an underwriter and may feel more secure when a well-known investment bank acts as underwriter, particularly as the underwriter performs due diligence on the financials of the company, which is going public. Some studies have shown, for instance, that underpricing is less as the prestige of the underwriter increases, suggesting that investors demand a higher initial return when the underwriter is less well-known. However, with the rise of the Internet, some firms have turned to "direct public offerings" (DPOs) as an alternative to using more established underwriters to sell and distribute their securities. In a DPO, a company raises capital by marketing its shares directly to its own customers, employees, suppliers, distributors, and friends in the community. They generally are less expensive than are traditional underwritten offerings. Some observers have called for regulatory changes that would make DPOs a more attractive alternative to traditional underwriting for small firms. Some Conceptual Basics: IPOs and DPOs An IPO is an underwritten public offering of corporate stock from the issuing company. This means that an underwriter, commonly an investment bank, prepays the company for the stock, then goes out to the public market and attempts to sell it to the broad investing public. A DPO is a process in which companies raise capital through issuing stock directly to investors, thus bypassing an underwriter and its attendant costs, as is the case for an IPO. Rather than using underwriters—typically, large investment banks—a company may try, through a DPO, to use firms often known as "cyber middlemen," which can prepare registration documents if needed, offer hyperlink marketing programs, and website consultations or creation. Although this type of offering may reduce costs associated with traditional underwriting, researchers have found that many such offerings ultimately do not succeed. Such DPO offerings are generally considered to be within SEC rules, as long as the company either registers the securities with the SEC, or qualifies for an exemption from such registration, such as under Regulation A or Regulation D. Changes Affecting Profitability of Brokerage and Underwriting Some observers argue that the securities market infrastructure has become less hospitable for small cap private companies interested in a public offering. These IPO infrastructure-related impediments include (1) lower trading fees for mainline securities firms that stemmed from the rise of online discount brokerage firms; (2) the SEC's order-handling rules; and (3) the decimalization of traded securities (wherein stocks that were historically incrementally priced in fractions were subsequently priced in cents, thereby reducing broker's bid-ask spreads, and thus brokers' profits from market-making for IPO shares). Cumulatively, these developments are said to have helped to reduce securities firms' profits. As a consequence, the viability of a business model that enabled them to provide research on, and do underwriting for, small business was reportedly undermined, resulting in a marked decline in securities firms' interest in both underwriting small businesses interested in going public and providing research coverage to those that have gone public. The SEC's order-handling rules have been blamed for making the securities markets less hospitable for small IPOs. The rules were adopted by the SEC in 1997. When market markers do not immediately execute a customer limit order (an order to buy or sell a stock price within certain price parameters), they are required to display the order to the entire marketplace when the order is for better than the best buy or sell price that is currently being offered. Alternatively, the market maker can choose to send the order to another market maker or an electronic communication network (ECN), an alternative all-electronic stock exchange. Taken together, these developments are said to have helped to reduce securities firms' profits. Another regulatory change that has been blamed for raising underwriting costs—but has at the same time been praised for reducing conflicts of interest detrimental to investors—is what is known as "The Global Research Settlement." This was an enforcement agreement reached in April 2003 between various states; various financial regulators, including the SEC and the New York Stock Exchange; and 10 of the nation's largest investment firms, including Bear Stearns, Credit Suisse, Deutsche Bank, Goldman Sachs, and J.P. Morgan Chase, to address issues of conflict of interest involving improper influence on their research analysts by their investment bankers involved in underwriting IPOs. A major part of the 2003 Global Research Settlement was an agreement by the firms to ensure that there were proper firewalls between the firm's analysts and investment bankers. Key aspects of the settlement have been incorporated into the business models of other securities firms who were not part of the settlement. Many observers say that the aforementioned withdrawal of analyst coverage for small public companies was exacerbated by the Global settlement's analyst-investment banker firewall reform. As a consequence, the viability of a business model that enabled underwriters to provide research on, and do underwriting for, small businesses was reportedly undermined, resulting in a marked decline in securities firms' interest in both underwriting small businesses interested in going public and providing research coverage to those that have gone public. Some observers, such as Professor Jay Ritter of the University of Florida, however, have questioned whether the Global Settlement has actually played a significant role in inhibiting the growth of small IPOs. Ritter et al concluded they found little change in analyst coverage of companies post-IPOs around the April 2003 Global Settlement. Decline in Small-Firm Profitability Some have suggested that there are shortcomings to using annual IPO number counts as a proxy for the overall health of the nation's emerging growth companies. In a study, Professor Jay Ritter and his co-authors argue that the nation's IPO market has gone through a structural change significantly driven by shifts in the economy that have eroded the profitability of small companies, both public and private. In response to this structural change, which the authors observed between 1980 and 2000, Ritter and his co-authors emphasized that small firms have increasingly been acquired by larger firms rather than going public because in many industries a small firm has greater value and higher earnings as part of a larger enterprise than as a free standing public or private firm. The authors concluded that these corporate strategies, which are said to derive from larger structural shifts, are significantly responsible for a large part of the decline in the nation's IPOs. As such, they say that "regulatory reforms aimed at restoring the IPO ecosystem"—arguably the focus of several capital market bills before Congress—"will have only a modest ability to affect IPO volume … [and] IPO volume is unlikely to achieve the number of deals routinely reached in much of the 1980s and 1990s." Conclusion Evidence indicates a marked decline in U.S. IPOs over the past decade, particularly for smaller firms. This has raised concerns among policymakers over the economic implications of such a decline, particularly for job creation in the United States. Although studies show that younger firms (i.e., startups) are particularly important for job creation, most have not addressed the question of whether the form of growth financing for young firms—for example, through acquisition, or through IPOs—is a factor in creating jobs. In addition, although statistics show a decline in IPOs, the number and proceeds from private stock offerings, particularly under Regulation D, have risen. The implications for the economy and for job creation of a rise in private offerings concurrently with a fall in IPOs are less clear. On one hand, the stock of public companies is believed to benefit from a "liquidity premium," implying better share pricing and greater ease of capital-raising. A company's debt-to-equity ratio often declines after an IPO, meaning it may be able to obtain more favorable terms for loans. Also, some research indicates that going public can help a company attract new human capital and make potentially advantageous corporate acquisitions. However, others note the added pressure on public companies to produce short-term earnings results potentially at the expense of long-term growth. Some research has also suggested that public companies tend to select less novel research projects. As discussed earlier, one aim of the JOBS Act was to make it easier for companies to conduct both public and private share offerings, by relaxing certain requirements for IPOs and for private offerings sold only to accredited investors. A concern of some when easing such requirements is maintaining adequate investor protections. The executive branch agency charged with overseeing and ensuring investor protections is the SEC, and the chair of the SEC, as well as an SEC commissioner separately, have voiced such concerns regarding the level of investor protections from such changes required by the JOBS Act. Appendix. Disclosure Under the 1933 and 1934 Federal Securities Laws This section describes key aspects of the federal securities registration and disclosure requirements in the Securities Act of 1933 and the Securities Exchange Act of 1934. The Securities Act of 1933 makes it illegal to offer or sell securities to the public unless they have been registered with the SEC. Registration covers only the securities actually being offered and only for the purposes of the offering in the registration statement. The registration consists of two basic parts: (1) the prospectus, which must be provided to every purchaser of the securities, and (2) supplemental information, which contains information and exhibits that do not have to be provided to purchasers but are available for inspection by the public at the SEC. Section 7 of the 1933 act, referring to Schedule A, sets forth the information that must be contained in the registration statement. The schedule requires a great deal of information, such as the underwriters, the specific type of business, significant shareholders, debt and assets of the company, and opinions as to the legality of the issue. Section 10(a) of the 1933 act specifies the information that the prospectus must contain. There are also numerous regulations issued by the SEC that provide further details about the registration process under the 1933 act. Certain transactions and securities are exempted from the registration process. The exempted transactions include private placements, intrastate offerings, and small offerings. The Commission may, by rules and regulations, exempt any class of securities if it finds that such an exemption is in the public interest and the issue of securities does not exceed $5 million. Among other exempted securities are government securities and short-term commercial paper, securities for which it is believed that other, adequate means of government regulation exist. The Securities Exchange Act of 1934 is concerned with many different areas, one of which is the ongoing process of disclosure to the investing public through the filing of periodic and updated reports with the SEC. Any issuer that has a class of securities traded on a national securities exchange or has total assets exceeding $1 million and a class of equity securities with at least 500 or 750 shareholders, depending upon certain factors, must register under the 1934 act with the Commission. Every issuer required to register under the 1934 act must file periodic and other reports with the SEC. Section 12 requires the filing of a detailed statement about the company when the company first registers under the 1934 act. Section 13 requires a registered company to file annual and quarterly reports with the SEC. These reports must contain essentially all material information, financial and otherwise, about the company that the investing public might need in making a decision about whether to invest in the company. The SEC has issued extensive regulations to specify information that these required reports must provide. Some exemptions from these reporting requirements are provided. Exemptions include securities of an issuer organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for profit; securities issued by a mutual or cooperative organization supplying a commodity or service primarily for the benefit of its members and operating as a nonprofit; and securities issued by a registered investment company. Failure to disclose material information is actionable. For example, Section 18(a) of the Securities Exchange Act grants an express private right of action to investors who have been injured by reliance upon material misstatements or omissions of facts in reports that have been filed with the SEC. Section 10(b) of the 1934 act, the general antifraud provision, and Rule 10b-5, issued by the SEC to carry out the statutory fraud prohibition, provide for a cause of action for injuries that have been caused by omissions, misrepresentations, or manipulations of material facts in statements other than those filed in documents with the SEC.

Over the past decade, many sources have reported a precipitous decline in the number of initial public offerings (IPOs) in the United States. These statistics raise several questions: what has caused such a decline? What are the implications for the U.S. economy, and particularly for job creation? At the same time as IPOs appear to have fallen, the amount of private stock offerings has increased, suggesting growth in an alternative source of equity financing. This report analyzes factors contributing to the decline in IPOs, differences between an IPO involving the sale of shares to the public versus a private stock offering limited to sophisticated investors, and potential economic implications of such a rise in private versus public stock offerings. It also provides analysis of the causes and implications of the stagnation in public IPOs. The decline is particularly noticeable for IPOs by small companies. Because startups are usually small, and have been widely associated with job creation, there are concerns that whatever is causing such a drop in IPOs is hindering job creation. While research finds support for a link between startups and job creation, there does not appear to be a consensus among academics that the form of financing that a startup uses to grow—that is, through acquisition, through an IPO, or through the issuance of private shares to sophisticated investors—affects job creation. Indeed, while the number of IPOs has dropped, the number of private placements of restricted shares sold only to qualified investors has risen markedly, especially in 2009 and 2010. Central to the question of how best to stimulate capital formation and IPOs is what has led to the decline in IPOs. Researchers and market participants cite several possible causes. These include regulatory factors, such as the Sarbanes-Oxley Act in 2002 (P.L. 107-204); the costs of initial and ongoing disclosure to investors; a relaxation of the mandatory holding period for restricted shares by the SEC, which may have fostered liquidity in the alternative private placement market; and the costs of filing with individual states for certain securities offerings. Other research points to changes in securities market infrastructure as causes of the IPO decline. Such changes include the cost of underwriting IPOs; reduced trading fees for mainline securities firms stemming from the rise of online discount brokerage firms; a change in the SEC's order-handling rules; the decimalization of traded securities, thereby reducing brokers' profits from trading; and a requirement establishing a firewall between underwriting and analyst research, which some say has made it costlier to provide research to support small IPOs. Enacted on April 5, 2012, in the 112th Congress, the Jumpstart Our Businesses Startup Act (JOBS) Act (P.L. 112-106) is broadly aimed at stimulating capital formation for companies, especially for relatively new and smaller ones. Among other things, the JOBS Act lifts certain impediments to a small company external financing technique known as crowdfunding, establishes a category of firm known as an emerging growth company (EGC), and relaxes various disclosure and accounting requirements for such firms. Criteria for EGC status include having up to $1 billion in annual gross revenue and having less than five years elapse since its initial shares were first sold to the public. In late August 2012, some Members of Congress criticized the SEC's decision to issue a proposed rule, with a 30-day public comment period, rather than a quicker, final interim rule without the comment period. Others supported this approach. The SEC's proposed rule would relax traditional restrictions on the ability of a company to use general advertising to promote securities offering to certain defined-sophisticated investors under Rule 506, and under Rule 144a, which exempt certain securities from SEC registration. This report will be updated as events warrant.

Introduction Congress has established statutory offices of inspectors general (IGs) in many executive and legislative branch agencies, as well as two special IGs for programs and operations funded with amounts appropriated for the reconstruction of Iraq and Afghanistan. The four principal responsibilities of IGs are: (1) conducting and supervising audits and investigations; (2) providing coordination and recommending policies for activities designed to promote economy and efficiency in agency programs and operations; (3) preventing and detecting fraud, waste, and abuse; and (4) keeping the agency head and Congress fully and currently informed about problems and deficiencies relating to such programs and recommending corrective actions. The Emergency Economic Stabilization Act of 2008 (EESA), which was enacted as P.L. 110-343 on October 3, 2008, established an additional Special IG for the Troubled Asset Relief Program (SIGTARP). Under EESA, TARP funds may be used by the Secretary of the Treasury to purchase "troubled assets," defined to include both mortgage-related financial instruments and other types of securities which the Secretary, after consulting the Chairman of the Board of Governors of the Federal Reserve System, determines to purchase as necessary "to promote financial stability." The 111 th Congress has passed two bills containing provisions related to the SIGTARP. P.L. 111-15 , the Special Inspector General for the Troubled Asset Relief Program Act of 2009, was enacted on April 24, 2009. The Senate had passed a similar bill in the 110 th Congress. P.L. 111-15 makes modifications to the SIGTARP's audit and investigative authorities, grants the SIGTARP temporary hiring power outside of the competitive civil service process, grants the SIGTARP authority to hire up to 25 retired annuitants, requires coordination with other Inspectors General with regard to audits and other responsibilities, and makes SIGTARP reports publicly available, with certain exceptions. P.L. 111-15 makes SIGTARP, as well as the special IGs for Iraq and Afghanistan reconstruction, members of the newly codified Council of the Inspectors General on Integrity and Efficiency until the date that each special IG terminates. P.L. 111-22 , the Helping Families Save Their Homes Act of 2009, was enacted on May 20, 2009, and contains provisions with regard to SIGTARP in the context of public-private investment funds. Section 402 requires any public-private investment fund program (PPIP) to, in consultation with SIGTARP, impose conflict of interest rules on fund managers; allows the SIGTARP access to the books and records of such public-private investment funds; requires the Treasury Secretary to consult with the SIGTARP and issue regulations governing the interaction of the PPIP, the Term Asset Backed Securities Loan Facility (TALF), and other similar public-private investment programs; and mandates a report from the SIGTARP 60 days after such a program is established. The law also provides additional appropriations for the SIGTARP, and mandates that priority for those appropriations be given to the performance of audits or investigations of recipients of non-recourse federal loans made under programs funded in whole or in part by EESA funds. EESA's Provisions Regarding the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) The provisions in EESA establishing the SIGTARP are similar to the IG provisions for SIGIR and SIGAR in many respects. However, there are important substantive distinctions between these three special IGs, as well as between the SIGTARP and the statutory IGs created under the Inspector General Act of 1978, as amended (IG Act). Due to the ambiguous nature of the statutory language in EESA, the scope of the powers and authorities of the SIGTARP, although clarified by P.L. 111-15 , remains unclear in certain respects, as discussed below. Appointment, Confirmation, and Removal The SIGTARP is a presidentially appointed and Senate confirmed IG, selected "on the basis of integrity and demonstrated ability in accounting, auditing, financial analysis, law, management analysis, public administration, or investigations." Unlike statutory IGs under § 3 of the IG Act, who are also presidentially appointed and Senate confirmed, there is no provision in EESA that requires the SIGTARP to be appointed "without regard to political affiliation and solely" on the basis of the skills listed above. Although the absence of the additional IG Act language regarding political affiliation and appointment based only on job qualification skills does not change the legal protections that the IG Act and EESA afford to the SIGTARP, the SIGTARP may be less independent than other IGs as a practical matter, given that the SIGTARP is not subject to the same appointment constraints. The nomination of a SIGTARP was required "as soon as practicable" after the establishment of the TARP and the Troubled Assets Insurance Financing Fund. The SIGTARP nominee appeared in hearings before the Senate Committee on Banking, Housing and Urban Affairs and the Senate Committee on Finance in November, although the Finance Committee hearing was not an official nomination hearing. A Senate standing order approved on January 9, 2007, provided for sequential referral for a nomination to an "Office of Inspector General" to the Senate Homeland Security and Governmental Affairs Committee after proceedings in the committee with primary jurisdiction over the "department, agency, or entity." That order did not refer to special IGs, however, and both SIGIR and SIGAR are not Senate-confirmed positions, so there was no controlling precedent for the nomination of a special IG prior to the SIGTARP's nomination. The Parliamentarian determined that "the Senate Banking Committee [would] be charged with reporting the IG nominee to the full Senate." Neil Barofsky was confirmed by the Senate on December 8, 2008. Like other presidentially appointed and Senate-confirmed IGs, the SIGTARP can be removed only by the President, and the President must notify Congress of the reasons for the IG's removal. The President's reasons need not be given in writing and no time limit is set. Supervision Unlike agency IGs, who "shall report to and be under the general supervision" of the agency head, the SIGTARP will not be required to report to, or be supervised by, the head of any agency, including the Secretary of the Treasury. The IG Act does not explicitly define the meaning of "general supervision" and its legislative history does not appear to address the scope of the agency head's supervisory role. A court case relying on the legislative history of the IG Act described the agency head's supervisory authority over the IG as "nominal." Instead, under one interpretation of the SIGTARP's duties and responsibilities, discussed below, the SIGTARP will report only to Congress and not the agency head. This reporting arrangement would be unique among statutory IGs. Additionally, as discussed further below in the section entitled "EESA Authority to Conduct Investigations and Audits," the SIGTARP will have complete discretion in pursuing audits and investigations, and in issuing subpoenas. The SIGTARP appears to possess greater latitude in pursuing audits and investigations than the Treasury IG, as the Treasury IG is one of six IGs that may be prevented by an agency head from initiating, carrying out, or completing an audit or investigation, or from issuing a subpoena, for specified reasons such as preventing disclosure of national security matters. In contrast to the SIGTARP, the other special IGs report to, and are supervised by, the Secretary of State and the Secretary of Defense. SIGIR and SIGAR are also required to keep the Secretaries of State and Defense "fully and currently informed about problems and deficiencies" in program administration and the need for and progress on corrective action. Additionally, SIGIR and SIGAR must coordinate with the IGs for the Departments of State and Defense, and the United States Agency for International Development IG "in carrying out the duties, responsibilities, and authorities of the Inspector General." Prior to the enactment of P.L. 111-15 , the provisions for the SIGTARP did not require coordination with the Treasury IG or other IGs, although the SIGTARP had established a TARP-IG Council, with a GAO representative and representatives of the following IGs as members: the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Housing Finance Agency, the Federal Reserve Board, the Department of Housing and Urban Development, the Treasury IG for Tax Administration, and the Treasury. P.L. 111-15 required the SIGTARP to coordinate with the IGs for Treasury, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, the Federal Reserve Board, the Federal Housing Finance Board, and "any other entity as appropriate." Duties and Responsibilities This section discusses the interaction of EESA provisions and the duties and responsibilities section of the IG Act. The SIGTARP's authorization under EESA § 121(c)(1) to conduct audits and investigations related to the TARP, as well as proposals to modify his authorities, are discussed in detail starting on page 9 of this report. EESA § 121(c)(3) provides that the SIGTARP "shall also have the duties and responsibilities of inspectors general under the Inspector General Act of 1978." On one hand, this provision could mean that the SIGTARP would be responsible for all of the IG duties outlined in the IG Act, presumably as amended, even those that reference interaction with the head of an establishment or those that reference responsibilities not specifically delineated in EESA. Yet it appears more likely that § 121(c)(3)'s reference to duties and responsibilities may be limited to those under § 4 of the IG Act, which is entitled "Duties and responsibilities; report of criminal violations to Attorney General." The provision that grants the SIGTARP the same duties and responsibilities as those of IGs under the IG Act also appears in the acts that created SIGIR and SIGAR. This provision seems to bridge some, but not all, of the differences between the authorities of the special IGs and IGs created under the IG Act. If interpreted broadly, this provision will likely encompass the powers, duties, and responsibilities in certain sections of the IG Act, including, but not limited to §§ 4(a)(2)-(a)(5), which encompass general IG duties and the responsibility to "keep the head of such establishment and the Congress fully and currently informed, by means of the reports required by section 5 and otherwise, concerning fraud and other serious problems, abuses, and deficiencies relating to the administration of programs and operations"; and § 4(d), which requires IGs to report expeditiously to the Attorney General when there exist "reasonable grounds to believe there has been a violation of Federal criminal law." The "and otherwise" language in the requirement that IGs keep Congress "fully and currently informed" includes testifying at congressional hearings, direct communications with Members and staff, various selective or specialized reporting techniques, and responses to congressional inquiries for information, audits, and reports (both verbal and written). Depending on how § 121(c)(3) is interpreted, it is possible that the SIGTARP's responsibilities will not encompass § 4(a)(1) of the IG Act. That section provides that IGs are "to provide policy direction for and to conduct, supervise, and coordinate audits and investigations relating to the programs and operations of such establishment." Since the provisions creating the SIGTARP contain specific language with regard to conducting, supervising, and coordinating audits and investigations, and this specific language does not mention "policy direction," this provision of the IG Act would not seem to be included in the duties mentioned in §121(c)(3). SIGTARP Reports If the SIGTARP's duties and responsibilities are interpreted to be confined to those in § 4 of the IG Act, the above cross reference to "the reports required by section 5" in § 4(a)(5) of the IG Act appears to subject the SIGTARP to the IG Act § 5 reporting requirements as well. However, it is not clear as to whether the SIGTARP would need to submit the reports in § 5 of the IG Act in addition to the reports required in EESA or whether the SIGTARP would only be responsible for the required reports set forth in EESA. For example, § 5(d) of the IG Act requires establishment IGs to immediately report "particularly serious or flagrant problems, abuses, or deficiencies" to the head of the establishment whenever the IG becomes aware of such issues. The head of the establishment then must send the report to the appropriate congressional committees within seven days, along with the establishment head's comments in his or her own report. Since EESA requires the SIGTARP to report to Congress only, and not to an establishment head, it is not clear if the SIGTARP would be required to comply with those reporting requirements in § 5(d) of the IG Act. If EESA is interpreted to include the reporting requirements in § 5 of the IG Act, then the SIGTARP could be required to submit certain reports to the establishment head, which would appear to be the Secretary of the Treasury, as TARP itself has not been designated an establishment. EESA § 121(f) specified certain reporting requirements for the SIGTARP, including a report 60 days after the SIGTARP's confirmation by the Senate and every calendar quarter thereafter. P.L. 111-15 amended this provision to require the SIGTARP to submit reports to the appropriate congressional committees no later than 30 days after the end of each fiscal quarter, instead of each 120-day period after the initial 60 day report following the SIGTARP's confirmation. The SIGTARP report must include "a detailed statement of all purchases, obligations, expenditures, and revenues associated with" the TARP. The specificity of the language of this report provision could be interpreted to imply that the "duties and responsibilities" provision in § 121(c)(3) would not extend to the reporting requirements set out in § 5 of the IG Act, which provides that the IG office must prepare semiannual reports and submit them to the head of the establishment, who in turn must transmit them to appropriate congressional committees with his or her own report. Alternatively, the IG Act § 5 reports could be required in addition to the reports set out in EESA. There is no explicit requirement in EESA that the Treasury Secretary (or anyone else) be allowed to comment on the reports that the SIGTARP submits to Congress. Although there may be other reporting requirements with respect to TARP, they would not be intended to respond to SIG concerns or criticisms. SIGAR and SIGIR have such requirements enabling the Secretaries of State and Defense to submit comments to the appropriate congressional committees, as well as requirements that the reports be made public, and even published on a website. The IG Act also provides that the head of the establishment must make the semiannual IG reports and the semiannual establishment head reports available to the public, on request, within 60 days of the establishment head's transmission of the reports to the appropriate congressional committees. P.L. 111-15 added a provision requiring the Treasury Secretary to "take action to address deficiencies identified by a [SIGTARP] report or investigation," or to certify to the appropriate congressional committees "that no action is necessary or appropriate." Additionally, P.L. 111-15 required a September 1, 2009, report to Congress "assessing use of any funds, to the extent practical, received by a financial institution under the TARP." Such a report would be publicly available on the SIGTARP's website "within 24 hours after the submission of the report." P.L. 111-15 also required all reports submitted by the SIGTARP to be publicly available, with exceptions prohibiting public disclosure of certain information. Whistleblower Protections It is important to note that EESA § 121(c)(3) will not necessarily encompass the whistleblower protections in § 7 of the IG Act. These provisions address complaints or information provided by a whistleblowing employee, the disclosure of a whistleblower's identity, and reprisals threatened or taken against a whistleblower. Under the IG Act, not every complaint must be investigated, and the IG has discretion in accepting complaints from individuals other than employees. However, it appears that IGs are willing to accept complaints from anyone, not just employees, and the legislative history of the IG Act does not prohibit IGs from receiving and acting on information or complaints from any source. On a related note, EESA provides that the Financial Stability Oversight Board, as established by the legislation, will be responsible for "reporting any suspected fraud, misrepresentation, or malfeasance" to the SIGTARP or the Attorney General. However, a whistleblower with information concerning the possible existence of illegal activities or mismanagement regarding the purchase or insurance of troubled assets could conceivably be covered by the IG Act § 7 protections if he or she reported the information to the Treasury IG, as opposed to the SIGTARP. The acts that created SIGIR and SIGAR do not contain whistleblower protections either. In view of the fact that the current TARP approach is concentrating on banking concerns, it is interesting to note that federal law providing whistleblower protection to employees of insured depository institutions and federal banking agencies applies only to information turned over to federal banking agencies or the Attorney General. Resources and Law Enforcement Authority Section 121(d) of EESA states that the SIGTARP will have the authorities of § 6 of the IG Act, which provides in subsection (c) that the head of an establishment must give the IG office within the establishment adequate office space, equipment, supplies, and other services. It could be argued that the Secretary of the Treasury is the head of the establishment in which the TARP is located, as § 11(2) of the IG Act defines "establishment" to include the Treasury. In addition, § 6(a)(3) of the IG Act provides that the IG is authorized "to request information or assistance as may be necessary for carrying out the duties and responsibilities provided by the IG Act from any Federal, State, or local government agency or unit thereof." It is not clear if "assistance" would cover office space, however, if it does, the SIGTARP would appear to be able to request such resources from the Treasury Department. In practice, Treasury initially provided space to SIGTARP. In contrast, EESA specifically provides that "[t]he Secretary shall provide the Comptroller General with appropriate space and facilities in the Department of the Treasury as necessary to facilitate oversight of the TARP until the termination date established in section 120." The provisions in the act creating SIGAR enabled that special IG to rely on the personnel, facilities, and resources of another special IG, SIGIR. SIGIR, in turn, could rely on the Department of State or the Department of Defense for equipment, office supplies, and communications facilities and services within either agency, including at appropriate locations of the Department of State in Iraq. Section 6(e) of the IG Act enables the Attorney General to authorize certain IGs, assistant IGs, and special agents supervised by assistant IGs to carry firearms, make arrests without warrants, and seek and execute arrest warrants. The Attorney General may authorize such powers after an initial determination that the affected IG's office is "significantly hampered" by the lack of such powers, that assistance from other law enforcement agencies is insufficient, and that internal safeguards are in place. IG Act § 6(e)(3) lists the IG offices of certain entities that are exempt from the Attorney General's initial determination. P.L. 111-15 added the SIGTARP to the list of IG offices exempt from such initial determination by the Attorney General. Hiring Staff for the SIGTARP Office EESA § 121(e) provides that the SIGTARP "may select, appoint, and employ such officers and employees as may be necessary for carrying out the duties of the [SIG], subject to the provisions of title 5, United States Code, governing appointments in the competitive service, and the provisions of chapter 51 and subchapter III of chapter 53 of such title, relating to classification and General Schedule pay rates." This provision mirrors the language in SIGIR's provisions, and means that SIGTARP employees would be hired under civil service laws. However, Congress recently provided SIGIR with temporary employment authority that follows the authority granted to temporary federal organizations. Employees in such temporary federal organizations are excepted from competitive civil service rules in title 5, United States Code regarding appointment, pay, and classification. There are several categories of positions excepted by the Office of Personnel Management (OPM) from competitive service—Schedules A, B, and C—for which it is not practical to adhere to qualification requirements of the competitive civil service or hold competitive examinations or which are political appointments. P.L. 111-15 gave the SIGTARP temporary hiring power outside of competitive civil service requirements akin to that of SIGIR under 5 U.S.C. § 3161. Such temporary hiring power is only in effect for six months after the date on which P.L. 111-15 was enacted—until the end of October 2009. Additionally, P.L. 111-15 granted the SIGTARP the authority to hire up to 25 retired annuitants. Their annuity will continue while they are employed by the office of the SIGTARP. Although EESA does not provide for this temporary hiring authority for the SIGTARP, EESA § 121(e)(3) provides that the SIGTARP "may enter into contracts or other arrangements for audits, studies, analyses, and other services with public agencies and with private persons, and make such payments as may be necessary to carry out the duties of the Inspector General." Thus, it appears that the SIGTARP has the authority to hire employees for the office under such contracts or arrangements. Funding EESA § 121(g) provides that the SIGTARP shall have $50 million to carry out the duties of the office. P.L. 111-15 would make such funds available "not later than 7 days" after the date of the enactment of P.L. 111-15 on April 24, 2009. P.L. 111-15 's provisions regarding funding may have been aimed at preventing issues similar to those that arose with funding for SIGAR, for which $20 million authorized in initial funding was not disbursed. Congress allotted a total of $7 million, but the SIGAR noted in a report that "due to current funding restraints, SIGAR does not expect to reach full operational capacity until the 4 th quarter of fiscal year 2009." Termination EESA § 121(h) establishes that the office of the SIGTARP "shall terminate on the later of—(1) the date that the last troubled asset acquired by the Secretary under section 101 has been sold or transferred out of ownership or control of the Federal Government; or (2) the date of expiration of the last insurance contract issued under section 102." In contrast, SIGIR and SIGAR "shall terminate 180 days after the date on which amounts appropriated or otherwise made available for the reconstruction of Iraq [or Afghanistan] that are unexpended are less than $250,000,000." While the continuation of the other special IGs is limited based on the amount of the reconstruction accounts, the SIGTARP may be a continuing necessity to audit the purchase, transfer, sale, and insurance of troubled assets, in whatever form they may take under EESA § 3(9). IGs' Authority to Conduct Audits and Investigations This portion of the report provides a legal analysis of the general ability of IGs to conduct audits and investigations, as well as the specific authority of the SIGTARP to conduct audits and investigations. At the outset, it is important to recognize that most IGs have virtually unfettered discretion over initiating and conducting audits and investigations dealing with waste, fraud, and abuse within their own agencies. As a corollary, they may accept, delay, modify, or reject a request to conduct an audit or investigation from any party, including individual Members of Congress, officials at the Office of Management and Budget, other IGs, IG councils, agency officials, and private parties and organizations. Only a provision in a statute could officially order an IG investigation or audit. However, IGs are intended to serve as an oversight arm of Congress within agencies, and it is Congress that has explicitly delegated auditing and investigative functions to IGs. Congress is not prohibited from requesting IGs to conduct audits or investigations, and no improprieties are raised when a committee or a Member makes such a request. The legislative history of the IG Act supports the understanding that Congress could ask IGs for information. IGs generally comply with such requests. Background Under § 6 of the IG Act, IGs have been granted broad authority to conduct audits and investigations; to gain direct access to agency records and information; to request assistance from other federal, state, and local government agencies; to subpoena information and documents; to administer oaths when taking testimony; to hire staff and manage their own resources; and to carry firearms, make arrests, and execute warrants. The SIGTARP retains these powers as well, as EESA § 121(d) provides that the SIGTARP "shall have the authorities provided in section 6 of the Inspector General Act of 1978." However, concerns have been expressed with regard to the SIGTARP's ability to obtain records from third parties. The equity purchase transactions under the TARP involve applications to Treasury from regulated banks, thrifts, bank holding companies, and thrift holding companies, through their federal regulators, who have access to virtually all the records of the institutions and are required to examine them periodically. Some of these records may be subject to laws preventing disclosure except to bank regulators. On the other hand, this may not be the case with many of the entities that may be involved in mortgage-related securities purchases, either as contractors to aid Treasury in pricing the assets or as holders of mortgage-related securities. Such entities include mortgage-backed securities trusts, hedge funds, and investment banks. The books of these entities would not have undergone the routine scrutiny involved in bank supervision, and the entities may be unaccustomed to opening their books to federal regulators outside of their participation in the TARP program. Prioritization and Breadth of SIGTARP Audits and Investigations EESA grants discretion for the SIGTARP in setting investigative priorities and making specific commitments. The SIGTARP is authorized under EESA § 121(c)(1) "to conduct, supervise, and coordinate audits and investigations of the purchase, management, and sale of assets by the Secretary of the Treasury under any program established by the Secretary under section 101, and the management by the Secretary of any program established under section 102, including by collecting and summarizing [certain] information" related to troubled assets. Other than these categories, EESA contains no requirements or criteria directing what types of audits and investigations might be conducted, at what level and extent, when, and at what expense (within the office's budget). Congress did provide priorities for SIGTARP audits and investigations in a later law—P.L. 111-22 made additional funds available to the SIGTARP, for which the SIGTARP must "prioritize the performance of audits or investigations of recipients of non-recourse Federal loans made under any program that is funded in whole or in part by funds appropriated under [EESA], to the extent that such priority is consistent with other aspects of the mission of the [SIGTARP]." The provision states that "[s]uch audits or investigations shall determine the existence of any collusion between the loan recipient and the seller or originator of the asset used as loan collateral, or any other conflict of interest that may have led the loan recipient to deliberately overstate the value of the asset used as loan collateral." In another post-EESA law, Congress amended EESA § 121(c) to address concerns regarding whether the SIGTARP's audit and investigative authority was limited to TARP-specific duties specified in EESA § 121(c)(1) or whether the SIGTARP could conduct audits and investigations of activities related to EESA funds. P.L. 111-15 added a provision to the SIGTARP's existing authorities stating that the SIGTARP "shall have the authority to conduct, supervise, and coordinate an audit or investigation of any action taken under this title [which covers the TARP] as the [SIGTARP] determines appropriate," with the exception of actions taken under EESA §§ 115, 116, 117, and 125. These sections respectively address graduated authorization granted to the Treasury Secretary to purchase troubled assets, oversight and audits by the Comptroller General (head of the Government Accountability Office), a Comptroller General study and report on margin authority "to determine the extent to which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis," and the Congressional Oversight Panel. The language in P.L. 111-15 provided additional authorities to the SIGTARP's existing authority regarding audits and investigations under the TARP program and appears to be broader than similar language proposed in H.R. 384 . H.R. 384 would also amend EESA to address auto industry financing and restructuring and provide an additional duty for the SIGTARP—conducting, supervising, and coordinating audits and investigations of the "President's designee." H.R. 384 defines the "President's designee" as "one or more officers from the Executive Branch having appropriate expertise in such areas as economic stabilization, financial aid to commerce and industry, financial restructuring, energy efficiency, and environmental protection to carry out" the auto industry financing and restructuring. Additionally, H.R. 384 provides that "[t]he Special Inspector General shall also have the duties, responsibilities, and authorities of inspectors general under the Inspector General Act of 1978, including section 6 of such Act." The bill may add this sentence regarding § 6 because it would emphasize that the SIGTARP's duties, responsibilities, and authorities are not confined to those in EESA § 121(c). EESA § 121(d)(1) states: "In carrying out the duties specified in subsection(c), the Special Inspector General shall have the authorities provided in section 6 of the Inspector General Act of 1978." Jurisdiction Additionally, for most IGs, there are no boundaries on the jurisdiction of the IG over agency programs, operations, or internal units. Most IGs are authorized "to make such investigations and reports relating to the administration of the programs and operations of the applicable establishment as are, in the judgment of the Inspector General, necessary or desirable." As with other references to IG Act § 6, this provision applies to the SIGTARP. Courts have also held that the IGs' investigative authority extends to private contractors: [T]he legislative history of the Act clearly indicates that Congress specifically intended to extend the OIG's power of review over private entities working closely with government agencies because such entities are privy to highly confidential information and are paid large sums of federal funds for their services, creating a potential risk for abuse both inside and outside government agencies. Access to Agency Materials Supporting their responsibilities, IGs are "to have access to all records, reports, audits, reviews, documents, papers, recommendations, and other material available to the applicable establishment which relate to programs and operations with respect to which that Inspector General has responsibilities under this Act." There is no limitation on this right of access in the IG Act. The IG's ability to "have access to all records" indicates that the IG's investigative and audit powers extend into the private sector and to individuals outside the agency, for instance, when the IG audits contracts with industry or investigates suspected fraud in agency purchases or other wrongdoing by private individuals in connection with agency operations and programs. The SIGTARP retains these powers as well, as EESA § 121(d) provides that the SIGTARP "shall have the authorities provided in section 6 of the Inspector General Act of 1978." As a result, it appears that the SIGTARP would be able to access records of third-parties that participate in the TARP program and that relate to EESA funds. However, additional legislation could make the SIGTARP's authority in this area more explicit. In the event that a private entity would not voluntarily yield its records to the SIGTARP, the IG would have the option of using his subpoena power, as discussed below. Subpoena Power Section 6(a)(4) of the IG Act, states that "each Inspector General, in carrying out the provisions of this Act, is authorized ... to require by subpoena the production of all information, documents, reports, answers, records, accounts, papers, and other data in any medium (including electronically stored information, as well as any tangible thing) and documentary evidence necessary in the performance of the functions assigned by this Act.... " Subpoena authority under the IG Act is delegable, and subpoenas issued under the act are judicially enforceable. The IG Act contains no explicit prohibition on disclosure of the existence or specifics of a subpoena issued under this authority. The SIGTARP retains these subpoena powers as well, as EESA § 121(d) provides that the SIGTARP "shall have the authorities provided in section 6 of the Inspector General Act of 1978." The legislative history of the IG Act addresses the subpoena as an investigative tool intended for use in both administrative and criminal investigations: Subpoena power is absolutely essential to the discharge of the Inspector and Auditor General's functions. There are literally thousands of institutions in the country which are somehow involved in the receipt of funds from Federal programs. Without the power necessary to conduct a comprehensive audit of these entities, the Inspector and Auditor General could have no serious impact on the way federal funds are expended.... The committee does not believe that the Inspector and Auditor General will have to resort very often to the use of subpoenas. There are substantial incentives for institutions that are involved with the Federal Government to comply with requests by an Inspector and Auditor General. In any case, however, knowing that the Inspector and Auditor General has recourse to subpoena power should encourage prompt and thorough cooperation with his audits and investigations. The committee intends, of course, that the Inspector and Auditor General will use this subpena power in the performance of is statutory functions. The use of subpena power to obtain information for another agency component which does not have such power would clearly be improper. The Justice Department reports that the "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 legislative history of the IG Act also discusses subpoenas of third-party bank records, in other words, financial records of individuals held by a bank. Authority to Administer Oaths and Conduct Interviews IGs and the SIGTARP (through the authorities in IG Act § 6 as provided by EESA § 121(d)) have the authority "to administer to or to take from any person an oath, affirmation, or affidavit, whenever necessary in the performance of the functions assigned by this Act." The phrase "any person" indicates that the IG's investigative powers extend into the private sector and to individuals outside the agency. Oaths administered by IGs "shall have the same force and effect as if administered or taken by or before an officer having a seal." False material statements made to an IG under oath may subject an individual to criminal prosecution or perjury charges. Several court cases discuss an OIG's ability to conduct interviews in the course of investigations. In United States Nuclear Regulatory Commission v. Federal Labor Relations Authority (FLRA), the United States Court of Appeals for the Fourth Circuit noted that the IG Act facilitates the IG's auditing and investigative functions by giving "each Inspector General access to the agency's documents and agency personnel." The court held that four proposals by a union "regarding procedures to be followed during investigatory interviews of the agency's employees by the Inspector General" were not consistent with the IG Act because "Congress intended that the Inspector General's investigatory authority include the power to determine when and how to investigate." To grant the union's proposals regarding interviews "would directly interfere with the ability of the Inspector General to conduct investigations." The United States Court of Appeals for the D.C. Circuit echoed the Fourth Circuit's remarks regarding IG independence in United States Department of Justice v. FLRA . The court stated "there cannot be the slightest doubt that Congress gave the Inspector General the independent authority to decide 'when and how' to investigate; that the Inspector General's authority encompasses determining how to conduct interviews under oath." Although both this case and United States Nuclear Regulatory Commission v. FLRA dealt with OIG interviews of agency employees, the D.C. Circuit noted that "[a]nyone—whether a union member, a management official or an individual not employed by the federal government—would be prudent to secure legal representation if they are to be questioned under oath." In National Aeronautics and Space Administration (NASA) v. FLRA , the United States Supreme Court detailed the independent characteristics of OIGs and their authority to conduct audits and investigations. The court held that, in the context of a federal labor relations statute, the NASA-OIG investigative interviewer was a representative of the agency and found that "those [independent IG Act] characteristics do not make NASA-OIG any less a representative of NASA when it investigates a NASA employee.... As far as the IG [Act] is concerned, NASA-OIG's investigators are employed by, act on behalf of, and operate for the benefit of NASA." The Court also noted two limitations of the IG Act: (1) it "grants Inspectors General the authority to subpoena documents and information, but not witnesses," and (2) "[t]here may be other incentives for employee cooperation with OIG investigations, but formal sanctions for refusing to submit to an OIG interview cannot be pursued by the OIG alone." Rather, the OIG may request assistance from the agency head "insofar as is practicable and not in contravention of the law," which has been interpreted to mean that the agency head could direct the employee to appear at an OIG interview. Possible Rationales for Delaying, Modifying, or Rejecting a Requested Audit or Investigation As noted above, IGs have discretion in mounting audits and investigations. IGs may decline requests to conduct audits or investigations, citing other investigative priorities. IGs may also determine that indications of wrongdoing are insufficient to warrant the OIG's commitment of resources to investigate them. Additionally, the IG might consider that an investigation now could prove disruptive to, delay, or compromise any ongoing administrative and judicial proceedings. An immediate IG investigation could also prove counterproductive to future inquiries, including an effort by the OIG itself. Conversely, an investigation started after the conclusion of administrative and judicial proceedings could benefit from the potential presentation of additional information. The SIGTARP Letter to TARP Recipients and the Paperwork Reduction Act On January 22, 2009, SIGTARP Neil Barofsky noted in a letter to the Chairman of the House Committee on Financial Services that his office was preparing requests to TARP recipients asking them to provide information and documentation related to their use or expected use of TARP funds, as well as their plans for following executive compensation limitations, within 30 days of the request. On January 30, 2009, in a letter to the Director of the Office of Management and Budget (OMB), Peter R. Orszag, Senator Grassley disclosed that OMB had "advised the IG that SIGTARP could not initiate its significant oversight effort to improve the general transparency of TARP funds due to restrictions of the Paperwork Reduction Act" (PRA). According to the letter, SIGTARP requested "Emergency Processing" by OMB of its letter to TARP recipients. Reportedly, OMB initially noted that SIGTARP "would not be limited" by the PRA, and then subsequently withdrew its emergency approval within several minutes of granting such approval. According to the letter, it was Senator Grassley's understanding at the time that OMB "is requiring SIGTARP to post a proposed letter of inquiry to TARP recipients for 15 days, wait for comments, and then justify to OMB that it has taken into account the public comments in redrafting the inquiry letter." It is not clear if a proposed letter of inquiry was posted for 15 days, but it appears unlikely that it was posted, given the following chain of events. According to testimony on February 5, 2009, by SIGTARP Neil M. Barofsky, the office "received approval from OMB to send letter requests to each of the TARP recipients" that week. On that day, the SIGTARP began issuing letters with an OMB control number that expires in August 2009. Such letters were sent from February 5-11, 2009, and encompass the issues indicated in the SIGTARP's January 22, 2009 letter. According to the SIGTARP's testimony on February 24, 2009, the office has "already begun to receive responses to these requests and look[s] forward to providing an interim report to Congress on this audit project after we receive the responses." Also on February 5, 2009, the Department of the Treasury posted a comment request regarding the collection of information that the SIGTARP proposed to undertake under the PRA with regard to TARP recipients. It was published in the Federal Register on February 11, 2009. The comment request noted that the SIGTARP's information collection requirement was submitted to OMB "for emergency review, and it has been approved under the [PRA]." The section of the comment request describing the purpose of the SIGTARP information collection noted that the questionnaires "are intended to accommodate a September 2009 report to Congress," and the summary of the proposed information collection estimated that the questionnaires would be sent to 350 respondents, "[b]ased upon current program participants." This estimate may increase as the Treasury announced its plan for the use of the remainder of the TARP funds on February 10, 2009, the date before the comment request was published. The Paperwork Reduction Act Under the PRA, agencies must receive approval (signified by an OMB control number displayed on the information collection) for each collection of information request before it is implemented. Failure to obtain approval for an active collection, or the lapse of that approval, represents a violation of the Act, and triggers the PRA's public protection provision. Under that provision, no one can be penalized for failing to comply with a collection of information subject to the PRA if the collection does not display a valid OMB control number or if the agency does not inform the respondents that they are not required to respond unless the collection of information contains a valid OMB control number. OIRA can disapprove any collection of information if it believes the collection is inconsistent with the requirements of the PRA. It has been estimated by some in the IG community that it takes nine to ten months to receive approval for a collection of information under the PRA. The Act generally defines a "collection of information" as the obtaining or disclosure of facts or opinions by or for an agency by 10 or more nonfederal persons. The PRA does not apply to collections of information "during the conduct of a Federal criminal investigation," or "during the conduct of ... an administrative action or investigation involving an agency against specific individuals or entities," which would appear to include IG investigations that fall within this category. However, the PRA does apply to "the collection of information during the conduct of general investigations ... undertaken with reference to a category of individuals or entities such as a class of licensees or an entire industry." The PRA requires agencies to justify any collection of information from the public by establishing the need and intended use of the information, estimating the burden that the collection will impose on respondents, and showing that the collection is the least burdensome way to gather the information. Each agency must "establish a process within the office headed by the Chief Information Officer" whereby the proposed collections of information are reviewed before being submitted to OMB. Agencies cannot conduct a collection of information until after undertaking such a review, evaluating public comments received, and submitting a certification that the information collection meets statutory requirements (such as being written in plain terms and "necessary for the proper performance of the functions of the agency" ), in addition to receiving OMB approval and a control number. However, an agency "may request the Director [of OMB] to authorize a collection of information," upon the agency head's determination that (A) a collection of information- (i) is needed prior to the expiration of time periods established ... ; and (ii) is essential to the mission of the agency; and (B) the agency cannot reasonably comply with the provisions of [the PRA] because— (i) public harm is reasonably likely to result if normal clearance procedures are followed; (ii) an unanticipated event has occurred; or (iii) the use of normal clearance procedures is reasonably likely to prevent or disrupt the collection of information or is reasonably likely to cause a statutory or court ordered deadline to be missed. OMB must report to Congress annually and include in such report "a list of all violations" of the PRA. Neither the PRA, the IG Act, nor EESA contain explicit language discussing whether IG investigations and audits are subject to the requirements of the PRA. Both the PRA and IG Acts and their subsequent major amendments or reform acts (in 1986 and 1995 for the PRA, and in 1988 and 2008 for the IG Act) are silent on this issue, as is EESA. A search of the Congressional Record debate regarding EESA similarly indicated that this issue was not raised. Nor does it appear that the issue of the PRA and its potential impact on the SIGTARP's ability to obtain information was raised in SIGTARP confirmation hearings. Potential Approaches for the SIGTARP and Congress with Regard to Requests Presumed to be Subject to the PRA Assuming that the PRA is construed to apply to the SIGTARP and future information collection requests, in the event that the SIGTARP encounters additional difficulties under the PRA process, there are several approaches that the SIGTARP or Congress could pursue. One approach would be for the SIGTARP to proceed with the information collection regardless of the requirements of the PRA or to only send future requests to nine entities. The potential repercussions of ignoring the PRA would be that the public protection provision of the PRA would be triggered and that the entities that received the SIGTARP request could not be penalized for failing to comply with that collection of information. However, public expectations might decrease potential noncompliance by recipients of TARP funds or the challenge of a request from SIGTARP, whose purpose is to provide oversight of such expenditures, for information regarding how the entity spent its funds. A second approach to address the SIGTARP's responsibilities and the PRA would be for Congress to enact an amendment to the PRA that would exclude SIGTARP, or executive branch IGs generally, from the definition of "agency," similar to the exclusions currently provided for the GAO and the Federal Election Commission. It could be argued that GAO has similar auditing and investigative functions to those of IGs. The former President's Council on Integrity and Efficiency, a council of presidentially appointed IGs that has now been codified, reconstituted, and renamed under the Inspector General Reform Act of 2008, has previously suggested amendments that would (1) exempt federal IGs from the PRA definition of "agency," and (2) add a new section which, when read with the rest of the statute, would state: "Except as provided in paragraph (2), this chapter shall not apply to the collection of information ... (B) during the conduct of ... (iii) audits, inspections, evaluations, investigations or other reviews conducted by federal inspectors general." S. 976 would provide such an exemption for statutory IGs, special IGs, the Council of IGs on Integrity and Efficiency, and the Recovery Accountability and Transparency Board, which is comprised of IGs and a presidential designee or appointee. A third approach would be for Congress to create an exemption from the PRA for collections of information undertaken specifically with regard to TARP funds in 44 U.S.C. § 3518(c)(2), which states that the PRA applies to "the collection of information during the conduct of general investigations ... undertaken with reference to a category of individuals or entities such as a class of licensees or an entire industry." Such a legislative fix could state that the provision would not apply to collections of information undertaken by the SIGTARP. A fourth approach would be for SIGTARP to use its subpoena powers to compel the production of such information by TARP fund recipients. As mentioned above, EESA § 121(d) gives the SIGTARP the "authorities provided in section 6" of the IG Act, which encompass subpoena powers.

This report discusses the Special Inspector General provisions in the Emergency Economic Stabilization Act of 2008 (EESA), which was enacted as P.L. 110-343 on October 3, 2008. This act created a Special Inspector General for the Troubled Asset Relief Program (SIGTARP). Under EESA, TARP funds may be used by the Secretary of the Treasury to purchase "troubled assets," defined to include both mortgage-related financial instruments and "any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability." The broad authorities provided to the SIGTARP by EESA have not changed even though the Secretary of the Treasury has modified the approach to stabilize the financial industry through the TARP. The 111th Congress has passed two bills containing provisions related to SIGTARP. P.L. 111-15 (S. 383/H.R. 1341), the Special Inspector General for the Troubled Asset Relief Program Act of 2009, was enacted on April 24, 2009, and addresses the SIGTARP's auditing, investigative, and hiring authorities. P.L. 111-22, the Helping Families Save Their Homes Act of 2009 (H.R. 1106/S. 895/S. 896), was enacted on May 20, 2009, and contains provisions concerning SIGTARP in the context of public-private investment funds. Other bills addressing the SIGTARP include H.R. 384 (which passed the House on January 21, 2009), H.R. 1242, H.R. 3179, S. 910, and S. 976. This report will compare the duties and authorities of the SIGTARP to those of the Special Inspector General for Iraq Reconstruction (SIGIR) and the Special Inspector General for Afghanistan Reconstruction (SIGAR), as well as statutory IGs under the Inspector General Act of 1978, as amended (IG Act). The report will also cover the authority that Inspectors General possess to conduct audits and investigations. Finally, the report will provide an overview of the SIGTARP's request to TARP recipients regarding their use or expected use of TARP funds, as well as their plans for following executive compensation limitations, and possible issues raised by the Paperwork Reduction Act.

Introduction This report provides a summary of some of the issues regarding the creation of a national land parcel database, or cadastre. The report identifies some of the perceived needs for a national cadastre, legislative and administrative options that could lead to a national land parcel database, and some of the challenges and concerns. It also summarizes and briefly discusses recommendations in a 2007 National Research Council (NRC) report, which concluded that "a national approach is necessary to provide a rational and accountable system of property records." The NRC report described why a national approach is needed, identified challenges to creating a national cadastre, and offered specific recommendations for achieving its vision: a distributed system of land parcel data housed with the appropriate data stewards but accessible through a web-based interface. The federal government has direct and indirect responsibilities for coordinating and managing land parcel data on federal land. An example of a direct responsibility is that of the Department of the Interior's (DOI's) Bureau of Land Management (BLM), which is steward of federal land parcel data. An example of an indirect role is that of the Federal Geographic Data Committee (FGDC), which serves to coordinate federal geospatial activities. Both are discussed further below. Legislative proposals spanning several congresses have attempted to address some of the issues involved in creating a national cadastre. Most recently, the Federal Land Asset Inventory Reform Act of 2011 ( H.R. 1620 ), introduced on April 15, 2011, would require the Secretary of the Interior to develop a multipurpose cadastre of federal "real property." H.R. 1620 was referred to the Subcommittee on Energy and Mineral Resources of the House Committee on Natural Resources, but there has been no action on the bill. Similar bills were introduced in the 111 th , 110 th , and 109 th Congresses but were not enacted. The 112 th Congress faces the same issues regarding management and coordination of federal land parcel data as previous congresses. One legislative option is to enact H.R. 1620 . Another option would be to investigate more deeply the findings from the 2007 NRC report and examine whether its recommendations should be implemented legislatively or administratively, or whether they should be implemented at all. In addition, the 112 th Congress may want to consider the potential costs of implementing the recommendations from the NRC report. For more information on geospatial information generally, see CRS Report R40625, Geospatial Information and Geographic Information Systems (GIS): Current Issues and Future Challenges . Why a National Land Parcel Database? Geospatial information, including land parcel data, is increasingly produced by private sector and other non-federal government sources. Consequently, the federal government's role has shifted from producing geospatial data to coordinating efforts, facilitating partnerships, and managing the vast amounts of geospatial information. According to the National Geospatial Advisory Committee (NGAC), the shift in geospatial data production from the federal government to the private sector and state and local governments has created an "... urgent need to reexamine the relationships between data providers and users to establish a fair and equitable geospatial data marketplace that serves the full range of applications." As an example, NGAC noted that the Census Bureau had to develop a duplicate version of street centerlines in preparation for the 2010 Census because it could not take advantage of the existing commercial data. This duplication in effort was a result, in part, of prohibitions on disclosing or publishing private information that identifies an individual or business, per Title 13 of the U.S. Code . Further, "critical information about the use, value and ownership of property is needed by FEMA, the Forest Service, and HUD, for emergency preparedness or response in times of hurricanes or wildfires—or even to monitor the current foreclosure problems." Current Status The federal government's efforts to coordinate its geospatial activities, through the Federal Geographic Data Committee (FGDC) and the development of the National Spatial Data Infrastructure (NSDI), include a strong emphasis on land parcel data. For example, the cadastral data theme is one of the seven fundamental data themes of the NSDI framework. Within the FGDC, BLM is assigned the role of lead agency coordinating land parcel data for federal lands. According to BLM, it is responsible for performing cadastral surveys on all federal and Indian lands: "Cadastral surveys are the foundation for all land title records in the United States and provide federal and tribal land managers with information necessary for the management of their lands." Despite the BLM role as steward of federal land parcel data and coordinator for cadastral data under FGDC, NRC found that a coordinated approach to federally managed parcel data did not exist. The National Integrated Land System (NILS) —a joint project between BLM and the U.S. Forest Service (USFS, in the Department of Agriculture)—is the closest thing to a coordinated program "... but it remains much more of a set of technologies than a source of parcel data." Coordinating all land parcel data, the bulk of which is produced for local and regional needs, remains even more of a challenge. Identified Need The National Geospatial Advisory Committee (NGAC) was formed in early 2008 to provide advice and recommendations to the FGDC on management of federal geospatial programs. NGAC observed that the federal government's need for land parcel data is missing an arrangement for acquiring the detailed property-related data necessary to make decisions during times of emergency. In addition to emergency response related to natural disasters, other perceived or identified needs for a national land parcel database at the federal level include responding to the home mortgage foreclosure crisis, dealing with wildland fires, and managing extractive energy resources on federal lands. Other aspects of managing the federal lands could be included as well, such as compensating local governments for tax revenue losses due to the presence of federally owned land; or monitoring the effects of climate change and the efficacy of measures taken to mitigate or adapt to such effects. Natural Disasters Disasters are often cited as a compelling reason to establish a national land parcel database: "Land-parcel data, one of the framework themes, are essential in managing disasters and in assessing damage, along with building footprints and the locations of infrastructure (power, telecommunications, water, sewage, and steam-heating networks)." The attacks of September 11, 2001, and the destruction caused by hurricanes Katrina and Rita in 2005, underscored for many the need for rapid access to land ownership data to help guide emergency response, especially when a disaster crosses multiple jurisdictions or extends beyond the boundaries of a community and the immediate knowledge of local responders. The land parcel data useful to emergency responders may exist, but may also be difficult to access: Data on the ownership of land parcels, or cadastral data, provide a particular and in some ways extreme example of the problems that currently pervade the use of geospatial data in emergency management. Vast amounts of such data exist, but they are distributed among tens of thousands of local governments, many of which have not invested in digital systems and instead maintain their land-parcel data in paper form. As with many other data types, it is not so much the existence of data that is the problem, as it is the issues associated with rapid access. Several NRC reports noted that a national partnership for assembling land parcel data would provide major benefits for managing federal assistance to local programs, many of which are associated with the U.S. Department of Housing and Urban Development (HUD). According to the NRC, parcel-level data would help HUD meet its strategic goals, such as increasing home ownership opportunities, promoting affordable housing, and ensuring equal opportunities in housing. NRC further contended that "the existence of national land parcel data would provide HUD with data it needs for effective management of grants and would have avoided the critical time wasted gathering parcel data piecemeal in the wake of these recent hurricanes." Home Mortgage Foreclosure Crisis In addition to natural disasters, land parcel data are being used for responding to the housing market collapse that began in 2008. The FGDC Cadastral Subcommittee noted that parcel data provide added value to the mortgage and property information collected by the federal government under the Home Mortgage Disclosure Act (HMDA). HMDA was enacted in 1975 to assist government regulators and the private sector with the monitoring of anti-discriminatory practices. According to the FGDC Cadastral Subcommittee While HMDA data provide a snapshot in time of a mortgage transaction, local government parcel data provide current information at the individual parcel level that allows other information such as utility shutoffs, code violations and undelivered mail to be tied to a common unit, the parcel. Parcel data make it possible to relate disparate data together to get a complete picture of individual mortgage and housing conditions. Parcel data also provide the connection to local governments, which can provide community context and engage those most affected by mortgage crisis events. The Cadastral Subcommittee likened the distressed housing market to a contagious disease, tending to affect some communities while leaving others intact. By adding parcel data to existing information available under the authority of HMDA, data analyses could identify "hot spots" in a pending foreclosure crisis, and possibly even provide sufficient information for a national early warning system for financially distressed housing and mortgage markets. On July 21, 2010, Congress added such a provision in P.L. 111-203 for including parcel data with other information available under HMDA. The provision amended HMDA to include "the parcel number that corresponds to the real property pledged or proposed to be pledged as collateral." In one case, GIS and land parcel data were used to identify and analyze the extent of home foreclosures, and to use the results of that analysis to apply for Community Development Block Grants (CDBG) to convert foreclosed properties into low-income housing. It could be asserted that these types of land parcel data, made available to federal agencies such as HUD, could also be used to track the effects of programs like CDBG to ameliorate the foreclosure crisis. This type of use of land parcel data arguably underscores a need for a national land parcel database to track the effectiveness of federal agency programs in national efforts, such as coping with the home foreclosure crisis. Wildfires24 The FGDC Cadastral Subcommittee formed a Wildland Fire Project Team, at the request of the National Interagency Fire Center, together with representatives from BLM, USFS, and the U.S. Geological Survey, state representatives, and others to prepare for the 2007 fire season. The goal was to identify contacts for parcel data in priority counties throughout the West, and acquire as much parcel data as possible to support analyses of and responses to wildfires. The project was also intended to foster coordination between the cadastral community and the wildland fire community to identify the cadastral data needs to support planning for, response to, and mitigation of wildfires. According to a 2007 report by the Cadastral Subcommittee, "... structures located within the wildland-urban interface comprise a very substantial portion of values commonly threatened by wildland fires. GIS parcel data from local and state government provide effective and accurate means to identify and map general structure locations with associated values." These data are used to provide rapid analyses and wildfire suppression strategies by quantifying the significant resource values most threatened by a fire. Following the very active 2007 fire season, the Cadastral Subcommittee observed that to increase the efficiency and sustainability of the effort, several changes were needed: increasing state-level participation and involvement to help build a single state contact for parcel information; merging the point-of-contact information with the 50-States Initiative into a single data and point-of-contact resource; expanding the use of pre-deployed parcel data to support other aspects of emergency response and reduce duplicative parcel inventory efforts; and obtaining federal assistance to work with states that work with counties to complete and standardize parcel data systems. The wildland fire project may represent an example of how making land parcel data available, from the local and state level through the federal level, could serve multiple stakeholders who benefit from access to the data. Whether this example can be expanded to all states susceptible to wildfires, or to the entire country in a multihazard approach, remains an open question. Energy Resources29 The FGDC Cadastral Subcommittee identified a need for accurate survey boundaries and land ownership information (i.e., land parcel information) for management of the life cycle of energy development from prospect to production to remediation. For western states, where much of the nation's onshore energy production from federal lands occurs, the Public Land Survey System (PLSS) is the primary cadastral framework, supported by BLM's Cadastral Survey Program and represented in a digital format by the Geographic Coordinate Data Base (GCDB). The Cadastral Subcommittee proposed a set of elements comprising an "energy core" set of information that could be provided by land parcel data producers in energy production areas—referenced to the cadastral framework of the GCDB—and could lend efficiency and accuracy at each stage of energy production activities: application, permit, monitoring, and reclamation activities. As with other applications, such as wildfire support, the Cadastral Subcommittee underscored the need to embrace and apply consistent cadastral framework standards to parcel data. In western states, energy resources are commonly exploited on a variety of lands: federally managed surface and subsurface lands; state, county, tribal, or privately owned lands; and split estates where the surface lands may be privately owned but the minerals are federally managed (or vice-versa). The Cadastral Subcommittee observed that "in all of these cases it is essential to build a seamless presentation of surface and subsurface ownership to correctly manage and exploit energy resources." It might be argued that similar needs arise for other parts of the country, such as parts of Pennsylvania, New York, and West Virginia, where exploration and development of potentially huge natural gas deposits in black shales (shale gas) is occurring. Also, if a system for limiting greenhouse gas emissions were to be imposed nationally or on a state-by-state basis, such as cap-and-trade or a carbon tax, then deployment of capture, transportation, and underground storage of carbon dioxide (CO 2 ) from industrial facilities could rapidly expand across states and across the nation. It may become important to employ geospatial techniques and GIS to efficiently manage all of the potential CO 2 reservoirs, and the land overlying the reservoirs, as well as the transportation routes from sources to injection sites. Efficient management of surface and subsurface lands and resources for CO 2 capture and storage may also benefit from the type of seamless presentation of land parcel data recommended by the Cadastral Subcommittee. Climate Change34 In addition to its potential application to CO 2 capture, transportation, and storage mentioned above, a national land parcel system could have other benefits related to mitigating climate change. If a scheme for reducing greenhouse gas emissions were imposed, legislatively or administratively at the national level, it could have far-reaching effects on the U.S. energy and economic infrastructure. It could be argued that measuring the effectiveness of an emissions-reduction program such as cap-and-trade or a carbon tax would depend, in part, on a precise understanding of the ecosystem, agricultural, forest, coastline, and other boundaries that are anticipated to change in response to climate change. Land parcel data potentially could be useful for evaluating changes to the boundaries of these systems, and for measuring the effectiveness of greenhouse gas reduction measures. In addition, some specific components of various cap-and-trade schemes, such as forestry offsets, would likely require a precise accounting of acreage used for offsets. Payments in Lieu of Taxes36 The Department of the Interior administers the Payments in Lieu of Taxes program (PILT), which compensates local governments for losses to their property tax bases due to the presence of federally owned land. Rather than authorize taxes on federal lands within a county, Congress has usually chosen to create various payment programs to compensate for lost tax revenue; PILT is one such program and it affects most acreage under federal ownership. One of the five steps required to calculate a payment under PILT is a tally of the number of eligible acres within a county, which could be one or more of nine different categories of federal lands. Because the amount of compensation is directly correlated to the number of eligible acres, an inaccurate tally of eligible acres could result in an inaccurate amount of compensation. Given that the eligible lands span multiple agencies within the federal government, some inconsistencies may exist among and between agencies in calculating eligible acreage. Resolving some of the issues raised by the NRC regarding a national land cadastre could help refine the calculation of acres eligible for inclusion in the PILT program. Administrative and Legislative Options Executive Order 12906 and Office of Management and Budget (OMB) Circular A-16 created the FGDC and instigated efforts to create the NSDI, which includes cadastral data as one of the seven fundamental themes. The FGDC designated BLM as the steward for the federal land parcel data and the coordinator of cadastral data generally, and BLM sponsors the FGDC Subcommittee for Cadastral Data. The Cadastral Subcommittee has made significant progress in establishing standards and coordinating cadastral data, according to the NRC. Some contend that data standards and specifications are no longer an issue or a barrier to implementation of a national land parcel database. In addition to administrative imperatives contained within EO 12906 and Circular A-16, legislation such as the E-Government Act of 2002 ( P.L. 107-347 ) contained provisions that specifically addressed reducing data redundancy and promoting collaboration and use of standards for government geographic information. Despite nearly 20 years of effort at coordinating geospatial information and land parcel data, however, the NRC observed: one could conclude that the United States has a comprehensive approach to parcel data. However, a detailed analysis of the situation suggests the opposite.... It is difficult to ascertain the status of parcel data within the various federal agencies, and it appears that none of the federal land management agencies have a comprehensive and complete parcel data set for the lands they manage.... There is also evidence that many federal agencies that do not manage lands are acknowledging that they need parcel data to fulfill their missions and, in the absence of a national means to access the data nationwide, are creating data sets to meet their particular needs, often without coordination with other federal agencies that may have needs for the same or similar data. Administrative Options OMB revised Circular A-16 in 2002 and added the OMB Deputy Director of Management as vice-chair of the FGDC to serve with the Secretary of the Interior. The revised leadership structure was seen, in part, as an attempt to improve the coordination and oversight of the participating agencies by giving OMB a defined role. Some argue, however, that OMB could take a stronger role in FGDC through more active enforcement. Thus, an administrative option for enforcing a national land parcel database, at least for the federal lands, is to enforce Circular A-16 more rigorously. This would likely mean that OMB would take a true oversight and coordination role and enforce compliance with A-16 through its power to affect the budgets of the participating departments and agencies. The National Geospatial Advisory Committee (NGAC) recommended this action, and further recommended a Geographic Information Officer within each department or agency with responsibility under FGDC. NGAC also recommended a geospatial leadership and coordination function in the Executive Office of the President, which would elevate the profile of the geospatial enterprise within the Administration and presumably signal a higher priority for coordinating geospatial activities in the federal government. The Obama Administration issued a memorandum on November 10, 2010, that was intended to provide supplemental guidance to the implementation of OMB Circular A-16. The supplemental guidance, if followed, could address some of the some of the issues raised in the NRC report about a national land parcel database, particularly regarding data sharing, coordination, and funding. The supplemental guidance labels geospatial data as a capital asset, and refers to its acquisition and management in terms analogous to financial assets to be managed as a National Geospatial Data Asset (NGDA) Portfolio. The supplemental guidance does not address the cadastral theme directly (nor does it address other themes directly), but sets forth its goal of a portfolio-centric model that "cures the single agency, stovepipe model by applying consistent policy, improved organization, better governance, and understanding of the public to deliver outstanding results." Moreover, the supplemental guidance recognizes that federal investments in geospatial data, which would include land parcel data, "were largely uncoordinated and often lacked transparency, and sometimes resulted in data deficiencies, lack of standardization, inefficient use of resources, lack of interoperability, or inability to share data." In addition to describing federal geospatial data in terms of an investment portfolio, the supplemental guidance also amplifies the roles and responsibilities for acquiring and managing geospatial data, such as land parcel data, within and among agencies, and between agencies and the FGDC and OMB. The supplemental guidance also lays out a process for managing geospatial assets within the annual budget cycle, calling it an annual investment review process that could give the agencies with geospatial assets a potentially more visible role in obtaining funding to acquire and manage geospatial data. The supplemental guidance notes that this process could increase the geospatial community's effectiveness by addressing a "disconnect" between agency chief financial officers and managers responsible for an agency's geospatial assets: The players traditionally active in the Federal agency budget formation process, most notably the agency CFO community, rarely have expertise in geospatial management or issues. At the same time, those with significant geospatial expertise rarely have a distinct role in the budget process. The fact that so much Federal geospatial spending is subsumed unidentifiably within other budget program budgets, and therefore opaque to the CFO community, is one reason for the disconnect. Whether and how the new guidance will affect how land parcel data is acquired, managed, and coordinated at a national level is not known yet. Legislative Options Legislation in the 112th Congress On April 15, 2011, Representative Kind introduced the Federal Land Asset Inventory Reform Act of 2011 ( H.R. 1620 ) to require the Secretary of the Interior to develop a multipurpose cadastre of federal "real property." The legislation defines cadastre as an inventory of "real property", and defines federal "real property" as land, buildings, crops, forests, or other resources still attached to or within the land; improvements or fixtures permanently attached to the land; or structures on it. The bill would require the Secretary to coordinate with the FGDC pursuant to OMB Circular A-16, integrate the activities under the legislation with similar cadastral activities of state and local governments, and participate in establishing standards and protocols that are necessary to ensure interoperability of the geospatial information of the cadastre for all users. Similar legislation was introduced in the House in the 111 th Congress and in previous Congresses. H.R. 1620 was referred to the House Natural Resources Committee, Subcommittee on Energy and Mineral Resources, but has not yet been acted upon by the subcommittee. Sensitive Information The National Geospatial Advisory Committee recommends revising "restrictive statutory language as it pertains to non-sensitive address data in Title 13 U.S. Code and to 'geospatial' data in Section 1619 of the 2008 Farm Bill." In Title 13, Congress delegates responsibility for conducting the decennial Census to the Secretary of Commerce. The law contains provisions for not disclosing or publishing private information that identifies an individual or business (Sections 9 and 214 of Title 13). The Census Bureau is forbidden to publish any private information—such as names, addresses, or telephone numbers—that identifies an individual or business. If a legislative proposal to amend portions of Title 13 was introduced to make geospatial data collected by the Census Bureau more accessible (e.g., for use in a national land parcel database), it could raise issues about the privacy of personal data collected by the federal government. The NRC recommended that Congress and the Bureau of the Census explore various policy options that would allow digital data on building addresses and geographical coordinates to be placed in the public domain while maintaining important privacy protections. (See NRC recommendation 6, below .) Section 1619 of the 2008 farm bill prohibits disclosure of geospatial information about agricultural land or operations when the information is provided by an agricultural producer or owner of agricultural land and maintained by the Secretary of Agriculture. Certain exceptions contained in that section apply to the prohibition. NGAC has taken the position that the statutory language could be revised to enhance the value of the geospatial data, which could then be included in a national land parcel database, while not compromising privacy. For example, the boundaries of fields could be separable elements of a database, not tied to proprietary information about program participation and payments. Boundary information, by itself, might be used for land use planning, conservation, resource management, or possibly other types of applications. Amending the E-Government Act Section 216 of P.L. 107-347 , the E-Government Act of 2002, calls for facilitating the development of common protocols for geographic information to promote collaboration and use of standards and to reduce redundancy among federal agencies. Authorization for appropriations under the act expired at the end of FY2007. If the E-Government Act were amended, Section 216 could be expanded to include language for a national cadastre, as proposed in H.R. 1520 , for designating Executive Office of the President level leadership for all federal geospatial activities, as recommended by NGAC, or for amending Title 13 of the U.S. Code to enable broader sharing of address data and its inclusion in a national land parcel database. NRC Recommendations for Integrated National Land Parcel Data As discussed above, the NRC found that a coordinated approach to a national land parcel database did not exist. In its report, the NRC made nine recommendations that it asserted could lead to a coordinated and integrated national approach to land parcel data. These nine recommendations are summarized and discussed briefly below: 1. Two new positions should be established: a federal land parcel coordinator and a national land parcel coordinator. The first would be responsible for federal lands and property; the second would coordinate parcel data from all sources, both public and private. NRC recognizes that BLM is one organizational choice to coordinate the federal land parcel data, and it could serve both roles, but other agencies are also candidates. The Department of Homeland Security (DHS), for example, could establish a national land parcel database as a homeland security issue. The General Services Administration (GSA) already provides services for all federal agencies. Likewise, the Census Bureau and HUD deal with property issues and need land parcel data to fulfill their missions. NRC recommended that a panel be established to recommend agency leadership. To date, no such panel has been established. 2. FGDC should identify the role of parcel data for the collection and maintenance of other data themes in the overall geospatial infrastructure: buildings and facilities, cultural resources, governmental units, and housing. NRC recommended a systematic review of how these themes would be managed if an integrated national parcel database existed. 3. The federal land parcel coordinator should develop a single database for land parcels managed by the federal government. This recommendation appears to call for the federal government to house and maintain a single database of federal property, as different from the national land parcel coordinator who would coordinate land parcel data from all sources, which may be housed and maintained in a variety of state, county, local, private, and other databases. 4. The national land parcel coordinator should develop and oversee a land parcel data business plan for the nation. NRC pointed to the lack of a coordinated federal program for parcel data. 5. The Office of the Special Trustee for Tribal lands should establish an Indian Lands Parcel Coordinator to develop a land parcel database for Indian trust parcels. NRC indicated that this could reduce redundancies and duplication of effort in mapping Indian lands, among other issues related to trust lands. 6. Congress and the Bureau of the Census should explore policy options, including amending Title 13 of the U.S. Code, to allow its digital data on building addresses and their geographic coordinates to be placed in the public domain while maintaining privacy protections. 7. The national land parcel coordinator should adopt the 50-States Initiative and require that each state formally establish a state parcel data coordinator. The 50-States Initiative was proposed by the National States Geographic Information Council to develop Statewide Spatial Data Infrastructures (SSDI) for each state. The 50-States Initiative would potentially enable coordination between geospatial data producers and consumers at all levels within the state, and allow the state to share geospatial data with the national geospatial structure envisioned as the NSDI. 8. The national land parcel coordinator should develop a plan for an intergovernmental funding program for the development and maintenance of parcel data. NRC recognized that the plan must provide financial incentives to local governments that produce and maintain the majority of the parcel data. Additionally, NRC stated that the program would require new funding in addition to existing funding for current federal programs that require parcel data. 9. Local and state governments should be required to make certain aspects of their parcel data available in the public domain, as a prerequisite for participating in federal geospatial programs. Challenges and Concerns Several challenges to a coordinated and integrated national approach to land parcel data have been identified, such as confidentiality, cost, collaboration and data sharing, and incentives for state and local governments to participate in a national cadastre. Of the range of potential challenges and concerns, the NRC concluded, the financial and technical issues are minor compared to the organizational and political ones. With thousands of counties or other governmental entities as potential producers of parcel data, the organizational issues are complex. It is not a simple task to assemble parcel data that span several counties or states. Overcoming organizational boundaries even among federal agencies has been difficult, as evidenced by the fact that there is no single inventory of federal lands. Several of the legislative and administrative options discussed above address organizational challenges, as do several of the nine NRC recommendations. The NRC also identified political challenges confronting a coordinated and integrated national approach to parcel data: " ... the lack of political will may be the most difficult hurdle of all." NRC lists a range of political challenges: Return on investment. Determining how to calculate the benefits and costs of creating a national approach to parcel data is difficult. NRC stated that the real benefits of a nationally integrated system accrue to groups larger than local government agencies seeking improved tax compliance or improved local government efficiency. NRC contended that a national system would result in reduced fraud, fairer tax assessments, more effective emergency management and response, improved economic development, and other benefits. Motivation at the local level. What does and could motivate local governments, which manage land parcel systems for local needs, to participate in a national program? According to the NRC, some local governments assume that a national system could never be as accurate as their own data, and that they also fear releasing information to the public domain that the local government paid for. Unfunded mandates. The NRC noted that local governments face many budget restrictions, and some distrust the forced sharing of data with nothing tangible in return. Private sector benefits. The NRC reported a widespread perception that many private firms are harvesting data collected by local governments for commercial gain, without any perceived benefits flowing back to the local government. Other local political realities. The NRC acknowledged that local political leaders may struggle with approving budget requests for large technical projects, such as county participation in a national effort to create an integrated land parcel database, especially when the benefits to the local government are not clear. Lastly, the NRC concluded that "With more than 3,000 counties, tribes, and other local government entities as potential producers of parcel data, the organizational issues are complex." Some of these concerns have been echoed by the National States Geographic Information Council (NSGIC); however, NSGIC also embraces the need for better coordination and for a national spatial data infrastructure, which would include a national land parcel component. The states are sensitive to being imposed upon by a federal program, however, and are more likely to work in partnership with the federal government. NSGIC recommends its 50-States Initiative to meet the needs of the states while also sharing land parcel data with the national program. The NRC also recommended that a national land parcel coordinator adopt the 50-States Initiative. The Western Governors' Association (WGA) has also supported federal, state, tribal, and local coordination of GIS activities and encouraged regional, state, and interstate data sharing. Further, WGA recognized that BLM is working with state and local governments to develop current and standardized digital representations of the Public Land Survey System and parcel data, and has referred to this collaboration as the Cadastral National Spatial Data Infrastructure (Cadastral NSDI). The Western Governors called on Congress to provide the funding necessary for BLM to complete, enhance, and maintain the Cadastral NSDI in coordination and partnership with state, tribal, and local governments. One estimate of funding to implement the WGA recommendation is $350 million over three years, followed by a smaller amount in each succeeding year to maintain and enhance a Cadastral NSDI.

The federal government's efforts to coordinate its geospatial activities, through the Federal Geographic Data Committee (FGDC) and the development of the National Spatial Data Infrastructure (NSDI), include a strong emphasis on land parcel data. Land parcel databases (or cadastres) describe the rights, interests, and value of property. Ownership of land parcels is an important part of the legal, financial, and real estate system of a society. The Department of the Interior's Bureau of Land Management (BLM) is assigned the role of lead agency coordinating land parcel data for federal lands, and is responsible for performing cadastral surveys on all federal and Indian lands. According to BLM, "Cadastral surveys are the foundation for all land title records in the United States and provide federal and tribal land managers with information necessary for the management of their lands." Although BLM is steward of federal land parcel data and coordinator for cadastral data under the FGDC, a 2007 National Research Council (NRC) report found that a coordinated approach to federally managed parcel data did not exist. Legislation that would address some of the issues for creating a national cadastre (H.R. 1620, the Federal Land Asset Inventory Reform Act of 2011) was introduced in the 112th Congress. Similar legislation was introduced in the 111th Congress but was not enacted. Coordinating all land parcel data, including that produced for local and regional needs on non-federal lands, remains a challenge. Why a national land parcel database? The National Geospatial Advisory Committee (NGAC) observed that the federal government's land parcel data is missing an arrangement for acquiring the detailed property-related data necessary to make decisions during times of emergency, such as a natural disaster. In addition to emergency response to disasters, other possible needs for a national land parcel database include responding to the home mortgage foreclosure crisis, dealing with wildfires, managing energy resources on federal lands, and dealing with the effects of climate change. Some individual federal programs could benefit from improved estimates of the number of acres of federal land, such as the Payments in Lieu of Taxes (PILT) program, which requires a precise tally of federal acres within counties in order to calculate federal payments to local governments. Administrative options have also been proposed to achieve the vision for a land parcel database described in the 2007 NRC report: a distributed system of land parcel data housed with the appropriate data stewards but accessible through a web-based interface. Some recommend that the Office of Management and Budget (OMB) and the Department of the Interior take a stronger hand in enforcing the requirements of OMB Circular A-16 and Executive Order 12906, which created the FGDC and instigated efforts to create the NSDI. NGAC also recommended a Geographic Information Officer within each federal department or agency, and a geospatial leadership and coordination function in the Executive Office of the President. The Obama Administration issued supplementary guidance to Circular A-16 on November 10, 2010, that could address some of the same of the issues raised in the NRC report, particularly regarding data sharing, coordination, and funding. The NRC recommended both a federal land parcel coordinator and a national land parcel coordinator. The first would be responsible for federal lands and property; the second would coordinate parcel data from all sources, both public and private lands. A truly national land parcel cadastre would likely require strong partnerships between the federal government and state and local governments.

Recent Developments On December 16, 2014, the President signed into law the Consolidated and Further Continuing Appropriations Act of FY2015 ( P.L. 113-235 ), which included $3.066 billion for the Department of Housing and Urban Development's Community Development Block Grant (CDBG) program and a $500 million loan commitment ceiling for the CDBG Section 108 loan guarantee program. FY2015 Appropriations The CDF account administered by the Department of Housing and Urban Development (HUD) includes the Community Development Block Grants (CDBG), and Section 108 loan guarantees. In addition, the CDF account has in the past included funding for Section 4 capacity building grants and the Administration's Sustainable Communities Initiatives, as well as other initiatives in support of the formula-based CDBG program. The CDBG program is the federal government's largest and most widely available source of financial assistance supporting state and local government-directed neighborhood revitalization, housing rehabilitation, and economic development activities. These formula-based grants are allocated to approximately 1,183 entitlement communities (metropolitan cities with populations of 50,000, principal cities of metropolitan areas, and urban counties); the 50 states; Puerto Rico; and the insular areas of American Samoa, Guam, the Virgin Islands, and the Northern Mariana Islands. Grants are used to implement plans intended to address housing, community development, and economic development needs, as determined by local officials. The Administration's Budget Request The Obama Administration's budget request for FY2015 included $2.870 billion for activities funded under HUD's CDF account. The requested amount represented 6.1% of the $46.7 billion in budget authority requested by the agency for FY2015. The Administration's FY2015 budget proposal would decrease total funding for CDF activities by $230 million from $3.100 billion in FY2014 to $2.870 billion. The proposed budget would decrease total funding for the CDF account and the CDBG formula grants by 7.6%, reducing funding for CDBG formula grants from $3.030 billion appropriated in FY2014 to $2.800 billion. The remaining $70 million requested by the Administration would be used to fund competitively awarded CDBG funds to Indian tribes. The budget proposal also requests funding, under separate HUD accounts, for Section 4 capacity building, Integrated Planning and Investment Grants (a component of the Administration's previously funded Sustainable Communities Initiative (SCI)), and Neighborhood Stabilization Program (NSP) activities under its Project Rebuild proposal. These activities were previously funded under the CDF account. Community Development Block Grants—Formula Grants Under the Administration's FY2015 budget proposal funding for the CDBG formula grants would have declined by $230 million from the amounts appropriated for FY2014. For FY2015, the Administration requested $2.800 billion for the CDBG formula component of the CDF account, including $1.955 billion for CDBG entitlement communities; $838 million for CDBG state administered program; and $7 million for insular areas. This was approximately 7.6% less than the amount appropriated for FY2014. The Administration also requested $70 million for Indian tribes, which was the same amount appropriated in FY2014. The Administration, when releasing its FY2015 budget request, noted that it planned to propose revisions and reforms to the program. According to the Administration's budget documents This legislative package will focus on reforms that strengthen the CDBG program; help grantees target funding resources to areas of greatest need; enhance program accountability; synchronize critical program cycles with the consolidated plan cycle; reduce the number of small grantees; and provide more options for regional coordination, administration, and planning. Regional coordination will allow grantees to achieve administrative savings and pool resources to make strategic investment decisions. The Administration, when submitting its FY2015 budget request, also identified proposed reforms to the program, including reducing the number of small grantees and reforming the program's allocation formula, but did not submit formal proposals. Integrated Planning and Investment Grants The Administration's FY2015 budget recommended $75 million in funding for Regional Integrated Planning and Investment Grants (RIPIG), a component of the Administration's Sustainable Communities Initiatives (SCI). For FY2015 the Administration requested an appropriation of $75 million to fund RIPIGs. This was the same amount requested, but not funded, in the FY2014 appropriations cycle. Although proposed as a freestanding program, program activities were previously funded under the CDF account. If funded, RIPIGs would have been competitively awarded to states, counties, metropolitan regions, and cities to support metropolitan-wide housing, transportation, economic development, energy, and land use planning. This was envisioned as a multi-agency initiative involving the Department of Transportation, the Environmental Protection Agency, and other federal agencies. The Administration did not submit a formal proposal or fully articulate how RIPIGs differed from previous Administration proposals that had been rejected by Congress. Neighborhood Stabilization Program: Project Rebuild The Administration again proposed the creation of Project Rebuild, a $15 billion program that would build upon the success of the Neighborhood Stabilization Initiative, created by Congress to assist the most impacted communities affected by the mortgage foreclosure crisis acquire, rehabilitate, demolish, and resell abandoned and foreclosed residential properties. The Administration proposed expanding the program to include commercial properties. Funds would have been allocated by formula to states and local governments and also would have been awarded competitively to states and local governments working collaboratively with non-profit and for-profit partners. Section 108 Loan Guarantees2 The CDBG Section 108 Loan Guarantee program (Section 108) allows states and entitlement communities to borrow up to five times their annual allocation for a term of 20 years through the public issuance of bonds to support large-scale economic development and housing projects. The Administration's budget proposed a loan commitment ceiling of $500 million in FY2015. FY2015 marked the first year the program charged a fee to access the program rather than provide a credit subsidy. The fee-based requirement to access the program, which was first floated by the Administration in its FY2010 budget request, was not approved by Congress until the FY2014 appropriations. On February 5, 2015, HUD published two notices regarding the Section 108 fees in the Federal Register . The first of the two established a fee of 2.42% of the principal obligation of the loan, which will be applied to Section 108 loan disbursements during FY2015. The fee will be charged after available credit subsidies have been depleted. The second notice included proposed rules that would govern the levying of fees when appropriations for credit subsidies are not available or insufficient in future years. The department set March 9, 2015, as the due date for comments on the proposed regulation. House-Passed Bill (H.R. 4745) On June 10, 2014, the House approved H.R. 4745 , the Departments of Transportation, and Housing and Urban Development, and Independent Agencies Appropriations Bill for FY2015 (THUD). The House-passed bill ( H.R. 4745 ) recommended $3.060 billion for activities funded under the CDF account, including $3.0 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was $30 million (1%) less than the $3.030 billion appropriated in FY2014 for formula grants, $200 million (7%) more than requested by the Administration and $20 million (0.7%) less than recommended by the Senate bill, S. 2438 . The bill would have appropriated $10 million less than the $70 million recommended by the Senate bill and requested by the Administration for Indian tribes. During floor consideration of the bill, the House approved an amendment ( H.Amdt. 828 ) that would have prohibited HUD from terminating the CDBG entitlement status of any community. The provision was an effort to protect the entitlement status of communities that may no longer meet statutory requirements for a direct formula-based allocation since it is anticipated that the Administration will seek statutory changes in the program eligibility requirements that would have the net effect of reducing the number of entitlement communities. H.R. 4745 did not include funds to support a new round of funding for Integrated Planning Grant activities. The House bill did include language supporting the conversion of Section 108 loan guarantees to a fee-based structure and recommended a loan guarantee ceiling of $500 million. The bill would have funded Section 4 (Capacity Building for Community Development and Affordable Housing) under a separate, stand-alone account and not as a component of the CDF account, or its current account, the Self-Help Homeownership Opportunity Program account. Senate Appropriations Committee-Passed Bill (S. 2438) On June 5, 2014, the Senate Appropriations Committee reported its version of the THUD Appropriations Bill for FY2015, S. 2438 . The Senate Committee-passed bill ( S. 2438 ) recommended $3.090 billion for activities funded under the CDF account, including $3.020 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was $10 million less than the $3.030 billion appropriated in FY2014 for formula grants and $220 million more than requested by the Administration. S. 2438 supported the Administration's $70 million funding request for Indian tribes, including a set-aside of $10 million in grant funds for mold remediation and prevention in Indian housing. The bill also supported a loan commitment ceiling of $500 million for the Section 108 loan guarantee program and recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $35 million appropriation level. The bill did not support the Administration's request to transfer the Section 4 program from its current account, the Self-Help Homeownership Opportunity Program account, to a new stand-alone account; nor did the bill recommend funding the Administration's Neighborhood Stabilization Initiative proposal. The bill included a provision that would have prohibited a community from exchanging or transferring its CDBG allocation to another community in exchange for non-CDBG funds. The provision was intended to stop the practice, most prevalent in Los Angeles County, of affluent communities, such as Beverly Hills, not participating in the county's CDBG program. In addition, the report ( S.Rept. 113-182 ) accompanying the bill included language directing HUD to establish a demonstration program, using $2 million in CDBG funds, to develop best practices database that would aid communities in expediting their post-disaster recovery efforts. Consolidated and Further Continuing Appropriations Act, 2015, P.L. 113-235 On December 16, 2014, the President signed into law the Consolidated and Further Continuing Appropriations Act ( P.L. 113-235 ), which included appropriations for the Department of Housing and Urban Development (HUD). The bill appropriated $45.4 billion in gross discretionary appropriations, including $3.66 billion for CDBG activities. Of the amount appropriated $3 billion is to be allocated to CDBG formula grants to states ($898 million), entitlement communities ($2.095 billion), and insular areas ($7 million). The act also set aside $66 million for the Indian CDBG (ICDBG) program. The $3 billion CDBG formula grants appropriation represents a 7% increase above the Administration's request and a 1% decline below the $3.030 billion appropriated for FY2014. The $3 billion appropriated for CDBG formula grants is the same amount recommended by the House bill, $20 million less than recommended by the Senate Committee-passed bill, $30 million less than appropriated for the previous year's activities, but $200 million more than requested by the Administration. The act appropriates $4 million less for the ICDBG program than appropriated in FY2014. Of the amount set aside for ICDBG projects, $6 million was to be made available to undertake mold remediation and prevention in Indian housing. P.L. 113-235 also supported a fee-based loan commitment ceiling of $500 million for the CDBG Section 108 loan guarantee program. In addition, the act continued funding of capacity building activities, but under a separate account, including $35 million for Section 4 activities (Capacity Building for Community Development and Affordable Housing) to be carried out by the following national organizations: Local Initiative Support Corporation, Enterprise Foundation, and Habitat for Humanity; and an additional $5 million for capacity building by national rural housing organizations. P.L. 113-235 did not support the Administration's request to transfer the Section 4 program from its current account, the Self-Help Homeownership Opportunity Program account, to a new stand-alone account; nor did the act appropriate funding for the Administration's Neighborhood Stabilization Initiative proposal. The act also included CDBG-related provisions included in House or Senate bills, including a provision prohibiting a community from exchanging or transferring its CDBG allocation to another community in exchange for non-CDBG funds, and provisions prohibiting the use of CDF funds for Economic Development Initiative and Neighborhood Initiative projects. Last funded in FY2010, these are two programs that had been used exclusively for congressional earmarks. In addition, FY2015 CDF appropriations were not to be used to fund projects under the Rural Innovation Fund, or discretionary activities authorized under 42 U.S.C. §5307 of the CDBG program's authorizing statute (for special purpose grants as defined in that section). FY2014 Appropriations The Administration's Budget Request The Obama Administration's budget request for FY2014, released on April 10, 2013, included $3.143 billion for activities funded under HUD's CDF account. The requested amount represented 6.6% of the $47.6 billion in budget authority requested by the agency for FY2014. The Administration's FY2014 budget proposal would have increased total funding for CDF activities by a modest $8 million from $3.135 billion in FY2013 to $3.143 billion. Although the proposed budget would have marginally increased total funding for the CDF account it would have reduced funding for CDBG formula grants by $280 million to $2.798 billion. It would have redirected most of the $280 million to two other activities within the CDF account: $75 million for regional planning grants; and $200 million for a new Neighborhood Stabilization Initiative intended to assist local governments in identifying and demolishing an oversupply of abandoned and foreclosed properties. The budget proposal also requested funding for Section 4 capacity building activities under a separate HUD account. Community Development Block Grants—Formula Grants Under the Administration's FY2014 budget proposal funding for the CDBG formula grants would have declined by $280.1 million from the amounts appropriated for FY2013. For FY2014, the Administration requested $2.798.1 billion for the CDBG formula component of the CDF account, including $1.954 billion for CDBG entitlement communities; $837 million for CDBG state administered program; and $7 million for insular areas. This was approximately 9% less than the amount appropriated for FY2013. The Administration also requested $70 million for Indian tribes, which was approximately $13 million (22.8%) more than the amount appropriated in FY2013. Sustainable Communities Initiatives (SCI) The Administration's FY2014 budget recommended reinstating funding for Regional Integration Planning Grants, a component of the Administration's Sustainable Communities Initiatives (SCI). The SCI is a set of planning-oriented grants first proposed by the Obama Administration in its FY2010 budget and initially funded at $150 million. The programs were not funded in FY2012 or FY2013. For FY2014 the Administration requested an appropriation of $75 million to fund the SCI's regional Integrated Planning Grants (IPGs). The Administration noted that IPGs, if funded, would be competitively awarded to 20 to 30 states, counties, metropolitan regions, and cities to support efforts to develop effective models that would integrate the planning requirements of various disciplines critical to the development of sustainable communities. This was to be done in collaboration with the Department of Transportation (DOT), the Environmental Protection Agency (EPA), and other federal agencies. Grant awards would have focused on metropolitan-wide housing, transportation, economic development, energy, and land use planning. The Administration's FY2014 budget did not include funding requests for other components of the SCI that were funded in previous years, including Community Challenge Grants (CCG). Approximately $30 million was appropriated for CCG activities for FY2011, the last year SCI activities were funded. Funds were competitively awarded to selected communities to reform existing building codes, land use, and zoning ordinances with the goal of promoting sustainable growth and discouraging inefficient land use patterns. These funds were awarded to individual communities to assist them in developing local complement to the larger regional integration planning grants. Congress has not funded SCI activities since FY2011, and the report ( H.Rept. 112-541 ) accompanying the House version of the FY2012 THUD appropriations measure ( H.R. 5972 , 112 th Congress) noted that the SCI was unauthorized and did not have the support of the committee of jurisdiction, the House Financial Services Committee. Instead, the bill recommended just over $2 million in HUD's Management and Administration account for activities related to the closeout and evaluation of previously awarded SCI awards. Neighborhood Stabilization Initiative In response to the mortgage foreclosure crisis that began to unfold in 2007, Congress passed a series of measures intended to assist states and local governments address the growing inventory of abandoned and foreclosed residential properties. In 2008, Congress passed the Housing and Economic Recovery Act of 2008 (HERA), P.L. 110-289 , which created the Neighborhood Stabilization Program (NSP). Using the administrative framework of the Community Development Block Grant (CDBG) program, a total of $3.92 billion in NSP-1 funds was allocated to 309 recipients, including all 50 states, Puerto Rico, insular areas, and qualified local governments. Funds were awarded by formula based on a state or locality's concentration of foreclosed homes, subprime mortgage loans, and delinquent home mortgages. NSP funds may be used to assist local governments, working with nonprofit and for-profit entities, acquire, resell, demolish, and finance abandoned and foreclosed properties in an effort to revitalize neighborhoods, stabilize home values, and provide homeownership opportunities for moderate and low income households. Funds may also be used for land banking activities. Since the passage of HERA, Congress appropriated an additional $3 billion in NSP funds to assist state and local governments acquire, rehabilitate, demolish, and resell the inventory of abandoned and foreclosed residential properties. In 2009, Congress appropriated $2 billion for NSP-2 activities when it passed the American Recovery and Reinvestment Act, P.L. 111-5 . Unlike NSP-1, which was awarded by formula, NSP-2 funds were awarded competitively and included non-profit and for-profit entities as direct recipients of funds when teamed with a state or local government. In 2010, Congress appropriated $1 billion for a third round of funding (NSP-3) under the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203 . The act also used a formula to award funds to state and qualifying local governments with high concentrations of foreclosed homes, subprime mortgages, and delinquent or defaulted residential mortgages. Despite the success of the NSP program a significant inventory of abandoned and foreclosed properties persists in some communities. The Obama Administration's FY2014 budget request included a proposal requesting an additional $200 million in NSP funds. These funds (NSP-4) would have been awarded competitively to states, local governments, and state housing finance agencies. Funds would have been targeted to the hardest hit areas with large concentrations of vacant, foreclosed, abandoned, and blighted homes. Grantees would have been required to demonstrate need and the capacity to leverage other funds. The proposal would have allowed funds to be used for activities such as acquisition, demolition, clearance, and land banking. Section 108 Loan Guarantees The CDBG Section 108 Loan Guarantee program (Section 108) allows states and entitlement communities to collateralize their annual CDBG allocation in an effort to attract private capital to support economic development activities, housing, public facilities, and infrastructure projects. Communities may borrow up to five times their annual allocation for a term of 20 years through the public issuance of bonds. The proceeds from the bonds must be used to finance activities that support job creation and that meet one of the national goals of the CDBG program. The activity must principally benefit low or moderate income persons, aid in preventing or eliminating slums or blight, or address an urgent threat to residents. Each community's current and future annual CDBG allocation serves as security in case of default. Financing is pegged to yields on U.S. Treasury obligations of similar maturity to the principal amount. The Administration's budget proposed doubling the program's loan commitment ceiling from $229 million in FY2013 to $500 million in FY2014. The Administration's budget justification noted that, given the continued difficulties in the credit markets, the proposed increase in funding would help local governments finance large-scale job creation activities. In addition to an increase in the loan commitment ceiling, the Administration proposed revamping the program by charging a fee-based assessment to borrowers accessing the program, which would eliminate the need for an appropriated credit subsidy. The HUD proposal would have allowed loan guarantee borrowers to fold the proposed fee into the loan guarantee amount or would have allowed CDBG funds to be used to pay the proposed fee. This proposal was first made by the Administration in its FY2010 budget request, but it has been rejected by Congress in the succeeding budget years in favor of maintaining the status quo. Senate Appropriations Committee Bill (S. 1243) On June 27, 2013, the Senate Appropriations Committee reported S. 1243 , a bill that recommended appropriations for the Departments of Transportation and Housing and Urban Development and Related Agencies for FY2014. The bill recommended $3.295 billion for activities funded under the CDF account, including $3.150 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was 7% more than the $3.078 billion appropriated in FY2013 for formula grants, excluding the $15.2 billion in disaster-related supplemental funding for FY2013. S. 1243 supported the Administration's $70 million funding request for Indian tribes, including a set-aside of $10 million in grant funds for mold remediation and prevention in Indian housing. The bill recommended full funding ($75 million) for the Administration's Integrated Planning Grants, which has not been funded since FY2011. As reported by the Senate committee, the bill also supported the Administration's budget request calling for the conversion of Section 108 loan guarantees to a fee-based program, and an increase in the program's loan guarantee commitment to $500 million for FY2014 from the $229 million approved for FY2013. The Senate committee bill recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $35 million appropriation level, but did not support the Administration's request to transfer the program from its current account, the Self-Help and Homeownership Opportunity account, to a new stand-alone account. The Senate bill did not include language supporting an Administration proposal that would have established a minimum CDBG allocation. The report ( S.Rept. 113-45 ) accompanying the bill directed HUD to encourage communities that receive small awards to enter into joint grant agreements with their urban counties as a means of achieving administrative efficiencies. The bill did not include funding for the Administration's Neighborhood Stabilization Initiative (NSI) proposal. House Bill (H.R. 2610) The House Appropriations Committee reported the THUD Appropriations Act for FY2014 on July 2, 2013. The bill, H.R. 2610 , as reported by the committee, recommended $1.697 billion for activities funded under the CDF account, including $1.637 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was 47% less than the $3.078 billion appropriated in FY2013 for formula grants and 48% less than recommended in the Senate bill, S. 1243 . H.R. 2610 would have appropriated $10 million less than the $70 million recommended by the Senate or requested by the Administration for Indian tribes. On June 30, 2014, the House began floor consideration of the bill. During floor consideration of the bill, the House approved, by voice vote, an amendment ( H.Amdt. 432 ) that would have increased funding for CDF activities by $350 million to $2.047 billion. Unlike the Senate committee bill, H.R. 2610 did not include a set-aside of CDBG funds to support a new round of funding for Integrated Planning Grant activities. Nor did the bill include funding for the Administration's NSI proposal or language that would have supported changes in the way CDBG funds are distributed, including the establishment of a minimum grant amount. The House bill did include language supporting the Administration's budget request calling for the conversion of Section 108 loan guarantees to a fee-based structure. H.R. 2610 recommended a loan guarantee ceiling of $500 million. H.R. 2610 also recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $15 million appropriation level, which was $18 million less than appropriated in FY2013 and $20 million less than recommended by the Senate. The committee did not support the Administration's request to transfer the program from its current account, the Self-Help Homeownership Opportunity Program account. Consolidated Appropriations Act, FY2014, P.L. 113-76 On January 17, 2014, President Obama signed the Consolidated Appropriations Act for FY2014, P.L. 113-76 , which includes $3.100 billion in funding for the Community Development Fund. Of the total amount appropriated for CDF activities $3.030 billion was appropriated for formula-based Community Development Block Grants (CDBG) to be allocated to CDBG entitlement communities, states, and insular areas. The act also appropriated $70 million in CDBG competitively awarded funds to Indian tribes. The $3.1 billion appropriated for CDF activities is $1.403 billion (82.7%) more than the $1.697 million recommended in H.R. 2610 , as reported by the House Appropriations Committee on July 2, 2013; it is $195 million (6.2%) less than the $3.295 recommended by the Senate; and $43 million (1.4%) less than the $3.143 million requested by the Administration. P.L. 113-76 did not include funding for the Administration's Neighborhood Stabilization Initiative and Regional Integration Planning Grants. Nor did the act include language supporting the Administration's proposal that would have established a minimum CDBG allocation. The act does continue funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at $35 million, but does not support transferring the program from its current account, the Self-Help and Homeownership Opportunity account, to a new stand-alone account, as requested by the Administration. Section 108 Loan Guarantees Most significantly, P.L. 113-76 directs HUD to convert Section 108 loan guarantees to a fee-based, zero-subsidy program as requested by the Administration and recommended in the House committee bill, H.R. 2610 . As noted in the explanatory statement accompanying H.R. 3547 ( P.L. 113-76 ) HUD is directed to develop rules governing the imposition of a fee-based assessment to borrowers accessing the program, which would eliminate the need for an appropriated credit subsidy. In the interim, prior to the publication of a final rule implementing a fee-based, zero-subsidy Section 108 loan guarantee program, HUD is directed to use up to $3 million in budget authority appropriated under P.L. 113-76 and any available budget authority provided in prior years to support Section 108 loan guarantees. Upon publication of a final rule, any fees collected from borrowers are to be used to subsidize a total loan principal not to exceed $150 million in Section 108 loan guarantees. FY2013 Appropriations The Administration's FY2013 Budget Request The Obama Administration's budget request for FY2013, released on February 13, 2012, included $3.143 billion for activities funded under the Department of Housing and Urban Development's Community Development Fund (CDF) account. The requested amount represented 8.9% of the $35.347 billion in total discretionary budget authority requested by the agency for FY2013. The Administration's FY2013 budget proposal would have increased total funding for CDF account activities by 4.5% or $135 million. This increase in funding would have been achieved by reinstating funding for the Administration's regional planning initiative and by transferring funding for Section 4 capacity building activities from another HUD account. Specifically, the Administration requested $100 million in funding for its Sustainable Communities Initiative (SCI), which received no funding in FY2012, but had an appropriation of $99 million in FY2011. In addition, the Administration's budget request would have transferred funding for the Capacity Building for Community Development and Affordable Housing (Section 4) program, which was funded at $35 million in FY2012, from the Self-Help Housing Assistance account to the CDF account. Community Development Block Grants—Formula Grants Under the Administration's FY2013 budget proposal funding for the CDBG formula grants would have remained unchanged from the amounts appropriated for FY2012. For FY2013, the Administration requested $2.948.1 billion for the CDBG formula component of the CDF account, including $2.059 billion for CDBG entitlement communities; $882 million for CDBG state administered program; and $7 million for insular areas. The Administration also requested $60 million for Indian tribes. These are approximately the same amounts that were appropriated for FY2012. Sustainable Communities Initiatives (SCI) The Administration's FY2013 budget recommended reinstating funding for SCI program activities. These programs did not receive funding in FY2012, but were funded at $99 million in FY2011. The SCI is a set of regional planning-oriented grants first proposed by the Obama Administration in its FY2010 budget and funded at $150 million. For FY2013 the Administration requested an appropriation of $100 million. Funds would have supported SCI's three components: Regional Integrated Planning Grants . $46 million would have been competitively awarded to regional organizations in up to 25 metropolitan areas to support efforts to develop effective models that would integrate the planning requirements of various disciplines critical to the development of sustainable communities. This would be done in collaboration with the Department of Transportation (DOT), the Environmental Protection Agency (EPA), and other federal agencies. Grant awards would focus on metropolitan-wide housing, transportation, economic development, energy, and land use planning. Community Challenge Grants . $46 million would have been competitively awarded to up to 50 communities to reform existing building codes, land use, and zoning ordinances with the goal of promoting sustainable growth and discouraging inefficient land use patterns. These funds were to be awarded to individual communities to assist them in developing local complement to the larger regional integration planning grants. Housing-Transportation Integration Research . $8 million would have been set aside for a joint HUD, DOT, and EPA research initiative that sought to quantify and evaluate the benefits and trade-offs of various efforts. A portion of these funds would have been used to evaluate the long-term benefits of Regional Integrated Planning Grants and Community Challenge Grants. In addition, the Administration requested that $3 million be set aside to provide technical support for the development of: 1. a residential energy modeling system allowing HUD to estimate costs and saving that may be achieved with energy-oriented retrofits of HUD public and assisted housing; 2. common energy standards that would apply to new construction, substantial or moderate rehabilitation, and energy retrofits; and 3. sources of utility and other private sources of funds that could be tapped to finance energy efficiency improvements. Section 108 Loan Guarantees The Administration's budget proposed doubling the program's loan commitment ceiling from $240 million in FY2012 to $500 million in FY2013. The Administration's budget justifications noted that, given the continued difficulties in the credit markets, the proposed increase in funding will help local governments finance large-scale job creation activities. In addition to an increase in the loan commitment ceiling, the Administration proposed revamping the program by charging a fee-based assessment to borrowers accessing the program, which would have eliminated the need for an appropriated credit subsidy. Senate Appropriations Committee Bill (S. 2322) On April 19, 2012, the Senate Appropriations Committee reported S. 2322 , a bill recommending appropriations for the Departments of Transportation and Housing and Urban Development and Related Agencies for FY2013. The bill recommended $3.210 billion for activities funded under the CDF account, including $3.100 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was 5% more than the $2.948 billion appropriated in FY2012 for formula grants, excluding the $400 million in disaster related supplemental funding for FY2012. The bill recommended restoring funding for SCI activities. As reported by the committee, the bill recommended an appropriation of $50 million for SCI activities. This was half the amount requested by the Administration. In addition, the bill would have required HUD to allocate $12.5 million of the amount appropriated to SCI in communities with populations of less than 500,000. The bill also supported the Administration's budget request calling for the conversion of Section 108 loan guarantees to a fee-based program and increasing the loan guarantee commitment to $500 million for FY2013 from the $240 million approved for FY2012. The Senate committee bill recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $35 million appropriation level, but did not support the Administration's request to transfer the program from its current account, the Self-Help and Homeownership Opportunity account. House Bill (H.R. 5972) The House Appropriations Committee reported the Transportation and Housing and Urban Development and Related Agencies Appropriations bill on June 20, 2012. The bill, H.R. 5972 , recommended $3.404 billion for activities funded under the CDF account, including $3.344 billion for CDBG formula grants awarded to states, entitlement communities, and insular areas. This was 13% more than the $2.948 billion appropriated in FY2012 for formula grants and 8% more than recommended in the Senate bill, S. 2322 . Like its Senate counterpart, H.R. 5972 supported the Administration's $60 million funding request for Indian tribes. Unlike the Senate committee bill, H.R. 5972 did not include a set-aside of CDBG funds to support a new round of funding for SCI activities. Instead, the bill recommended just over $2 million in the Management and Administration account for activities related to the closeout and evaluation of previously awarded SCI awards. The report accompanying the bill noted that the program was unauthorized and did not have the support of the committee of jurisdiction, the House Financial Services Committee. The House bill did not support the Administration's budget request calling for the conversion of Section 108 loan guarantees to a fee-based structure. H.R. 5972 recommended $6 million in loan subsidies to support a loan guarantee ceiling of $244 million. Consistent with the provisions included in the Senate bill, H.R. 5972 also recommended continued funding of Section 4 (Capacity Building for Community Development and Affordable Housing) activities at the $35 million appropriation level. It did not support the Administration's request to transfer the program from its current account, the Self-Help Homeownership Opportunity Program account. The full House began floor consideration of the bill on June 27, 2012. During floor debate on the bill several amendments were introduced calling for funding reductions or elimination of the CDBG and Section 108 loan guarantee programs. None of them were approved. H.Amdt. 1333 proposed reducing funds for salaries and expenses in the Community Planning and Development account by $3.5 million and was defeated by a vote of 178-240; H.Amdt. 1341 proposed reducing the House committee recommendation for the CDF by $396 million to its FY2012 funding level and was defeated by a vote of 157-267; H.Amdt. 1342 recommended eliminating funding for the CDF and was defeated by a vote of 80-342; and H.Amdt. 1344 recommended eliminating funding for the Section 108 loan guarantee program and was defeated by a vote of 123-300. A fifth amendment ( H.Amdt. 1348 ) that would have allowed a higher percentage of Neighborhood Stabilization Program funds to be used for demolition activities was challenged on a point of order. The point of order was sustained by the chair, who ruled that the amendment sought to change existing law and thus constituted legislation in an appropriation bill. FY2013 Appropriations, P.L. 113-6 The 112 th Congress began, but did not complete, consideration of appropriation measures that would have provided full year funding for the Departments of Transportation and Housing and Urban Development and Related Agencies for FY2013, before adjourning. On September 28, 2012, the President signed into law, as P.L. 112-175 , a continuing resolution ( H.J.Res. 117 ) funding government agencies—including HUD—at 0.612% above their FY2012 levels, through March 27, 2013. The 113 th Congress took up the task of completing the FY2013 appropriations process. On March 6, 2013, the House approved H.R. 933 , a bill providing full-year, government-wide appropriations for FY2013. The bill proposed continuing funding for the CDF account, including CDBG formula grants, at the FY2012 levels, reduced by an across-the-board rescission of .098% and proposed maintaining the funding reductions imposed by the sequester. On March 20, 2013, the Senate passed a substitute amendment to the House-version of H.R. 933 . The bill recommended FY2013 funding levels for most programs and activities, including CDBG, at FY2012 levels minus a 0.2% across-the-board rescission. The Senate passed version of the bill, like its House counterpart, maintained the funding reductions imposed by the March 1, 2013, sequester. On March 21, 2013, the House agreed to the Senate version of H.R. 933 . On March 26, 2013, the President signed into law P.L. 113-6 , the Consolidated and Further Continuing Appropriations Act, 2013. P.L. 113-6 appropriated $3.1 billion for CDF activities, including $3.078 billion for CDBG formula grants to states and entitlement communities and $57 million for Indian tribes. The $3.078 billion allocated by formula grants to entitlement communities and states represented a 4.4% increase above the $2.948 billion allocated to formula grants in FY2012. CDBG Disaster Supplemental Assistance, P.L. 113-2 During the first weeks of the 113 th Congress, the House and Senate considered and passed H.R. 152 , a FY2013 disaster supplemental appropriations bill to support disaster relief and recovery activities for victims of Hurricane Sandy and other disasters occurring in 2011, 2012, and 2013. The measure, which was signed into law as P.L. 113-2 by the President on January 29, 2013, included $16 billion for HUD, all allocated to the CDF, and subject to sequestration under the Budget Control Act, as amended. Of the $16 billion appropriated for CDBG activities, P.L. 113-2 transferred $10 million to the Office of the Inspector General for oversight and auditing activities. Consistent with the Administration's request, P.L. 113-2 included a $10 million set aside for salaries and expenses to be used to fund technical assistance and cover the costs incurred by HUD's Office of Community Planning and Development (OCPD) in administering CDBG disaster funds. The act allows HUD to distribute CDBG disaster funds appropriated under the act to the most impacted and distressed areas affected by Hurricane Sandy and other eligible disaster events occurring during calendar years 2011, 2012, and 2013. P.L. 113-2 included several terms and conditions that vary from the rules governing the regular CDBG program. These can be grouped into three broad areas governing the submission and content of disaster plans, allocation and use of funds, and waiver authority. P.L. 113-2 : directed HUD to promulgate regulations governing the distribution and use of funds within 45 days after passage of this act, including establishing minimum allocations for CDBG grantees; required states and local government grantees to submit, and for HUD to approve, disaster plans before CDBG disaster funds may be obligated; required that a grantee's disaster plans articulate how proposed activities will support long-term recovery efforts; required HUD to certify that state and local government grantee disaster plans include adequate financial controls and procurement processes that would prevent duplication of benefits; prevent waste, fraud, and abuse; and encourage timely expenditure of funds; and directed HUD to allocate one-third of CDBG disaster appropriations provided in the bill to states and local government grantees within 60 days after passage of the bill. P.L. 113-2 also established conditions and terms for the use of funds, including allowing grantees to use up to 5% of their CDBG disaster grant allocation for administrative expenses; prohibiting grantees from contracting out the responsibility for administering the CDBG disaster programs; requiring grantees to include performance requirements and penalties when eligible activities are undertaken through the use of contractors or procurement services; prohibiting disaster funds from being used for activities that are reimbursable by, or made available by, FEMA or the Army Corps of Engineers; requiring grantees to maintain a publicly accessible website identifying how all grant funds are used, including information on contracting and procurement processes; and holding harmless a state or community's regular CDBG allocation by ensuring that the amount of such funds awarded to grantees would not be affected by CDBG disaster-assistance allocations. Finally, P.L. 113-2 granted HUD broad authority to waive or establish alternative program requirements, except for provisions governing fair labor standards, fair housing, civil rights, and environmental review. However, P.L. 113-2 included two exceptions related to environmental review requirements. Specifically, it allowed CDBG disaster fund grantees who use their funding to meet certain FEMA matching requirements to adopt, without public review, environmental reviews performed by other federal agencies. In cases where a grantee has already performed an environmental review or the activity or project is excluded from an environmental review, P.L. 113-2 explicitly allowed for the expedited release of funds. The law also allowed HUD to reduce, from 70% to 50%, the percentage of funds that must be targeted to activities benefiting low and moderate income (LMI) persons, and allows HUD to reduce the LMI-targeting requirement below 50% only if the grantee can demonstrate a compelling need. Sequestration Impact on FY2013 Appropriations The Budget Control Act of 2011 (BCA, P.L. 112-25 ) established discretionary spending limits for FY2012-FY2021. Signed into law on August 2, 2011, the BCA required a Joint Select Committee on Deficit Reduction to develop a federal deficit reduction plan for enactment by January 15, 2012. Congress and the President failed to reach agreements on a deficit reduction plan by that date, which triggered automatic spending reductions consisting of a combination of budget sequestration and lower discretionary spending caps. Under the sequestration process for FY2013 mandated by the BCA, the Office of Management and Budget (OMB) was required to implement across-the-board spending cuts to achieve budget reductions from both defense and nondefense funding. On January 2, 2013, the President signed the American Taxpayer Relief Act, P.L. 112-240 , (ATRA), which averted scheduled income tax rate increases and postponed spending reductions required by the sequestration process. The ATRA made a number of changes to the BCA, including changing the date the FY2013 sequester was to be implemented to March 1, 2013. On March 1, 2013, President Obama ordered sequestration as mandated by the Budget Control Act of 2011 ( P.L. 112-25 ), as amended. According to the Office of Management and Budget, sequestration has resulted in an $85 billion reduction in FY2013 discretionary spending, including a 5% ($965 million) reduction in funding for CDF activities. The $965 million identified in the OMB document includes $800 million reduction in the $16 billion for CDBG disaster relief and $165 million reduction in the $3.308 billion in CDF FY2013 regular appropriations. Impact and Implications of Reduced Funding The FY2013 appropriations for the formula-based components of the CDBG program (entitlement communities and states, and insular areas) totaled $3.078 billion, which was approximately 6.8% ($225 million) less than the $3.303 billion appropriated for FY2011. For FY2012, the CDBG allocations awarded to entitlement communities and states totaled $2.948 billion. This represented 10.7% ($355 million) less than the amount allocated in FY2011. The reductions in appropriations for formula grant activities from FY2011 to FY2013 resulted in the average grant amount for entitlement communities declining from $2 million in FY2011 to $1.8 million in FY2013. This was a 10.1% reduction in the average grant amount awarded to entitlement communities (see Table 4 ). Although the recent reductions in CDBG funding represented a decline in resources available to support local community and economic development activities, they were less than the 45% reduction proposed in the FY2014 Departments of Transportation and Housing and Urban Development Appropriations Act, H.R. 2610 . According to the U.S. Conference of Mayors and other organizations representing state and local governments, the proposed reduction in funding included in H.R. 2610 would have significantly impacted the long-term community and economic development plans of the states and local governments, forcing them to postpone or terminate activities that support private sector economic development and job creation efforts, public facilities, and public services. The proposed funding reduction included in H.R. 2610 also would have undercut the resources of non-profit organizations serving as CDBG sub-grantees according to the CDBG Coalition. These entities are involved in managing a range of CDBG-funded public services, facilities, and activities, including homeless shelters, public safety activities, and job counseling. Supporters of the CDBG program contend that the reduction in funding disproportionately affects low and moderate income households given the statutory requirement that communities allocated at least 70% of the program's funds to activities principally benefitting low and moderate income persons. The FY2012 appropriations for the formula component of the CDBG program were the lowest amount appropriated in more than a decade. The reduction in funding for entitlement communities reportedly resulted in entitlement communities delaying some projects and reducing support for others, including activities undertaken by community-based organizations acting as sub-grantees. Legislative Options The decline in average funding is a result of both lower appropriations and an increase in the number of communities qualifying for entitlement status. The average state allocation declined by 25.4%, from $19.42 million in FY2011 to $18.1 million for FY2013, while the number of entitlement communities increased from 1,168 to 1,183 during the same period. Given the current desire to address both the national debt and deficit spending, Congress is unlikely to provide funds that would restore CDBG funding to significantly higher levels. Short of appropriating additional funds that would mitigate both the impact of inflation and the increasing number of eligible communities Congress may consider a number of options intended to address the decline in average CDBG formula allocations. These may include the following two options. Increase Population Threshold for Eligibility Establishing a population threshold higher than the current 50,000 persons for entitlement city status would eliminate direct funding for hundreds of cities. The cities that fail to meet the new higher population thresholds would have their populations and formula factors included in their urban county's calculations. For instance, raising the population threshold for CDBG entitlement city eligibility to 100,000 persons or more would eliminate hundreds of communities from the rolls of entitlement communities and would result in many of these communities being subsumed as partners in a qualifying county's CDBG program. Establish a Minimum Grant Allocation The Administration's FY2014 budget request included a proposal that would eliminate the grandfathering of communities that no longer meet the minimum population threshold for entitlement status and would have eliminated direct funding to entitlement cities whose annual allocation fail to meet a predetermined minimum amount. The HUD proposal would have denied direct CDBG funding to communities whose minimum allocation is less than 0.0125% of the amount allocated to all entitlement communities. HUD has argued that grants below a certain amount are too small to be effective. According to the Administration, 239 communities would have fallen below the threshold based on the program's proposed funding level for FY2014, and an additional 57 grandfathered communities would have been eliminated because they no longer met the program's population threshold for entitlement status. The proposal would have transitioned communities to nonentitlement status over several years ending in 2018. Although these cities would not receive direct funding they could become a part of their respective urban county's CDBG program. Such an arrangement could reduce administrative costs and promote intra-county cooperation. Alternatively, these communities could compete for funds from the state's allocation for nonentitlement communities.

On March 4, 2014, the Obama Administration released its FY2015 budget request, which included $2.870 billion for activities under the Community Development Fund (CDF) administered by the Department of Housing and Urban Development (HUD), including $2.8 billion for formula grants. On June 5, 2014, the Senate Appropriations Committee reported S. 2438, its version of the Departments of Transportation, and Housing and Urban Development, and Independent Agencies Appropriations Bill for FY2015 (THUD), which recommended $3.090 billion for activities funded under the Community Development Fund (CDF) account, including $3.020 billion for Community Development Block Grant (CDBG) formula grants. On June 10, 2014, the House approved its version of the THUD bill for FY2015, H.R. 4745, which recommended $3.060 billion for CDF activities, including $3.0 billion for CDBG formula grants. On December 16, 2014, the President signed into law the Consolidated and Further Continuing Appropriations Act of FY2015 (P.L. 113-235), which included $3.066 billion for the CDBG program and a $500 million loan commitment ceiling for the CDBG Section 108 loan guarantee program. On January 17, 2014, President Obama signed the Consolidated Appropriations Act for FY2014, P.L. 113-76, which included $3.100 billion in funding for the CDF, including $3.030 billion for formula allocations to CDBG entitlement communities, states, and insular areas. The act also appropriated $70 million in competitively awarded funds to Indian tribes and converted Section 108 loan guarantees to a fee-based program. On July 30, 2013, the House began floor consideration of H.R. 2610, a bill that would have appropriated funds for THUD for FY2014. On July 31, 2013, the Senate began consideration of S. 1243, its version of the THUD Appropriations Act for FY2014. The bill, which was reported by the Senate Appropriations Committee on July 27, 2013 (S.Rept. 113-45), recommended $3.295 billion for activities funded under the CDF account. The Obama Administration's budget request for FY2014, released on April 10, 2014, included $3.143 billion for activities funded under HUD's CDF account. The Administration's FY2014 budget proposal would have increased total funding for CDF activities by a modest $8 million from $3.135 billion in FY2013 to $3.143 billion. The proposed budget would have reduced funding for CDBG formula grants by $280 million to $2.798 billion and would have redirected most of those funds to two other activities within the CDF account: $75 million for regional planning grants, which was a component of the Administration's Sustainable Communities Initiative; and $200 million for a new Neighborhood Stabilization Initiative that was intended to assist local governments to identify and demolish an oversupply of abandoned and foreclosed properties. The Administration's FY2014 budget included a proposal that doubled the Section 108 loan guarantee program's loan commitment ceiling from $229 million in FY2013 to $500 million in FY2014. In addition, the Administration proposed revamping the program by charging a fee-based assessment to borrowers accessing the program, which would have eliminated the need for an appropriated credit subsidy. The House Appropriations Committee report accompanying H.R. 2610 supported the Administration's Section 108 loan guarantee proposals that recommended an increase in the loan commitment ceiling and conversion of the program to a fee-based approach. The 112th Congress began, but did not complete, consideration of appropriation measures that would have provided full-year funding for THUD for FY2013, before adjourning. The 113th Congress took up consideration of HUD's FY2013 appropriations as part of a larger measure providing consolidated appropriations for a number of federal departments. On March 26, 2013, the President signed into law P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013. The act included $3.1 billion for CDF activities. In late January 2013, Congress approved and the President signed P.L. 113-2, a disaster supplemental appropriation that included $15.2 billion for CDBG disaster relief and recovery activities in response to Hurricane Sandy and other disasters. Both the CDF FY2013 regular appropriation and the CDF disaster funds were subject to 5% sequestration mandated by the Budget Control Act.

Introduction USAID's Office of Transition Initiatives (OTI) is part of the Agency's Bureau for Democracy, Conflict and Humanitarian Assistance (DCHA). Unlike its counterparts at USAID, its mission is neither humanitarian nor development-oriented. OTI's activities are overtly political, based on the idea that in the midst of political crisis and instability abroad there are local agents of change whose efforts, when supported by timely and creative U.S. assistance, can tip the balance toward peaceful and democratic outcomes that advance U.S. foreign policy objectives. OTI has initiated or supported a broad range of activities, for which the common theme may be improving public attitudes towards democratic reform. It carries out these activities with a speed and flexibility that is unique among U.S. civilian foreign assistance programs. It is not always clear, however, where OTI fits in an expanding range of foreign assistance programs focused on countries and regions in crisis. The Administration's FY2010 budget proposal, which requests a 150% increase in the OTI account to support a Rapid Response Fund, as well as significant increases for the Civilian Stabilization Initiative at the State Department, does little to clarify OTI's role or niche functions. This report discusses OTI's origin, its past and present activities, and issues about the program's impact, structure, and role within USAID that may be of interest to Congress. OTI Origin and Authorities OTI began as a proposal for an Office of Crisis and Transition Management sent to Congress from incoming USAID Administrator Brian Atwood in August 1993, reportedly in response to outgoing Secretary of State Lawrence Eagleburger's advice that USAID should find ways to address key foreign policy priorities more quickly if the agency was to remain relevant. Atwood proposed to bridge the gap between emergency disaster relief programs and long-term development assistance with a small staff provided with core funding and special crisis waiver authority. Anticipated activities of this office included reintegrating demobilized combatants, restoring basic infrastructure, preparing for elections, building public institutions, and supporting demining and police training activities. Congress responded to the Atwood proposal in the FY1994 Foreign Operations Appropriations Act ( P.L. 103-87 ) by expanding the authorization of the existing Office of U.S. Foreign Disaster Assistance (OFDA) to include reconstruction activities. OTI activities were supported through the OFDA account until the OTI budget line item was created by congressional appropriators in the FY2001 Foreign Operation Appropriations Act ( P.L. 106-429 ), with the following language, which has been mirrored in subsequent Foreign Operations appropriations legislation: TRANSITION INITIATIVES. For necessary expenses for international disaster rehabilitation and reconstruction assistance pursuant to section 491 of the Foreign Assistance Act of 1961, $50,000,000, to remain available until expended, to support transition to democracy and to long-term development of countries in crisis: Provided, That such support may include assistance to develop, strengthen, or preserve democratic institutions and processes, revitalize basic infrastructure, and foster the peaceful resolution of conflict. OTI exists under the authority of Section 491 of the Foreign Assistance Act of 1961, which allows Transition Initiative funds to be used notwithstanding any other provision of law. This allows almost complete executive discretion in responding to foreign disasters. Meanwhile, the appropriations language establishing the new budget account expanded the scope of OTI activities far beyond traditional disaster assistance carried out by OFDA. Statutory language inserted into annual appropriations legislation requires that the House and Senate appropriations committees be given five days notice before starting new programs, which is essentially the only formal requirement for congressional notification of OTI activities. Congress has also clarified that OTI is not precluded from using resources transferred from other development and economic assistance funds. Together with the notwithstanding provision of Section 491, these annual appropriations provisions allow OTI to pursue a wide range of activities without having to meet certain administrative requirements, particularly related to contracting and procurement. OTI Locations, 1994-2008 Since beginning its first projects in Angola and Haiti in 1994, OTI has worked in 36 countries and territories. With its goal of engaging with countries that are ripe for social and political change, OTI chooses where to engage based on an assessment of (1) U.S. national interests, (2) the presence of a window of opportunity, (3) the assessed ability to positively influence a successful transition to peace and democracy, and (4) the stability of the operating environment. For example, Angola, the first country where OTI operated, was selected in 1994 for several reasons: its oil and other natural resources represented a security and commercial interest to the United States; a peace process was underway; and there was evidence that significant gains could be made through targeted programs related to land mine awareness, demining, and reintegration of ex-combatants. In Haiti, also selected for OTI involvement in 1994, the United States had an interest in preventing long-term dependence on humanitarian assistance and chaotic immigration flows to the United States. In addition, the arrival of multinational forces and the return of President Jean-Bertrand Aristide created the necessary security and hope for change, and a survey indicated strong support among Haitians for the reestablishment of community life. In contrast, OTI monitored but never intervened that year in Liberia, where it was determined that the Liberian leadership did not have the necessary political will to make a positive transition. A USAID Inspector General's survey of OTI, however, found that OTI planning documents often do not reflect specific consideration of each criteria for engagement during pre-program assessments. Given its limited resources, OTI does not operate in every country that meets the four-pronged criteria, and the OTI Director has authority to determine where OTI is to be active. As previously mentioned, however, Congress must be notified five days in advance of OTI activity in a new country, and the Director of Foreign Assistance at the Department of State clears the report to Congress. In practice, OTI officials report consulting heavily with State and USAID leaders when developing new programs, but this consultation does not necessarily imply coordination. Figure 1 highlights the locations of OTI's current and past reported activities. OTI Funding, 1994-2008 Table 1 and Figure 2 show funding levels of both the TI account and other funds obligated by OTI beginning in FY2001, when the TI budget line item was created. As Table 1 demonstrates, Transition Initiative account funding has remained steady from 1994 to 2008, in the $40 million to $60 million range, with large increases coming through transfers. The sharp increase in OTI obligations in FY2004 and FY2005 can be attributed almost entirely to activities in Iraq funded under the Iraq Relief and Reconstruction Fund. For FY2010, the Obama Administration has proposed $126 million for the TI account, a 150% increase over the estimated FY2009 funding level. It is unclear whether this reflects an intent to increase OTI activity or to reduce reliance on transferred funds. Although OTI manages funds from a variety of accounts, transferred funds carry with them the restrictions under which they are authorized. In other words, while funds appropriated through the Transition Initiatives account can be used according to disaster assistance rules, ESF, IRRF, DA, or other account funds transferred to OTI must be managed by OTI in accordance with the restrictions under which those accounts are authorized. Therefore, the program's ability to act rapidly and flexibly, OTI notes, is not simply a function of its less restrictive authorization—since a large part of the funds are restricted—but rather reflects OTI's organizational culture and operational practices. Overview of Activities OTI programs are customized to country needs, frequently revised, and often designed to fill gaps in a larger U.S and global foreign assistance effort. As such, they do not fit into neat categories. A review of OTI annual reports shows that OTI activities in the 15 years since its inception reflect both the original intent of Congress as well as needs that may not have been anticipated in 1993. OTI has supported many projects to reintegrate former combatants into civil society, often through job-creation programs, but it has also brought ultra high-speed Internet access to remote parts of Bolivia, for example, in an effort to enhance rural development and reduce destabilizing urban migration. Many OTI projects support independent media, both to bring information to marginalized communities and to promote the message and enhance the credibility of new democratic governments. OTI democracy promotion activities focus on support for citizen-government interaction and confidence building, often in the form of sponsoring workshops and town hall meetings, funding public opinion polls, and providing basic office equipment for both governmental and non-governmental organizations. Most OTI grants are small, ranging from $5,000 to $50,000, but OTI country representatives have the authority to approve grants of up to $100,000. Larger grants may be approved in the Washington office. Programs are intended to last two to three years, but have extended well beyond that time frame in a few instances, such as Sudan and Venezuela. Table 2 summarizes current OTI activities. Issues for Congress OTI has been described by some who have worked with the organization as representing what USAID as an agency should be, in the sense that OTI programs are flexible and, in the words of one development professional, "address the most important issues." The comparison may not be fair, however, as USAID's development mission, with its long-term focus on improving standards of living, is quite different from OTI's short-term political objectives. Furthermore, the rapid response valued by some partners in the field may come at the expense of transparency and accountability valued by Congress and the American public. OTI was intended in part to be a laboratory within USAID to try innovative approaches to development, and there may be a range of lessons to be learned from the program, both positive and negative. The following are a few issues related to OTI that Congress may wish to consider as part of oversight or reform activities concerning OTI, USAID, and foreign assistance in general. Funding OTI's stream of funding from non-TI accounts, as detailed in Table 1 , creates a number of operational challenges that undermine the program's rapid response objective. While TI funds can be disbursed quickly in support of new needs, the process of requesting, approving, and obligating funds from other accounts can take more than nine months and introduces a great deal of uncertainty and inefficiency into the planning process. OTI officials report that every year there are programs for which they do not know their actual fiscal year budget until the final weeks of the fiscal year. This uncertainty ultimately limits OTI's ability to take advantage of many evolving opportunities. Given that OTI routinely ends up obligating at least twice as much funding annually as it receives through the TI account, one option to improve OTI's performance capabilities would be to increase direct TI appropriations in lieu of so many transfers. The Administration's FY2010 budget request of $127 million for the TI account may be a move toward that end. Transparency Unlike many foreign assistance programs, Transition Initiative programs are often initiated on short notice and are not always accurately detailed in budget justification documents. The annual appropriations provisions for OTI require that the office give only five days' notice to Congress of new TI programs, and even ongoing programs are not reported at the same level of detail as other foreign assistance programs. OTI is not part of the 653(a) process through which agencies and congressional appropriators agree on final country and program allocations at the start of each new fiscal year. As a result, it can be difficult to determine how money is to be spent until after the fact or, in particularly sensitive cases such as Pakistan and Colombia, to identify specific grantees even after the money is spent. Some who have worked with OTI say that the overtly political aspect of OTI's programs requires more discretion in the release of information about specific grantees. In some situations, knowledge of U.S. government support for program partners would undermine the partners' efforts or even endanger local personnel. This is also true, however, of other USAID and State Department foreign assistance activities for which such information is more readily accessible. While OTI reports meeting regularly with congressional oversight committee staff, Congress may wish to evaluate whether the need for program speed, flexibility, and discretion continues to justify the limited public transparency of OTI programs. Duration of Programs and Handover Given OTI's objective to bridge the gap between emergency disaster relief and long-term development, OTI programs are intended to be short-lived. OTI literature repeatedly emphasizes the two- to three-year limit on projects and the fact that an exit strategy is expected to be in place before the end of each program's first year, including a plan to hand over OTI projects to long-term USAID development programs when appropriate. Nevertheless, the OTI program in Venezuela has been ongoing since 2002, the current OTI program in Sudan began in 2003, and several program evaluations suggest that OTI programs could have transitioned into long-term USAID programs earlier and more effectively. In Serbia, for example, some observers feel that OTI should have left the region when the new USAID Mission in Belgrade took over the Community Improvement Project activities in 2001. In Iraq, some have questioned why OTI remained active after the USAID Mission in Baghdad was well established, and why the U.S. military repeatedly requested an extension of OTI's presence in Iraq in order to continue its partnership with OTI even when other elements of the USAID Mission were on the ground. At least one development partner who has worked with OTI in Africa feels that USAID has done a poor job of building on the gains made by OTI in that region, leading to questions about the long-term impact of OTI projects. In Haiti, too, the final evaluation reported that gains made by OTI would not likely last given the poor state of local law enforcement and lack of communication between OTI and other components of USAID/Haiti. It was noted that OTI's mission was not well understood by other parts of the USAID/Haiti mission, resulting in a failure to foster synergies between OTI activities and programs addressing long-term development needs. Similarly, an audit of the Iraq OTI program found that lack of coordination and information sharing between OTI and USAID/Iraq resulted in wasted resources and duplicate efforts. While the strategic goals of OTI projects may make transition into sustainable development activities an unsuitable goal in some cases, program evaluations and comments from staff in the field suggest that opportunities to build upon OTI gains can be lost in transition. Monitoring and Evaluation OTI program evaluations note that monitoring and evaluation are given insufficient consideration at both the planning and implementation phases of projects. Record keeping in the early years of the Serbia-Montenegro program, for example, was described as so spotty that a new implementing partner had to recreate the management and oversight structure from scratch while trying to maintain existing projects. Similarly, the USAID Inspector General report on OTI's Iraq program found that documentation was insufficient to verify that outputs were achieved and that controls related to monitoring and documentation of grants could be improved. The quickly evolving focus of OTI programs can make it difficult to establish a monitoring and evaluation regime, and the unstable conditions in which many OTI activities are carried out can make even a well-conceived monitoring plan difficult to safely implement. The nature of many OTI projects, which often emphasize the value of community participation in the process over the tangible product, also presents an evaluation challenge. These difficulties, together with the emphasis on speed, seem to have created a situation in which the rate of grant disbursement is the de facto measure of success reflected in many program evaluations. At least one OTI staff member has expressed concern that the ability to move money has eclipsed the ability to think about and design a good strategic plan. Congress may consider the challenges and shortfalls of OTI's monitoring and evaluation process when considering foreign aid reform proposals aimed at reorienting assistance programs to focus more on outcomes. Staffing OTI describes itself as an "operational rather than a supervisory development enterprise unit," with a permanent staff of around 50 people who interact with implementing partners on a daily basis. Unlike many USAID programs, OTI's "notwithstanding" provision of Section 491 authorizing language enables it to hire U.S. personal service contractors (USPSCs) even in the United States, and the office has only a handful of direct hires. USPSCs can be hired at convenience and fired with two weeks' notice, providing rapid and flexible program implementation support. In contrast, filling a position with a foreign service officer can take 18 months and require a minimum two-year stay in the position. OTI staff are actively involved in every stage of project planning and implementation, in contrast with typical USAID staff who, some claim, have become more like contract officers than development experts in recent years. This may be because OTI projects often take place in volatile conditions, requiring constant reevaluation and redesign to reflect changing political circumstances, and they often involve working with emerging local leaders with limited experience, requiring more direct OTI guidance and supervision. Anecdotal evidence suggests that this hands-on approach may be a factor in high staff morale at OTI, which may be of interest should Congress consider legislation to bolster USAID's role as the lead U.S. agency for development policy and programs through significant staff increases. In a 2008 survey, 95.7% of OTI staff reported that they liked their job and 97.8% responded that they would recommend OTI as a place to work. Nevertheless, use of USPSCs presents the same challenges to OTI as the rest of USAID and other agencies: limited benefits and career progression, lack of continuity, and arguably less commitment to promoting agency interests. The high percentage of USPSCs at OTI also comes with high transaction costs—a USAID Inspector General's audit reports that procurement of USPSCs and related human resources issues consumes up to 40% of OTI's operational manpower. The contract model may also play a role in the frequent staff turnover noted in both the Serbia and Haiti programs. As one former USAID Mission director explained, there is a limited pool of qualified development professionals who like to work in insecure environments, and when they work on a contract basis, they feel free to leave when better opportunities arise. OTI also has what it calls a "bullpen" of USPSCs that enables the program to be flexible in meeting temporary staffing needs. The bullpen includes an average of 25 individuals on "intermittent" PSC contracts with no guaranteed days of work. This pool of employees includes highly experienced foreign assistance professionals, sometimes retired, including many former USAID mission directors. OTI benefits by being able to quickly ramp up personnel as needed, without carrying salary or overhead costs when not needed, while bullpen members, who are paid at the same rate as other USPSCs, have the advantage of flexible and adventurous work and the ability to live anywhere in the world. Expedited Contracting (SWIFT) OTI's in-house contracting mechanism, called SWIFT (Support Which Implements Fast Transitions), allows OTI to use pre-qualified contractors to quickly establish offices and begin approving activities and disbursing grants. Successful contractors must demonstrate an ability to begin implementing an OTI-style program in a new country within 72 hours of receiving a task order. This expedited contracting and disbursement mechanism has been cited by implementing partners as a reason that OTI, which can clear a grant proposal in less than a week, is easier to work with than other USAID programs, for which the same process can take two to three months. Firms that currently have indefinite quantity contracts (IQCs) through SWIFT are AECOM; International Resources Group; Casals & Associates; Chemonics International; Development Alternatives, Inc.; Development & Training Services; and Creative Associates. Firms compete for indefinite quantity contracts (IQCs) under SWIFT every five years, and the firms chosen for IQCs compete with each other for task orders. OTI also collaborates with a handful of operational partners on a regular basis, including the International Organization for Migration, Internews, the National Democratic Institute, and the International Republican Institute. Critics of SWIFT point out that expedited contracting is not always conducive to effective program planning, and that the slower process used by other USAID entities may reflect thoughtful deliberation rather than bureaucratic delay. The SWIFT process has also been criticized for unnecessarily limiting competition. The 72-hour rule excludes some potential partners, and OTI, in fact, has very rarely established an OTI presence within 72 hours of a task order being issued. There is also a perception among some NGOs that OTI's primary use of contracts for partnerships, as opposed to cooperative agreements or grants, excludes non-profit NGOs that are often already working in countries where OTI sets up programs and have extensive connections and experience. As with transparency, this tradeoff between a fully competitive process and the need for speed is an issue that Congress may wish to reexamine with an eye toward increasing contracting speed throughout USAID. Procurement Procurement is another area where OTI has a speed and flexibility advantage over many other U.S. foreign assistance programs. OTI has applied for and received a waiver that allows its programs to procure goods and services locally rather than be subject to "buy America" requirements. Three types of procurements are covered: (1) procurements needed by the SWIFT contractor (or subcontractor) for their own operations, (2) items that need to be procured by grantees of SWIFT contractors under grants-under-contracts, and (3) items that need to be procured by the SWIFT contractor or subcontractor for use by grantees. The waiver does not apply to the SWIFT IQC holders themselves or to certain restricted goods, such as pharmaceuticals. OTI's use of such a procurement waiver may be of interest in broader congressional consideration of the benefits of maintaining or revising procurement restrictions relevant to U.S. foreign assistance programs. Interagency Coordination and Structural Considerations OTI's role within USAID and the larger U.S. foreign assistance structure is not always well understood, even among U.S. government development and other professionals. A USAID Inspector General survey in 2006 noted that many USAID Mission Directors and Ambassadors were uncertain about where OTI fit in to the country teams and how to use OTI as a resource. The survey cites one Mission Director in Sudan who noted OTI's neighborhood cleanup employment projects in Iraq and requested that OTI do cleanup work in Sudan in advance of an upcoming holiday, unaware of the purpose of OTI's project in Iraq. The wide range of OTI activities can create confusion about how OTI should interact and coordinate with other U.S. assistance programs that deal with democracy promotion and political and social stabilization. For example, the Office of the Coordinator for Reconstruction and Stabilization (S/CRS), established in 2004 within the Department of State, is tasked with improving coordination and implementation of stabilization and reconstruction assistance. While S/CRS originally had at best a small operational unit, and has had no presence in many locations where OTI is active, this has begun to change. Some experts believe S/CRS's increasing operational capacity creates an overlap of functions between S/CRS and OTI that should be resolved. Furthermore, the Civilian Response Corps (CRC) that is being developed under S/CRS authority, and with a sizable USAID component, has a mandate that may overlap somewhat with that of OTI. The Obama Administration recommended $323 million in FY2010 for the Civilian Stabilization Initiative to recruit, develop, and train the CRC. Given the strategic nature of OTI programs, observers have suggested various changes to OTI's status. Some propose that OTI should be merged with S/CRS within State, creating a single entity that can both coordinate and implement reconstruction and stabilization activities. Others believe that S/CRS should be restructured, splitting off programmatic function such as CRC to USAID. OTI employees interviewed for this report assert that their current location in USAID is essential to their effectiveness, citing USAID's operational expertise and what they perceive as State's more bureaucratic management style, which could hamper OTI's speed and focus. Should Congress consider realignment of foreign aid activities, Members will likely review OTI's strategic mission and compare it with that of S/CRS. A comparison of OTI activities with those of the National Endowment for Democracy (NED), a private sector democracy-promotion institution that typically receives a larger annual appropriation from Congress than OTI, may also prove useful as part of a foreign assistance review. Though NED is exclusively a grant-making organization, Congress may consider the relative merits of supporting private sector democracy promotion activities through NED versus the direct engagement of a U.S. government entity such as OTI. Diplomatic Implications While OTI is subject to the same restrictions on political activities as other USAID programs, such as the prohibition on activities designed to influence election outcomes, its work often lends itself to political entanglements that may have diplomatic implications. This appears to be particularly true when OTI activities support pro-democracy groups opposed to the existing government. In such instances, critics sometimes accuse OTI of destabilizing rather than stabilizing civil society. For example, OTI democracy projects in Venezuela, with the reported goal of encouraging citizens' participation in democratic processes, have repeatedly been accused by Venezuelan President Hugo Chavez of supporting groups trying to overthrow Chavez. Similarly, Bolivian President Evo Morales accused the United States of plotting a "civil coup" through the now-closed OTI program in Bolivia, which supported projects to help departmental governments (now leading the opposition to Morales) offer better services to their communities. The Serbia-Montenegro example raises similar issues. Though the allegations may be unsupported, they exemplify possible risks: OTI programs can be problematic both because they raise concerns about the appropriateness of U.S. involvement in foreign politics, and because they make it easier for leaders such as Chavez and Morales to undermine popular support for opposition groups by labeling them as American agents. That OTI is not always forthcoming about its politically sensitive activities may have the unintended consequence of making all claims about U.S. ties to foreign organizations seem credible. Appendix. Selected Country Studies The following sections provide a more detailed look at three OTI programs that represent the range of ways in which OTI has been used. The program successes and challenges reflect some of the issues for Congress discussed in this report. Serbia-Montenegro OTI's program in Serbia and Montenegro, from 1997 to 2002, was one of the first to begin implementation before a clear democratic transition was underway. It has also been mentioned by some as the most evident OTI success story. While the official objective of OTI was to "secure peace in the region by directly assisting indigenous organizations in their efforts to advance peaceful democratic change," staff interviewed for the final program evaluation made clear that their objective was to "get rid of Milosevic," whose aggression in the name of Serbian nationalism, starting in 1991, had destabilized the region and led to hundreds of thousands of deaths. When Slobodan Milosevic was defeated at the polls in October 2000, and soon after transferred by the newly elected democratic government to the International Criminal Tribunal for the former Yugoslavia at The Hague, OTI activities shifted focus to community improvement projects, with the goal of demonstrating tangible rewards for peaceful multi-ethnic co-existence and pro-democracy reform. From July 1997 to October 2000, OTI supported local organizations that opposed the Milosevic regime through technical and financial assistance. OTI actively assisted independent media, opposition-controlled municipalities, and democratically oriented political parties through the provision of everything from cameras and office equipment to short-term rental payments. Moral support was important as well. Grant recipients reported OTI feedback and presence during the years of repression as more valuable in some cases than the material assistance OTI provided. During this time, OTI activities were fractured, operated out of five different locations (including Budapest, to where the staff evacuated during the NATO bombings in 1999), and poorly documented. Nevertheless, many observers cite OTI as a key player in the fall of the Milosevic regime. A final evaluation of the program reports that OTI spent $8.68 million in Serbia and Montenegro during this phase, through a total of 631 grants. Much of the funding in 2000 supported a coordinated democratic opposition campaign and election-monitoring activities. Seeing further assistance opportunities in post-Milosevic Serbia, OTI expanded its activities from October 2000 through September 2002. Launching a Democratic Transition Initiative (DTI) to consolidate post-election democratic gains, OTI supported a series of community improvement projects (CIPs) to show tangible and immediate benefits of peace and to emphasize the importance of civic participation and government accountability. CIP projects rehabilitated schools and health clinics, repaired electric and water systems, and promoted widespread involvement in community priority-setting while emphasizing the legitimacy and capacity of democratically elected local officials. In response to a 2001 survey showing increasing political apathy within the Serbian population, OTI shifted focus towards an initiative called "Pace of Reform," which centered around a media campaign emphasizing the need for vigorous citizen participation in the political process. From October 2000 through September 2002 (the post-Milosevic period), OTI provided $14.05 million though 633 grants, which was matched by $7.94 million in contributions from OTI grantees. Of the OTI funding, 36.0% supported CIPs, while 32.8% focused on Pace of Reform, 12.2% on media, 12.6% on election processes, and 6.2% in support of civil society organizations. Most of the local matching funds (66%) were for CIP projects. Iraq OTI's program in Iraq, called the Iraq Transition Initiative (ITI), is of special interest because it had the biggest budget of any OTI program thus far, and because of the coordination with the U.S. military that security circumstances required. Arriving in Iraq in April 2003 as part of the USAID Disaster Assistance Response Team (DART), which focused on filling humanitarian needs, OTI staff were among the first civilian aid personnel on the ground following the U.S. invasion and quickly began initiating transition programs independent of the DART. OTI arrived with $20 million and two implementing partners—the International Organization for Migration and Development Alternatives, Inc.(DAI)—already in place. OTI reportedly disbursed its first grants in Iraq before the U.S. military even entered Baghdad, equipping an Internet and phone center in Umm Qasr and funding a meeting center for the Umm Qasr town council. The office was the first U.S. civilian entity capable of moving substantial money through contractors in Iraq in the summer of 2003. Although OTI originally planned to focus on preventing inter-ethnic strife and retaliatory anti-Baathist violence, it encountered far less of this than anticipated. Instead, OTI sought opportunities to fill gaps that they believed no other entities could fill. Most activities initially fit into one of three categories: democracy building, civil society organization, and human rights. In the wake of looting that gutted most government buildings at all levels, OTI used local engineering/construction firms to distribute grants for "ministries in a box," each of which provided 100 workstations (desk, computer, chair, office supplies) to stand up the national government. One hundred thirty-two such boxes were delivered by the fall of 2003, each valued at $122,000. This program was soon followed by "Council in a box" grants to provide equipment support to neighborhood and district advisory councils created by the U.S. military. When military units in northern Iraq reported that disputes over property claims were a significant problem, OTI helped establish the Iraq Property Reconciliation Program, which developed and implemented a mechanism for voluntary reconciliation of real property claims. Identifying another unmet need, OTI issued grants to local authorities and civic groups to assist intelligence gathering and documentation of war crimes, supporting construction of a storage facility for evidence and funding a film to document the process. After the immediate push, the Iraq Transition Initiative focused on showing Iraqis tangible benefits of the regime change through high-profile projects. OTI funded short-term employment programs for young men in the most volatile regions and supported projects to patch fissures in the Mosul Dam and construct loading docks for the Iraqi government's food distribution system. OTI also focused on improving information flow to Iraqis, opening Internet cafes in the South and expanding the broadcast capabilities of Radio Sawa. During this time, the Coalition Provisional Authority (CPA) provided OTI with $40 million to work on election preparation, and a democracy/governance program funded by CPA included substantial OTI participation in town hall meetings. Starting in December 2003, an OTI staff member was loaned to CPA to work on the national electoral structure and create an independent electoral commission. OTI also filled funding needs for a variety of small CPA priorities, including paying for a delegation of Iraqi women to visit the United States. While some at OTI expressed concern that the office was spending too much time on CPA priorities, others felt that the coordination of the many U.S. government entities in Iraq could happen only if everyone answered to the CPA. As the security situation in Iraq deteriorated in 2004, OTI renewed its focus on short-term employment programs targeting young men of military age in an effort to undermine insurgent recruitment. This was done in large part at the request of U.S. military commanders. Most of the employment provided through these programs related to garbage collection, neighborhood clean-up, or park rehabilitation; employment lasted for six weeks and paid good wages by Iraqi standards (generally $4-$5 per day). For strategic purposes, these programs ramped up in the months before the first national election in January 2005. As with the war crimes documentation and "ministries in a box," OTI felt that no other entity of the U.S. government had funding available to meet this need. The reorientation to employment programs, which coincided with military force protection objectives, further strengthened an existing relationship between OTI and the military. OTI also played an advisory role in military-led Commanders Emergency Response Program (CERP) projects. To improve coordination, the 1 st Calvary Division attached a fill-time liaison officer to the OTI office in Baghdad, at OTI's request. Some observers felt that OTI was in fact co-opted by military commanders. Within OTI, some staff were concerned that the ongoing short-term employment programs were outside of OTI's mandate and should have evolved to focus on grants to civil society organizations. Meanwhile, the growing number of USAID contractors operating or ready to operate in the civil society sphere prompted some to suggest that OTI exit from Iraq by 2005. Continued instability, however, together with congressional support for the employment programs, led to the continuation of the Iraq Transition Initiative, and OTI's planned reorientation to civil society and local governance never occurred. Congress provided OTI with $200 million in November 2004 to expand short term employment projects in partnership with the military. The liaison arrangement set up with the 1 st Cavalry continued and expanded with successor military units, so that when OTI did leave Iraq in 2006, liaisons from three different military commands were situated full time in the OTI office. Lessons learned from OTIs relationship with the military have been incorporated into the U.S. Army and Marine Corps Counterinsurgency Manual. OTI initially planned to withdraw from Iraq by the end of 2005, but Ambassador Khalilzad asked OTI to stay for an additional six months to allow for better linkage between USAID projects and follow-on military activities. Post-combat reconstruction in strategic cities continued to the end, with OTI funding grants to rehabilitate schools, parks, and soccer fields as a follow-on to the immediate humanitarian assistance provided by OFDA in the wake of military operations. OTI activities in Iraq were for the most part reported to be successfully linked to ongoing programs of the USAID Mission, which has been attributed in part to weekly meetings between OTI, USAID, and military commanders in the Green Zone starting in October 2004. The OTI program in Iraq appears to have faced the same monitoring and evaluation problem as longer-term reconstruction efforts. When the Iraq Transition Initiative closed in March 2006, it had disbursed $337 million in grants. There was not, however, much evidence of the impact of these expenditures. For example, while the military believes there was a strong relationship between the neighborhood clean-up employment projects and reduction in violence, no data exist to support this relationship. There is also little if any data about the long-term impact of the employment programs on the participants. While this was due in part to the security situation confining OTI staff to the Green Zone and other secure locations during many periods, an audit of the program found that a strong evaluation and monitoring plan was never a significant component of the OTI plan. Design and implementation of a monitoring program was part of DAI's OTI contract, but no funds or personnel were specifically designated for this purpose, and it never happened. The monitoring that did occur, particularly in the volatile Baghdad area, was done by the military, which routinely patrolled project areas and reported questions or concerns back to OTI. This remote oversight is seemingly inconsistent with a provision of OTI's official criteria for engagement, which says "there must be enough stability to enable staff to travel outside of the capital to implement and monitor OTI-funded activities." OTI's lack of focus on local capacity building has been criticized as well. The program's final evaluation report suggests that despite security concerns, OTI could have and should have used local grantees to both design and monitor project implementation, resulting in better community buy-in and an opportunity for local governments to demonstrate accountability. The final evaluation also criticizes OTI's 2004-2005 shift away from civil society and institution building toward short-term employment, which may have aligned more with military objectives than with building local capacity for democratic governance. However, when interviewed by evaluators, some OTI staff commented that OTI was concerned only with grantee capacity to the extent that the grantee was a viable in-kind grant (supplies and equipment, not cash) recipient, and that long-term capacity building was the responsibility of other USAID programs. Haiti II OTI's second program in Haiti began after the resignation of President Jean-Bertrand Aristide, in 2004, and closed after democratic elections and the installation of a new government in 2006. The program was notable in part because although the timeline was closely related to political events, including an election, OTI chose not to get directly involved in election or democracy-promotion activities, believing that enough international organizations were filling that need. Instead, OTI focused on bringing stability and progress to volatile communities through small grants for neighborhood improvement projects and youth-targeted activities that would build community cohesion and "diminish the power of spoilers" who were intent on perpetuating violence and chaos for their personal benefit. The process was as important as the projects, with the goal of communities coalescing around self-determined priorities. Nevertheless, OTI activities aimed at neutralizing political spoilers were viewed by some as interfering in Haitian politics. The initial OTI strategy in Haiti was to support the interim national government by increasing its visibility in targeted communities. OTI found, however, that the interim government was not a good partner. Many OTI programs were delayed because the government failed to meet its commitments, such as providing heavy equipment. As a result, OTI soon revised its strategy and focused on mobilizing selected communities directly, while maintaining the appearance of government involvement to avoid fueling discontent with the government. OTI found a better partner in the U.N. Mission for the Stabilization of Haiti (MINUSTAH) and concentrated its activities in key areas with a strong peacekeeping presence, trying to create alternatives to gang and militia violence through employment programs, school improvement projects, soccer tournaments, a "Play for Peace" summer camp for children, and a media campaign aimed at reducing discrimination against slum residents. OTI improved the image of MINUSTAH among local populations by including them in the implementation of public works projects, while MINUSTAH provided engineering assistance. OTI also coordinated work with a variety of international organizations, such as a drainage ditch project in Cap Haitien coordinated with OXFAM and various U.N. entities. With the election of Rene Preval to the Presidency in February 2006, OTI worked with Preval's transition team on two programs: a "Cite Soleil Initiative" composed of 20 projects requested by community groups and implemented in ways to show the new government's responsiveness, and a package of 17 projects aimed at gang activity in Martissant. OTI also supported a government effort to provide venues for public viewing of the World Cup. Meanwhile, OTI began active planning for a turnover of activities to USAID/Haiti, accelerating the linkage of OTI programs with longer-term Mission programs. The program ended on August 15, 2006, having disbursed $12 million in small grants for 546 infrastructure and other community projects. Total OTI expenditures in Haiti in 2004-2006 was $16.9 million. According to the independent final evaluation of the program, OTI was able to function effectively in Haiti despite myriad obstacles, including theft of materials, threats of gang violence, poor quality work by contractors, failure of the government to uphold its commitments, disputes over the allocation of jobs, political interference, and some very disruptive weather. The Haiti Transition Initiative was found to have generated a greater sense of community in the neighborhoods where it was active, and to have established a better norm of communication between communities and local governments. OTI was also found to have played a role in improving the relationship between MINUSTAH and local authorities, and locals reported that rehabilitation projects in many neighborhoods reduced gang presence. The report acknowledged, however, that ineffective local law enforcement would likely prevent any lasting security improvement.

The Office of Transition Initiatives (OTI) at the U.S. Agency for International Development (USAID) was created in 1994 to bridge the gap between emergency disaster relief programs and long-term development assistance. The program is relatively small, with regular appropriations averaging $40-$60 million annually and a full-time staff of about 50. Supplemental funding and transfers from other foreign assistance accounts, particularly through the Iraq Relief and Reconstruction Fund, have at times substantially increased the program's funding levels. Congress may take particular interest in OTI this year, as the Administration's FY2010 budget proposal requests $126 million for the Transition Initiatives account, a 150% increase over the 2009 estimate. OTI's legislative authority is based on the disaster relief provision of the Foreign Assistance Act of 1961, which allows for broad executive discretion. This freedom from administrative requirements, intended to enhance the program's rapid response capability, allows OTI to pursue a wide range of activities but also reduces program transparency and, according to some, accountability. OTI has been active in 36 countries since its inception, and program focus varies widely from country to country. Typical activities include reintegrating combatants in a post-conflict environment through employment programs, providing equipment and technical support for independent media organizations, organizing civic forums, and supporting small, community-led infrastructure projects intended to show quick and tangible benefits from transitions toward peace and democracy. Most OTI grants are small and in-kind, ranging in value from $5,000 to $50,000, though much larger grants have been approved. There is considerable congressional interest in and support for strengthening capacities at USAID and other civilian agencies involved in foreign affairs. In its 15 years in operation, OTI has served in part as a laboratory within USAID to try innovative approaches to development, and there may be a range of lessons to be learned from the program that are applicable to this broader debate. The 111th Congress may wish to consider several aspects of the OTI program, from personnel structure and contracting mechanisms to coordination with other U.S. assistance programs, as part of oversight or legislated reform activities concerning OTI, USAID, or foreign assistance in general.

Introduction In 1986, the Harbor Maintenance Tax (HMT) was enacted to fund U.S. Army Corps of Engineers' (USACE or the Corps) activities related to the routine operation and maintenance (O&M) of harbors, namely the dredging of harbor channels to their authorized depths and widths. This tax is assessed on the value of imported and domestic cargo handled at ports at the current rate of 0.125% ($1.25 per $1,000 in cargo value), which in recent years has raised over $1 billion annually. U.S. waterborne exporters no longer pay the tax because a 1998 U.S. Supreme Court ruling found it unconstitutional. Importers generate about 95% of the tax revenue. The tax revenues are deposited into the Harbor Maintenance Trust Fund (HMTF) from which Congress annually appropriates funds for harbor maintenance. In recent years, HMTF annual expenditures have remained relatively flat while HMT collections have increased due to rising import volume (except in 2009 when collections declined along with import volume). Consequently, a large "surplus" in the HMTF has developed. Despite the surplus, the busiest U.S. harbors are not being fully maintained, according to the Corps. Full channel dimensions are, on average, available less than about a third of the time at the 59 highest use U.S. harbors. Under-maintained channels in busy U.S. ports could increase the risks of ship groundings or collisions, resulting in spilled cargo or fuel oil. They also could raise the cost of shipping, requiring ships to carry less cargo to reduce their draft or wait for high tide before transiting a harbor. To rectify this situation, some industry stakeholders seek to enact a "spending guarantee" to spend down the surplus in the HMTF. However, examining where trust fund monies have been spent indicates that little or no shipping is taking place at many of the harbors and waterways that shippers are paying to maintain. Some of these harbors or waterways are among the most expensive to maintain in the country and collectively they represent a significant portion of total HMTF expenditures. Thus, in addition to possibly increasing HMTF expenditures, policymakers may consider whether current expenditures are being efficiently and equitably utilized. Given the amount of HMT collections not spent on harbors and the amount spent on harbors with little or no cargo, a rough estimate is that less than half and perhaps as little as a third of every HMT dollar collected is being spent to maintain harbors that shippers frequently use. Economic and equity issues related to HMT expenditures and collections are the main focus of this report. Before analyzing these issues, the report reviews the legislative history of the tax and legal challenges to it, discusses the advantages and disadvantages of alternative funding mechanisms, and describes the commercial context of current dredging activity. The last section identifies legislation related to harbor maintenance funding. Background Legislative History The HMTF was established by Title XIV of the Water Resources Development Act of 1986 (WRDA, P.L. 99-662 , enacted November 17, 1986). Prior to 1986, U.S. Treasury general funds were used to pay the federal share for operation and maintenance (O&M) of harbors and for the deepening of channels. The HMT was originally assessed at 0.04% of the cargo value. This revenue was intended to pay for 40% of O&M costs incurred by the Army Corps of Engineers and 100% of O&M costs of the St. Lawrence Seaway. Section 11214 of the Omnibus Budget Reconciliation Act of 1990 ( P.L. 101-508 ) increased the HMT from 0.04% to 0.125% in order to recover 100% of the Corps' port O&M expenditures. In addition to imported and domestic waterborne cargo handled at ports, the tax is assessed on the value of the ticket in the case of cruise ship passengers. As mentioned earlier, export waterborne cargo is not taxed as per a 1998 Supreme Court decision that found that it violates the export clause of the Constitution, which states that, "No tax or duty shall be laid on articles exported from any state." At the time, exports generated about a third of the fund's revenues. Other court decisions (including decisions by the U.S. Court of International Trade (CIT), the U.S. Court of Appeals, and the U.S. Supreme Court) have established that HMT is constitutional as applied to domestic shipments and the embarkation of cruise line passengers. Generally, coastal and Great Lakes ports are subject to the tax. A list of ports subject to the tax is codified at 19 CFR 24.24. The list does not include ports on inland rivers that are subject to the inland waterways fuel tax collected for the Inland Waterways Trust Fund. Passengers aboard ferries and cargo moving to and from Alaska (except for crude oil), Hawaii, and other U.S. possessions are also not subject to the tax. Since 1998, nearly all of the tax revenue is generated by importers of waterborne cargo —domestic cargo shippers generate only about 5% of the revenue and cruise ship passengers less than 1%. A significant amount of HMT revenue is not collected from domestic shippers. The Corps' preliminary estimate is that approximately $500 million per year remains uncollected. The Corps is working with U.S. Customs and Border Protection (CBP) to improve tax collection from these shippers. Five hundred million dollars represents 44% of the total amount collected in FY2009 and is about eight times more than the amount currently collected from domestic shippers. The HSUF Proposal In its 1998 decision the U.S. Supreme Court stated that a user fee based on the value of service provided to a marine carrier would not violate the Constitution. In August 1998, the Clinton Administration proposed a new revenue generating system using a Harbor Services User Fee (106 th Congress, H.R. 1947 ). The payment of the Harbor Services User Fee (HSUF) would be placed on the carrier, rather than the shipper (who pays the current HMT). The HSUF was based on a vessel's capacity, as measured by vessel capacity units, which are a volumetric measurement of ship size based on net tonnage or gross tonnage as appropriate, and its frequency of port use per voyage. Revenues from the fee would be deposited into a proposed Harbor Services Fund, which would fund both routine maintenance and harbor-deepening projects (new work). The proposal was aimed at satisfying the Supreme Court ruling by establishing a closer link between the revenue collection and the service provided, while being consistent with trade obligations. The 106 th Congress did not pursue the Clinton Administration's proposal or other proposals, such as a return to funding maintenance and dredging from general revenues ( H.R. 1260 ). The stated advantage of the HSUF proposal was that it required ship owners to internalize the cost of deploying larger ships. Although larger ships save money on the ocean leg, they increase costs at port because, among other things, they require deeper channels and berths. Ship operators do not fully calculate these costs in their decision to build larger ships because dredging costs are borne by others, namely their customers (for harbor maintenance) and federal taxpayers (for harbor deepening). To the extent that dredging costs are external to a ship operator's cost-benefit calculation, its decisions regarding fleet investment will be biased in favor of larger ships. If these costs were internalized by the ship operators through payment of a dredging fee based on ship size, some say, ship investment decisions would more accurately reflect the true cost of bigger ships. Trading Partner Objections The federal government is statutorily required to continue collecting the HMT from non-export cargo and passenger ships. The European Union sees the application of the HMT to imports as a discriminatory import tariff that violates U.S. obligations under the World Trade Organization (WTO). In February 1998, the European Union requested WTO consultations on the issue. A first round of consultations took place in March 1998. Second round negotiations, which included Japan, Norway, and Canada, took place in June 1998. The European Union indicated that if satisfactory legislation was not passed by January 1, 2000, it would ask for a WTO dispute resolution panel. As of 2009, however, the European Union has not requested a panel. Overview of Dredging Operations The HMTF is used to fund maintenance dredging, not new construction. Maintenance dredging is work performed to maintain a channel's depth and width to the dimensions authorized by Congress. To increase a channel's authorized depth or width requires an act of Congress, which is referred to as construction or "new work" by the Corps and is funded from the General Treasury, not the HMTF. There are also different federal/local cost sharing requirements between construction and maintenance dredging as indicated in the following table. Over the last decade, maintenance dredging has accounted for about seven out of every ten federal dredging dollars and about 84% of the total material dredged (construction dredging has accounted for the remaining three dollars and 16% of total material dredged). About 80% of maintenance dredging is performed by private contractors under the USACE's direction. On a per cubic yard basis, construction dredging is over twice as expensive as maintenance dredging. In constant dollars (2000), the USACE calculates that maintenance dredging costs per cubic yard have increased from $1.53 in 1963 to $3.19 in 2008. The Corps dredges only the federally designated channels in harbors. Port authorities are responsible for dredging berths, which is the area next to the pier where a ship docks. Container Ships, the Panama Canal, and Dredging Needs In the early 1980s, deep draft colliers (coal ships) fueled debate over U.S. port dredging needs. Today, seemingly ever-larger containerships are the primary driving force behind current dredging activity. Dry bulk vessels (ships that carry grain, soybean, ore, or coal) also have grown in size since World War II, but at present there does not appear to be a trend towards larger vessels in this category. Although oil tankers are among the largest vessels in the world fleet, typically, a supertanker stays at sea for extended periods, loading or unloading at offshore platforms or single-point moorings or discharging at designated "lightering" zones offshore where a supertanker transfers cargo to a smaller shuttle tanker. Differences in service patterns between container and bulk ships account for the greater need of container ships for deeper access channels. Bulk tankers are usually chartered per voyage between a single origin and destination port and therefore have more flexibility in waiting for tidal action to ease their passage in port. Container ships pick up and drop off cargo at multiple ports as per an advertized schedule. Waiting for high tide would severely disrupt their service performance. Container ships typically call at three or four ports within a coastal region. They would likely be fully loaded at only the first and last calls, and partially loaded (and therefore needing less draft) at ports in between. Ships calling at U.S. ports have been limited in size somewhat by the dimensions of the Panama Canal. The development of double-stack container rail service in the 1980s reduced the cost of shipping containers over land across the United States, thereby reducing reliance on the Canal for transcontinental shipments, and allowing trans-Pacific carriers to deploy larger, "post-Panamax" ships. This development increased the competitiveness of U.S. West Coast ports as gateways for trans-Pacific containerized trade, which is by far much larger than trans-Atlantic trade. Recently, the Panama Canal has embarked on a widening and deepening project, expected to be completed around 2015. U.S. Gulf and East Coast ports anticipate that the Canal's expansion will enhance their competitiveness vis-à-vis West Coast ports in capturing Asian cargo and, thus, their interest in dredging to accommodate larger ships has intensified. Due to geological differences, U.S. Gulf and East Coast ports, as a group, require far more dredging than do West Coast ports, some of which are particularly large generators of HMT revenue. If U.S. ports subject to the HMT shipped more cargo between them, they would have more of an economic interest in the maintenance of each other's navigation channels. However, domestic shipping on the Great Lakes and along the coasts is only one-fifth the tonnage of U.S. foreign waterborne trade and domestic vessels account for less than one in every ten ship calls at U.S. ports. Besides Alaskan and Hawaiian ports which ship goods to and from California and Washington State ports, the only other U.S. ports with significant domestic volume are Duluth, Minnesota, which ships iron ore to Indiana and Ohio Great Lakes ports, and certain Gulf Coast ports, which ship significant amounts of petroleum or chemical products between them. Thus, for most U.S. ports, the relationship with one another is more competitive than complementary. This is in contrast to the harbor maintenance funding mechanism, which creates a national pool of funds and redistributes the tax revenues from busy U.S. ports with low maintenance costs to less busy ports with higher maintenance costs. HMTF Revenues The revenues collected from the HMT are deposited into the HMTF. The HMTF balance is expected to be over $5 billion at the end of FY2010, as shown in Figure 1 . Currently, revenue deposited into the HMTF exceeds transfers out of the fund, which are approved by Congress annually. Interest on collections has been over $100 million in recent fiscal years. HMTF expenditures fall under the discretionary spending budget ceilings. Congress appropriates funds for the USACE to perform navigation operation and maintenance at individual harbors. The amounts expended in a given year at harbors that qualify for recovery from the HMTF are reimbursed to the General Fund. The HMTF balance increased in FY1999 as a result of the Energy and Water Development Appropriations Act of FY1999 ( P.L. 105-245 ), which did not require the recovery of Corps of Engineers O&M expenditures from the fund for that year. Although a decrease in international trade reduced HMT collections by about $375 million in FY2009, the current HMTF balance, in conjunction with the revenue stream from the remaining HMT collections and interest payments, is considered sufficient to recover expenditures for the foreseeable future. Because the HMTF is not a separate, or "off-budget," account within the federal budget, the "surplus" in the HMTF has in effect already been spent on general government activities. HMT Revenue Generated by Port In the administration of the tax, there is no attempt to identify particular port usage and allocate funds accordingly. In other words, the HMT generates a national pool of funds, which is distributed without regard to which ports used triggered collection of the tax. However, the tax is meant to be a port user charge and comparing where the tax is assessed and where the revenues are spent raises a number of policy issues. As indicated above, almost all the tax revenues are generated by importers. This means that ports which handle a large amount of imported containerized cargo are likely to be exceptional in the amount of HMT revenues they generate since containerized cargo is generally higher in value than other cargo types. Data on cargo value is collected by the federal government only for international cargo, not domestic, so it is not possible to calculate the total amount of HMT revenue that could be collected at each port. To provide a rough indication of which ports likely generate the most HMT revenues, the top 25 ports by imported cargo value in 2005 are listed in Table 2 (2005 is the latest year available; the ranking is fairly stable from year to year). HMT revenue generation is quite concentrated. The top 15 ports account for 75% of the total value of imported cargo and the top 25 ports account for over 85% of the total value. Among the ports listed in Table 2 , Los Angeles, Long Beach, Tacoma, and Seattle stand out as ports whose customers generate a substantial amount of HMT revenue that is mostly spent on the maintenance of other harbors. Based on the HMTF expenditures these ports have received and the HMT revenues generated on imported cargo alone (not counting domestic cargo or cruise ship traffic), Los Angeles and Long Beach likely receive less than a penny on the dollar, and Seattle and Tacoma just over a penny for every dollar that import shippers who use their port pay in HMT. New York, Boston, and Houston likely receive less than a quarter of tax revenues collected. HMT Revenue Generated by Shipper Group To provide an indication of which importers generate the most revenues for the HMTF, Table 3 lists fifteen of the top commodities by value of cargo imported by vessel into the United States in 2008. These fifteen commodities account for about 82% of total cargo value imported by vessel. Imported oil accounts for about a third of total value and generates more funds for harbor maintenance than any other commodity (as classified by the harmonized system at the 2-digit level). Consumer goods also appear to generate significant HMT revenues because motor vehicles, clothing, toys and sporting equipment, furniture, footwear, beverages, and at least a portion of appliances and electrical machinery, if aggregated, account for over a third of import value. One advantage of a harbor maintenance tax based on cargo value is that those who can most afford to pay, pay more. Transport costs generally decrease as a percentage of cargo value as cargo value increases. Thus, even though the HMT rate increases for higher value shipments, the overall cost of transportation in relation to shipment value decreases for higher value shipments. But cargo value does not have much correlation with dredging needs, so it works less well as a user fee in this regard. One can say that shippers of high-value, low volume commodities (such as manufactured and finished goods) are likely to prefer a tax based on cargo tonnage rather than cargo value. Conversely, high-volume, low-value shippers (shippers of raw materials in bulk) are likely to prefer a tax based on cargo value rather than cargo tonnage. HMTF Expenditures11 Expenditures by Activity Maintenance dredging accounts for about four-fifths of the Corps' total harbor and channel O&M costs, ranging from about $525 million to close to $700 million per year in recent years. Since establishment of the fund in 1986, the St. Lawrence Seaway Development Corporation's (SLSDC) operations and maintenance expenditures related to the seaway also are funded from the HMTF. Since 1996, the administrative cost of collecting the tax by U.S. Customs and Border Protection (CBP) is also funded from the HMTF. SLSDC and CBP expenditures from the HMTF have been relatively minor compared to the USACE's expenditures related to harbor operation and maintenance. Annually, about $15 million to $20 million has been appropriated from the HMTF to the SLSDC and $3 million to CBP. Ancillary activities directly related to maintenance dredging or some other activity related to keeping a waterway unobstructed are also recoverable from the HMTF. For instance, since 1996, HMTF funds can be used to recover the federal share of construction costs for dredged material disposal facilities and about $10 million to $15 million annually has been spent on construction of these facilities. Some HMTF funds also go towards channel surveying and waterway management studies related to navigation. The USACE keeps one of its own dredges on standby for emergency dredging purposes, at a cost to the HMTF of about $5 million per year. In some harbors, drift material or aquatic weeds can be a navigation hindrance and HMTF funds are used for their removal. Maintenance of harbor breakwaters and jetties is also recoverable from the HMTF. HMTF monies have been used for the maintenance of certain bridges over waterways which are the responsibility of the Corps. In addition to the locks operated and maintained by the SLSDC, the HMTF is used to fund the operation and maintenance of a few other locks not subject to the inland waterway fuel tax and not funded by the Inland Waterway Trust Fund. These include the Soo Locks on the St. Marys River in Michigan, the Chittenden Locks on the Lake Washington Ship Canal in Seattle, the Bonneville Lock and Dam on the Columbia River in Oregon (navigation portion only, not hydropower), the Black Rock Lock at Buffalo, the Troy Lock on the Hudson River in New York, multiple locks on the Okeechobee Waterway in Florida, and a few other locks along the Louisiana coast. Shallow vs. Deep Draft Channels The USACE distinguishes HMTF expenditures for deep draft versus shallow draft harbors and channels. Deep draft is greater than 14 feet, and shallow draft is 14 feet or less. On a yearly basis, since 1987, between 81% and 90% of HMTF expenditures have been spent on deep draft harbors and channels (thus, between 10% and 19% have been spent on shallow draft waterways). Over the last decade, about 16% of total HMTF expenditures have been spent on maintenance of shallow draft channels. Most shallow draft facilities are primarily recreational in nature and therefore contribute little (if any) revenue to the HMTF. Expenditures by State As Table 4 indicates, nearly one-fifth of HMTF funds over the last decade have been spent in Louisiana. HMTF expenditures for Louisiana amount to over 2.5 times the expenditures for the second-ranking state, Texas, which accounts for about 8% of the expenditures. Michigan ranks fifth and is the only state without a salt water port in the top 15 (Ohio is the next state with only freshwater ports and ranks 17 th ). Although North Carolina is relatively expensive in terms of HMTF withdrawals, ranking 10 th and accounting for 3% of expenditures, relatively little commercial cargo is shipped on North Carolina waterways. North Carolina ranks 28 th in waterborne tonnage among the 30 coastal and Great Lakes states where the HMT is collected. In 2007, North Carolina ports handled about 8% more cargo than Rhode Island ports, but its harbor maintenance costs for the same fiscal year were nearly 20 times greater than Rhode Island's. The top 20 states in Table 4 account for 92% of HMTF expenditures from FY1999-FY2008. Expenditures per Channel A list of the most expensive channels in terms of HMTF expenditures explains the state ranking. Significant factors in determining O&M costs are the amount of sand and silt moved either by a river or by coastal wave action, the total length of a channel, and number of locks. As Table 5 indicates, the most expensive channel is the Mississippi River from Baton Rouge to the river's end at the Gulf of Mexico. This shipping channel is about 250 miles long. It accounts for 43% of Louisiana's total HMTF expenditures and about 8% of the nation's total. Hurricane Katrina may have increased the need for maintenance dredging on the waterway, but even prior to its landfall in August 2005, over twice as much HMTF expenditures were directed to Louisiana than the other leading states. Mobile Harbor in Alabama is the second most expensive, followed by the St. Marys River channel in Michigan. The St. Marys River separates Michigan from Canada, and locks on this river allow navigation between Lake Superior and Lake Huron. Other channels with locks funded from the HMTF, as identified above, are also relatively expensive and some are included among the top 25. The top 25 projects account for nearly half (49%) of total HMTF expenditures. High Expense, Low Use Shipping Channels Some of the project names listed in Table 5 may not be recognizable to harbor maintenance taxpayers because they are not harbors or channels commonly used by shippers. One example is the Oregon Inlet on the Outer Banks of North Carolina (which the USACE refers to as the Manteo-Shallowbag Bay). Over the last decade, over $60 million ($6 million per year) has been spent to dredge the inlet in an attempt to maintain the channel to its authorized depth of 14 feet and width of 400 feet. Maintaining the channel to these dimensions, let alone keeping it open, is a challenge because of the notorious amount of sand that naturally moves along North Carolina's barrier islands. Essentially, the navigation channel acts as a trap for the moving sand and must be constantly removed, if the channel is to be kept passable. Although no cargo is moved through this channel, commercial fisherman, charter boat operators, and recreational craft use the inlet. The nearby fishing ports of Wanchese and Stumpy Point, North Carolina ranked 33 rd in commercial fish landings in 2007 (22.4 million pounds). Oregon Inlet is exceptional in its dredging requirements but there are many more harbors, while individually costing less to maintain, collectively cost shippers hundreds of millions to maintain, even though no goods are shipped through them. Yaquina Bay and Harbor in Oregon is one example. This harbor has received over $25 million in HMT revenues over the last decade. No cargo has been shipped through this harbor in years, but it does rank 20 th in commercial fish landings and is a major recreational harbor. Grays Harbor (Westport) in Washington State is the 15 th most expensive harbor channel to maintain, yet, in 2007, it ranked 133 among U.S. ports in terms of the amount of cargo it handled. Over the last decade, $115 million ($11.5 million per year) has been spent keeping the channel to its authorized depth of 48 feet. About one ocean going ship and two or three coastal barges call at this port per week. For comparison, the nearby ports of Seattle and Tacoma (Sea/Tac) have withdrawn a combined total of $16.8 million over the last decade from the HMTF ($1.7 million per year), yet these ports handle about 75 ocean going ships and thousands of barges per week and handle 44 times more cargo than does Grays Harbor. Per ship call, maintenance dredging costs at Sea/Tac amount to less than $500, while at Grays Harbor they amount to over $250,000. Although little cargo moves through Grays Harbor, it is much more significant to commercial fishermen and recreational boaters. In 2007, it ranked 13 th in commercial landings of fish (98.3 million pounds). A similar situation occurs further down the coast at Humboldt Harbor (Eureka), California, which, like Grays Harbor, is highly dependent on trade in wood products. This harbor handles even less cargo than Grays Harbor, 722,000 short tons in 2007, which is not enough cargo even to make the list of the top 150 U.S. ports. Even so, about $4.5 million per year is spent from the HMTF for maintenance dredging, making it the 33 rd most expensive harbor to maintain. In 1998, the port embarked on a deepening project from 40 to 48 feet but ship traffic has declined since then. About one ocean going ship calls at this port per month. Barge traffic is a little more frequent. Barges do not have the same draft requirements as oceangoing ships. Other high cost waterways are canals that see little or no use by cargo shippers, at least not the big ships that would require the depths to which the canals are maintained. One example is the Cape Cod Canal, built in 1914 by a private financier who figured vessels would prefer the shorter route through the canal than the more circuitous and precarious route around the Cape. It was sold to the federal government in 1928 because not enough vessel operators preferred the canal route to make it commercially viable. Today, shippers are paying $7.7 million per year for the USACE to maintain it. The only cargo shipped through the canal on a regular basis is fuel oil in barges. The Cape Cod Canal costs nearly twice what it costs to maintain the Port of Boston's channels but handles less than half the cargo. Another example of an expensive canal of little use to shippers is the Lake Washington Ship Canal (LWSC) that connects the Puget Sound with Lake Washington. Although located in Seattle, no shippers use the canal because all of the Port of Seattle's cargo terminals are located on the Sound, thus ships have no reason to transit the canal. The canal's cargo traffic is limited to intraport barge movement of sand and gravel, but it has cost HMT taxpayers $63 million to maintain over the last ten years which, like Grays Harbor, is tens of millions more than the costs to maintain the Ports of Seattle and Tacoma shipping channels combined. On a daily basis, an average of 100 pleasure boats (see Figure 2 below), transit the canal, accounting for about 82% of the canal's traffic. (Boaters prefer to dock in freshwater as there are no tides to contend with). Based on the number of vessels of all types that have transited the canal over the last decade (538,135 vessel transits), each vessel would have to pay $117 per transit if the maintenance costs were to be recovered from the canal's users. This indicates the nominal value that shippers are providing recreational boaters each time they pass through the canal. If recreational boaters were charged a fee based on the size of their boat, some say, it could correlate well with their lock usage and likely their ability to pay. Neither of these canals is as expensive to shippers as the Chesapeake and Delaware Canal (a.k.a. the C&D Canal) which has cost HMT taxpayers over $128 million in the last decade to maintain, almost three-fourths of what it has cost to dredge the entire Delaware Bay from the Port of Philadelphia to the Atlantic Ocean. As its name implies, the canal connects the Delaware Bay with the Chesapeake Bay, cutting across the State of Delaware. The canal was built because it was thought ships would take this short cut between the ports of Baltimore and Philadelphia. While the C&D Canal carries about 15 million short tons of cargo per year, ports along the Delaware Bay handle over 125 million short tons. The C&D Canal costs almost six times more, on a per ton basis, than the cost to maintain the entire Delaware Bay. Great Lakes Harbor Maintenance Costs Great Lakes carriers and ports refer to a lack of adequate dredging as a crisis in their waterway system, noting that many ships are "light loading" (carrying less cargo than the ship's capacity to reduce draft). Lower than normal precipitation has affected lake levels in some years. The Great Lakes Maritime Task Force, a coalition promoting Great Lakes shipping, asserts $200 million per year in maintenance funding is needed to restore the system to its authorized dimensions, but have only been appropriated about $90 million per year. While Great Lakes harbors and channels have accounted for 14% of total HMTF withdrawals over the last decade, shipping on the Great Lakes represents less than 10% of the total foreign and domestic tonnage shipped through ports subject to the HMT. Maintenance costs amount to about 60 cents per ton of cargo carried (based on 1998-2007 data) which, as Figure 3 indicates, makes the Great Lakes system one of the less efficient waterways. Because Great Lakes shipping consists mostly of relatively low dollar value raw materials (iron ore, coal, and limestone), it does not generate much HMT revenue (in 2005, Great Lakes ports accounted for only 0.3% of the nation's total value of waterborne imports). Thus, under the present financing scheme, the Great Lakes region relies heavily on coastal port use by importers to maintain its harbors. Wide disparities exist among harbors when maintenance costs are compared on a per ton basis, as there is little need for channel maintenance at some of the busiest ports in the country while some rarely used ports or channels require extensive maintenance. Figure 3 illustrates this disparity among selected U.S. harbors. Harbors that handle little or no cargo may generate economic benefits for nearby communities through recreational boating or commercial fishing activity. However, recreational and fishing vessels do not require the same channel depths and widths as ships, and paying for their maintenance by increasing shipping costs can be seen as a shift of finite resources from those who pay the tax as a user fee to those who do not. High Use, Low Expense Shipping Channels While significant amounts of HMT funds are spent at harbors and channels that see little or no ship traffic, says the Corps, the busiest shipping channels in the country are not being maintained to their authorized depths and widths. As mentioned above, according to the Corps analysis, full channel dimensions are available less than an average of 35% of the time at the 59 highest use U.S. harbors. Most, if not all, of the busiest ports in the country generate more than sufficient HMT revenue to cover Corps O&M expenditures at their port, even at exceptionally dredging-intensive ports like those on the Mississippi River in Louisiana. While the top ten ports account for nearly 70% of the total value of foreign goods shipped through U.S. ports, these ports have received about 16% of total HMTF expenditures over the last decade. In terms of ship traffic, 80% of oceangoing ships arriving in the United States call at one of the nation's twenty busiest ports, but these twenty ports, based on a rough calculation, account for less than 40% of total HMTF expenditures. As indicated above, a good portion of the HMT revenues that shippers generate are used to dredge channels used mostly by either recreational boaters or commercial fishermen, which do not pay the HMT. Given the amount of HMT collections unspent on harbor maintenance and the amount spent on shallow draft or little used deep draft harbors, a rough estimate is that only 30 to 45 cents of every HMT tax dollar paid is being spent on harbors that shippers readily use. Some might argue that to target one group of harbor users for assessing a fee and then to distribute revenues mostly, or entirely, in the case of some harbors, for the benefit of other users, undermines the "trust fund" and "user fee" concept. Moreover, since fishing and marinas are commercial enterprises and private recreational boaters (and especially yacht owners) are not indigent harbor users, it might be asked why these users could not also contribute to the cost of maintaining the harbors they use. As originally introduced, the HMT would have been assessed on commercial fishermen. An amendment exempting commercial fishing from paying the tax was agreed to during Senate committee consideration. Recreational boaters currently pay federal fuel taxes and import duties, which are used, among other things, to fund boat safety programs and recreational boat docking and sewage disposal facilities, but are not used to fund dredging activity. This fund, the Sport Fish Restoration and Boating Safety Trust Fund, generates an equivalent amount of revenue on an annual basis as the HMT. Port Cross-Subsidization: Advantages, Disadvantages Because the HMTF provides a national pool of funds for channel dredging rather than a port specific one, naturally deep harbors subsidize shallower ports. Thus, the present funding system levels the playing field among ports with different dredging requirements. Some might contend that it draws traffic away from more efficient ports to less efficient ports, in terms of dredging costs, thereby raising the Nation's overall cost of moving goods through the marine transportation system. Cross-subsidies among ports would be eliminated if funds generated at a particular port were reserved solely for that port's local dredging needs rather than becoming part of a nation-wide fund. However, a port-specific funding system would favor busy ports over ports that are underutilized. With more ship traffic, larger ports would not have to charge as much per ship or shipment to recover dredging costs as smaller ports (for example, the tremendous difference in dredging costs per ship call between Grays Harbor and SeaTac cited earlier). Some small ports would either have to close or service only small ships. Thus, a national pool of funds provides maintenance funds to smaller ports that otherwise would be economically unviable. However, smaller ports could reduce the overland transport costs for nearby importers or exporters, thereby promoting economic development in the region. There are also river systems that have significant levels of industry along them and the inability to move bulk cargoes out of smaller ports could diminish U.S. exports. Smaller ports can also provide shippers the option of moving cargo through less congested ports. For instance, Chrysler recently announced that it would begin exporting cars to Asia through Grays Harbor in Washington, in part, for this reason. If not handling cargo, smaller ports can still service the maritime industry in other ways. Smaller ports can be strategically located in terms of providing a "harbor of refuge" for vessels in distress, as a base for Coast Guard search and rescue operations, or as a homeport for government research vessels. For example, the National Oceanic and Atmospheric Administration (NOAA) recently announced that it would be moving its West Coast vessels from Seattle to Yaquina Bay and Harbor in Oregon. Legislative Activity in the 111th Congress In the 111 th Congress, several bills were introduced to either change the tax rate or how revenues from the tax are spent. H.R. 3486 , H.R. 638 , S. 551 , and S. 1509 would repeal the tax on domestic waterborne non-bulk cargo and cargo imported from Canada through the Great Lakes for the purported purpose of mitigating highway congestion by diverting shipments from truck to water modes. Groups supporting this legislation contend that in addition to the HMT rate, the administrative burden of filing the tax discourages potential waterborne shippers, because they do not pay a separate tax when shipping by truck or rail. Others question to what extent this is true, however. Most truck shippers are not located on waterways and therefore would require a truck move to and from the loading and discharge ports to utilize waterborne transportation. These truck and cargo transferring costs could be a significant cost impediment for truck shippers to utilize waterborne transportation, regardless of the HMT. H.R. 3447 would do away with the requirement that HMTF spending be appropriated by Congress giving the USACE more autonomy over the amount spent yearly on harbor maintenance. H.R. 4844 / S. 3213 would provide a "spending guarantee" modeled after the Airport and Airway Trust Fund. The intent is to match annual spending levels with annual HMT collections. Opponents of these proposals argue that they would inhibit Congress' ability to adjust funding priorities from year to year. H.R. 2355 would increase the tax rate to 0.4375% ($4.38 per $1,000 in cargo value) and expand use of the fund for landside port improvements in addition to the waterside maintenance performed by the Corps. Increasing the capacity of highways and railroads leading to seaports has been an issue as Congress debates reauthorization of surface transportation funding programs, but minus a federal fuels tax increase, a major stumbling block has been how to increase federal funds for surface transportation improvements. The Obama Administration, in its FY2010 budget submission, requested that a pilot project be created to examine the feasibility of having local users finance the maintenance dredging of channels with little or no commercial traffic. Congress reduced the amount of funding for this program from $1.5 million to $1.4 million. The Administration requested an additional $1.5 million for FY2011 and indicated that a report documenting the pilot's program findings would be prepared. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) provided $4.6 billion for the USACE Civil Works Program, of which $2.3 billion was appropriated for operation and maintenance. A Corps Recovery Act spending plan indicates that $670 million in O&M work will be derived from the HMTF.

In 1986, Congress enacted the Harbor Maintenance Tax (HMT) to recover operation and maintenance (O&M) costs at U.S. coastal and Great Lakes harbors from maritime shippers. O&M is mostly the dredging of harbor channels to their authorized depths and widths. The tax is levied on importers and domestic shippers using coastal or Great Lakes ports. Due to a Supreme Court decision in 1998, exporters no longer pay the tax because it was found unconstitutional. The tax is assessed at a rate of 0.125% of cargo value ($1.25 per $1,000 in cargo value). The tax revenues are deposited into the Harbor Maintenance Trust Fund (HMTF) from which Congress appropriates funds for harbor dredging. Despite a large surplus in the trust fund, the busiest U.S. harbors are presently under-maintained. The U.S. Army Corps of Engineers (Corps) estimates that full channel dimensions at the nation's busiest 59 ports are available less than 35% of the time. This situation can increase the cost of shipping as vessels carry less cargo in order to reduce their draft or wait for high tide before transiting a harbor. It could also increase the risk of a ship grounding or collision, possibly resulting in an oil spill. To rectify this situation, some are calling for increasing disbursements from the trust fund. However, Corps data indicate that a significant portion of annual HMTF disbursements are directed towards harbors which handle little or no cargo. The Oregon Inlet in North Carolina, Grays Harbor in Washington, Humboldt Harbor in California, and the Lake Washington Ship Canal in Seattle are some of the harbors or waterways that fit this description. Commercial fishermen and recreational boat (or yacht) owners account for most, if not all, of the vessel traffic in these harbors. Fishermen and recreational boaters do not pay the HMT. Some might argue that to target one group of harbor users for assessing a fee and then to distribute revenues mostly, or entirely, in some cases, for the benefit of other users, undermines the "trust fund" and "user fee" concept. The Administration requested and Congress provided funding for a pilot program that began in FY2010 to investigate the feasibility of having non-cargo harbor users finance the dredging requirements of harbors with little or no commerce. In addition to the distribution of HMT revenues for the benefit of non-cargo harbor users, there are also equity issues associated with HMT revenue distribution among the nation's top commercial ports. Due to geological differences, ports vary greatly in the amount of dredging they require. About one-fifth of HMTF expenditures are spent in Louisiana. The ports of Mobile, AL, and Portland, OR also are relatively expensive to maintain. The amount of HMT revenue ports generate also varies significantly due to differences in the amount and characteristics of the cargoes they handle. Consequently, HMT revenues are redistributed from ports that are large import gateways with naturally deep channels to lower volume ports that require frequent dredging to maintain adequate channel depths and widths. The ports of Los Angeles, Long Beach, Seattle, and Tacoma, and to a lesser degree, Boston, New York, and Houston are large net generators of HMT revenue. International cargo predominates at most ports. Ports compete for this cargo, and the growth of containerized cargo and the prospective expansion of the Panama Canal have intensified competition among U.S. ports. Legislation was introduced in the 111th Congress that had varying objectives regarding the HMT. H.R. 3447 and H.R. 4844/S. 3213 would spend down the surplus in the HMTF. H.R. 2355 would increase the tax rate and expand use of the HMTF for landside port infrastructure improvements. H.R. 3486, H.R. 638, S. 551, and S. 1509 would repeal the tax on non-bulk cargo shipped on the Great Lakes and along the coasts in an effort to divert truck cargo from congested highways to waterways. None of these bills were enacted.

Background Combating terrorism has emerged as one of the most important U.S. foreign policy and national security priorities. The number of terrorist groups is reportedlygrowing and the technology to inflict mass casualties is becoming more readily available. The United States andother cooperating nations confront four majortasks, namely, (1) deterring/identifying terrorists and their sponsors/supporters, (2) weakening terrorist financial andother infrastructures, (3) hardening potentialtargets, and (4) containing damage in the aftermath of terrorist incidents. The 105th Congress, in response to what is seen as a growing terrorist threat, created the ten-person, bi-partisan National Commission on Terrorism to evaluateU.S. laws, policies, and practices for preventing and punishing terrorism aimed at U.S. citizens ( P.L. 105-277 ). Theresulting NTC report, Countering theChanging Threat of International Terrorism, was issued on June 5, 2000. It calls on the U.S. government toprepare more actively to prevent and deal with afuture mass casualty, catastrophic terrorist attack. The report advocates: (1) using full, and what can be characterized as proactive, intelligence and law enforcement authority to collect intelligence regardingterrorist plans and methods; (2) targeting firmly -- and with sanctions -- all states that support terrorists; (3)disrupting non-governmental sources of terrorists'support -- especially financial and logistical; (4) enhancing planning and preparation to respond to terrorist attacksinvolving biological, chemical, radiological ornuclear materials; and (5) creating stronger mechanisms to ensure that funding for individual agencycounterterrorism programs reflects priorities integrated into acomprehensive national counterterrorism plan subject to congressional oversight. The report suggests that the United States is drifting away from a strong policy of combating state support of international terrorism and is generally too passiveand not proactive enough in combating a threat that is becoming more deadly, diffuse, and difficult to detect. Implicit in the report is the suggestion that theUnited States, by drifting away from a strong policy to combat state support of international terrorism, may wellbe encouraging more terrorism. In citingincidences of such a drift in policy, the report suggests there is a softening of U.S. positions on Iran and Syria andpoints to a perceived U.S. weakness in notaggressively confronting Pakistan's support for terrorist groups. It also notes U.S. failure to use sanctions, or thethreat thereof, in response to Greece'sinactivity/reluctance to investigate and prosecute terrorist activity -- inaction by Greece which is portrayed astantamount to complicity. While recognizing thegrowing danger posed by lone-wolf terrorists and loosely affiliated private transnational groups, the report intimatesthat U.S. policy may be too heavily focusedon Usama Bin Laden. Highlights of the Report Areas addressed in the report's recommendations include the following: Expanding sanctions on state sponsors/uncooperative nations Greece and Pakistan. The report notes that "Greece has been disturbingly passive in response to terroristactivities." It comments that since 1975 there have been 146 terrorist attacks against Americans or Americaninterests in Greece with only one case being solvedand no meaningful investigation into the others. The report cites examples of past Pakistani anti-terrorismcooperation but stresses that "Pakistan providessafehaven, transit, and moral, political, and diplomatic support to several groups engaged in terrorism" (in Kashmir). The NTC recommends that the President consider imposing sanctions against Greece and Pakistan under provisions of U.S. law ( P.L.104-132 ) that limit armssales to countries not "fully cooperating" with the U.S. on anti-terrorism efforts. Enactment of legislation makingcountries which have been designated as not"fully cooperating" with U.S. counterterrorism efforts ineligible for the U.S. visa waiver program is also called for. In general, the Commission recommendsexpanding the broad use of sanctions to include, not just state sponsors, but nations not fully cooperating. Currently,U.S. law also requires the withholding offoreign assistance to nations providing lethal military assistance to nations on the U.S. list of state sponsors ofterrorism -- a little-known provision of P.L.104-132 , but one that the Administration has used to help persuade some countries not to provide arms toterrorist list states. Iran. The report expresses concern that U.S. efforts to signal support for political reform in Iran could bemisinterpreted in Iran or by U.S. allies as a weakening of resolve on counterterrorism. The report calls for thePresident to make no further concessions to Iran andto keep Iran on the terrorism sponsors list until it ceases to support terrorism and cooperates fully in the investigationof the June 1996 Khobar Towers bombingwhich resulted in the death of U.S. servicemen in Saudi Arabia. It also calls upon the President to actively seeksupport from U.S. allies to compel Iraniancooperation in the Khobar towers investigation. Syria. The report recommends that the President make it clear that Syria will remain on the state sponsors listuntil it shuts down terrorist training camps in Syria and the Bekaa valley and prohibits resupply of terrorist groupsthrough Syrian controlled territory. Afghanistan. The report notes that the United States has not designated Afghanistan as a state sponsor ofterrorism because it does not recognize the Taliban regime. Nevertheless, it recommends designating Afghanistanas state sponsor and imposing sanctions againstthe Kabul regime. Role of the Armed Forces Under extraordinary circumstances when a catastrophic event is beyond the capabilities of local, state, and other federal agencies, or is directly related to an armedconflict overseas, the report suggests that the President may want to consider designating the Department of Defense(DoD) as the lead federal agency for thegovernment's response in the event of a catastrophic terrorist attack on U.S. soil. The report calls for detailedcontingency plans for the Defense Department'srole, which could include transfer of command authority to the Pentagon, in the event of a catastrophic event wherethe command and control, logistical,communications and specialized ability of the military to respond to chemical/biological/radiological incidentswould be required. The Commission believes thatadvance planning is the best way to prevent curtailment of individual liberties in a weapons of mass destructionscenario. Enhancing foreign student visa data retrieval capability Critics of current Immigration and Naturalization Service (INS) student visa status tracking mechanisms often refer to them as being in the "stone age." In amove which has been characterized as an effort to "substitute computers for shoeboxes," the report recommendsexpanding an existing computerized pilotprogram designed to facilitate data retrieval capability to more efficiently monitor the immigration/visa status ofstudents from abroad. This would facilitateaccess to whereabouts of students from terrorist-list countries and could "flag" a student from such a country whosuddenly changes majors from a field such as artto biochemistry or nuclear physics. The report notes that one of the convicted terrorists involved in the World TradeCenter bombing entered the U.S. on a studentvisa, dropped out and remained illegally thereafter. Full use of law enforcement and intelligence authority The report recommends that existing CIA guidelines restricting recruitment of unsavory (criminal) sources not apply to recruiting counterterrorism sources. Alsorecommended is that the FBI guidelines governing criteria for investigating suspected terrorists or groups beclarified to permit full use of legal authoritiesincluding the authority to conduct electronic surveillance. Expulsion of suspected terrorists Expulsion of suspected terrorists can be a touchy civil liberties issue. In a move designed to minimize what some see as past governmental abuse in expulsioncases handled by INS procedures, the report recommends use of the Alien Terrorist Removal Court (ATRC)(created by Congress in 1996 by section 401 of P.L.104-132 , but heretofore unused) to expel terrorists from the United States in instances where criminal prosecutionis not possible. This process containssafeguards designed to protect national security and classified evidence (sources and methods), but also accords theaccused the right to challenge such evidence. National terrorism response exercises The report recommends that senior federal government officials involved in responding to a catastrophic terrorist threat or incident be required to participate innational response exercises every year to test capabilities and coordination. Cyberterrorism/cybercrime The report calls on the Secretary of State to take the lead in developing an international convention aimed at harmonizing national laws, sharing information,providing early warning, and establishing accepted procedures for conducting international investigations ofcybercrime. Counterterrorism budget process The report recommends that the senior National Security Council (NSC) official in charge of coordinating overall U.S. counterterrorism efforts be given a strongerhand in the budget process and that Congress develop a mechanism for comprehensive review of this process andconsolidate the process in fewer committees. Issues for Congress Protecting civil liberties, while effectively combating terrorism, remains a strong area of concern in Congress. A number of the Commission's recommendationshave drawn sharp criticism from civil libertarian and Arab-American groups. This is especially true of thoserecommendations which relate to (1) enhancingintelligence gathering; (2) modernizing retrieval capability of databases which monitor the visa status of foreignstudents; (3) expulsion of suspected terrorists; and (4) contingency planning for an active military role (including a possible lead role) in the event of a catastrophicterrorist attack on U.S. soil. In addition, it isinteresting to note that although the Commission's report addresses an impressive array of counterterrorism issues,the list of issues examined is less thanexhaustive, leaving a few complex, unresolved, and potentially "prickly" issues unaddressed. These issues wouldseem to warrant additional congressionalattention. Civil Liberties Concerns In democracies such as the United States, the constitutional limits within which policy must operate are sometimes seen to conflict with a desire to moreeffectively secure the lives of citizens against terrorist activity. Combating terrorism requires government activitydesigned to gather information on, and restrictthe activities of, individual terrorists and groups seeking to engage in direct or indirect terrorist activity. The greaterthe magnitude of any such acts, the greater thepressure on societal institutions to provide security for their citizens. A challenge facing the policy community ishow -- in a growing age of globalization,deregulation, democracy and individual freedom -- to institute regulatory and monitoring mechanisms which helpdeter, identify, and track terrorists and generallyhinder their operations. Implicit in the reasoning of the Commission's report is that combating terrorism --particularly in the wake of a mass casualtycatastrophic incident -- may require restrictions on individual liberties. The assumption is that carefully plannedand measured restrictions in advance of acatastrophic incident coupled with well thought out contingency planning for a constructive military role in theaftermath of an incident constitute an effective wayof preserving, and not diminishing, individual liberties and democratic freedoms andinstitutions. Unresolved Issues The report is noteworthy for what it does not address as well as for what it addresses. Areas not covered in the Commission's report but dealt with by other panelsor expert advisory groups include (1) U.S. embassy security (1999 Overseas Advisory Panel Report); (2) securityof U.S. military installations overseas (1996Downing Commission Khobar Towers Report); and (3) weapons of mass destruction (WMD) disaster consequencemanagement (1999 Gilmore CommissionReport). Issues within the purview of the Commission's mandate, but not addressed in its report or in the reports cited above include: (1) Who should be in charge of U.S. counterterrorism policy, and what are the best organizational mechanisms for policy formulation and implementation; (2) How does one effectively utilize the gamut of tools available to policymakers to combat terrorism: i.e., public diplomacy, economic and political sanctions,covert action, military force, and international cooperation and agreements; (3) How does one prioritize for budget purposes whatever is viewed as an appropriate mix of counterterrorism resources to facilitate assuring that importantcomponents are neither short-changed or overfunded depending on political "clout"; (4) How effective are sanctions and military force as policy tools; how might their use be improved; and how are commercial interests balanced in the equation. For example, how might sanctions be fine tuned or graduated to enhance their effectiveness and make theirimposition more likely; (5) What is an appropriate role for covert operations in a proactive counterterrorism policy (should the U.S. ban on assassinations be reviewed); (6) How can one insure that the best international talent joins forces to enhance technological research and development efforts to support counterterrorism goals;and (7) What role, if any, should the media assume in a proactive counterterrorism policy. Also absent from the report, which largely focuses on the "stick" approach to combating terrorism, are suggestions for use of expanded "carrot"options which maymoderate the behavior of rogue states or terrorist groups. Supporters of these types of incentives argue that theyfacilitate achievement of antiterrrorist goalswithout compromising core values or principles, and without giving in to the demands of terrorists. Theseapproaches include options such as constructiveengagement, creative foreign aid or trade packages, or expanded use of rewards for information programs. For example, if U.S. trade with China is deemed to produce a moderating effect on China's rogue human rights policy, supporters of the "carrot" approach mightargue that trade with Libya could have a moderating effect on that nation's rogue terrorism policy. Answers are farfrom clear, but pursuit of innovative"carrot"-oriented options, coupled with a strong "stick" approach, may, or may not, produce varying degrees ofsuccess in dealing with such groups as the IRAand PLO. And many still suggest that use of such options may well produce positive results with countries that seemto be moving in a positive direction such asIran. Conclusion The National Commission on Terrorism's report and recommendations on countering the changing threat of international terrorism are likely to spur strongcongressional interest in counterterrorism policy during the 107th Congress. The most likely areas ofscrutiny include: (1) more productive counterterrorismpolicies and mindsets; (2) enhanced use of legislative authority to impose sanctions on states that support or activelycountenance terrorism, and (3) methods ofachieving a more cohesive, better coordinated federal counterterrorism effort through enhanced budget coordinationmechanisms.

On June 5, 2000, the National Commission on Terrorism (NTC), a congressionallymandated bi-partisan body, issueda report providing a blueprint for U.S. counter- terrorism policy with both policy and legislative recommendations.The report could be significant in shaping thedirection of U.S. policy and the debate in Congress. It generally argues for a more aggressiveU.S. strategy in combating terrorism. Critics, however, argue thatNTC conclusions and recommendations ignore competing U.S. goals and interests; i.e that a proactive strategymight lead to the curbing of individual rights andliberties, damage important commercial interests, and widen disagreements between the U.S. and its allies overusing the "stick" as opposed to the "carrot"approach in dealing with states that actively support or countenance terrorism. The NTC report is likely to stimulate strong congressional interest in counterterrorism policy in the 107th Congress. Likely areas of focus are (1) a more proactivecounterterrorism policy; (2) a stronger state sanctions policy; and (3) a more cohesive/better coordinated U.S.federal counterterrorism response. January 23, 2001press reports indicate that Rep. J.C. Watts (R-Okla) has urged House Speaker Dennis Hastert to create a HouseSelect Committee on Domestic Terrorism. In the106th Congress, H.R. 4210, which passed the House, would also give added attention todomestic terrorism by establishing a President's Council onDomestic Preparedness in the White House. Moreover, in the 106th Congress, S. 3205, the(Kyl-Feinstein) Counteterrrorism Act of 2000, whichpassed the Senate, incorporated a number of recommendations of the NTC including measures to ensure (1)enhanced policy emphasis on control of biologicalpathogens and terrorist funding raising; (2) better sharing of FBI intelligence; (3) easier recruitment of CIAcounter-terrorism informants; and (4) maintainingSyria and Iran on the list of countries that sponsor terrorism. This report will not be updated.

Recent Developments On June 29, the Guardian Council confirmed the validity of the election outcome despite ongoing complaints of irregularities from reformist candidates Mir Hussein Musavi and Mehdi Karrubi. In its official letter to the Interior Minister, the Council acknowledged "minor violations that happen in every election and can be ignored," but insisted that, after a recount of a randomly selected 10% of the votes, the results were valid. Musavi, along with Karrubi and former President Mohammad Khatami have continued to reject the election results, and Musavi has called for "independent arbitration" of the election disputes. Meanwhile, the government continues its crackdown on protestors in Tehran and elsewhere and continues to level accusations of "foreign interference" in Iran's domestic affairs by Great Britain and other Western countries. On June 28, nine local staff members of the British embassy in Tehran were reportedly arrested for "inflaming post-election tensions in Iran." In response, EU nations on July 3 summoned Iranian ambassadors and threatened to withdraw their ambassadors from Tehran if the employees were not released. Since then, eight of the nine employees detained have reportedly been released, but one remains in custody. Senior Iranian cleric Ayatollah Ahmad Jannati announced during Friday prayers on July 3 that the remaining embassy staffers in custody would "inevitably be tried as they have made confessions." Many observers view this move as part of an ongoing campaign by the Iranian government to blame the post-election protests on the West, and to use allegations of foreign interference to distract from the government's use of force against the demonstrators. Supreme Leader Khamenei along with the military apparatus of the state appears willing and capable, at this point, of imposing the election outcome by force. While smaller protests have continued since the June 20 crackdown, most observers agree that Musavi and his supporters, at least in the short-run, cannot maintain their momentum as long as the Revolutionary Guard and Basij are deployed to stop demonstrations. Many analysts have turned their attention to the possible long-term implications of the post-election unrest on both the government of Iran and Iranian society. Following the Guardian Council's announcement on June 29, fissures in the Iranian government appeared to surface, particularly within the clerical establishment. Initial speculation about tension within the government centered around Ali Akbar Hashemi Rafsanjani, who has in the past clashed with Khamenei and who initially was silent on post-election events. On June 29, however, Rafsanjani reportedly accepted the outcome of the election review and praised the Supreme Leader for extending the time allowed for the investigation. While some observers view Rafsanjani's statement as an expression of support for Khamenei and an Ahmadinejad presidency, others suspect that Rafsanjani is acting out of his own self-interest, and is supporting the Guardian Council's decision to preserve his own political standing and protect himself and his family from possible action against them. More recently, attention has focused on the holy city of Qom, where two prominent clerical groups have expressed opposing viewpoints on the election outcome. The Association of Researchers and Teachers of Qom Seminary expressed their disapproval of the Guardian Council's decision and urged the judiciary to release all detainees and arrest those responsible for "beating, death, and damage." While some analysts perceive that the religious establishment is beginning to split, others downplay the statements of this group, citing that the most powerful and influential group, the Society of Scholars of Qom Seminary, has congratulated Ahmadinejad on his reelection and accepted the ruling of the Guardian Council. Iran's 2009 Presidential Election The reported outcome of the June 12, 2009 presidential election in Iran prompted public demonstrations in several major cities of a size and intensity unprecedented since the Iranian Revolution of 1979. The announcement that President Mahmoud Ahmadinejad was reelected by a 62% margin was followed by allegations of vote rigging and election fraud. Supporters of leading reformist candidate Mir Hussein Musavi and others staged large protests in the streets of Tehran and other major cities that have drawn international attention. The actions taken by the Iranian government in the hours following the election, ongoing demonstrations, arrests, and clashes between civilians and Iran's paramilitary Basij forces have led some observers to argue that Iran's political dynamics have shifted considerably, and that the relationship between the government of the Islamic Republic and its citizens has been fundamentally shaken. While some analysts have speculated about military coups, color revolutions, and the future of the Iranian regime, others have reserved judgment about the likelihood of various potential short term developments because of the unpredictability inherent in this dynamic situation. Iran's institutions and centralized decision making are opaque and the United States has not had a diplomatic presence in Iran since the Islamic Revolution in 1979, further limiting its understanding of the Iranian system. Outside observation and analysis is further hampered by the fact that the Iranian government has restricted access to foreign and domestic journalists and interrupted the availability of mobile phone service and various internet sites and services. The long term effects of the election and its aftermath on Iran's political system and social contract are difficult to foresee. Short term, it appears that government has decided to impose the election outcome by force. As a result, many analysts agree that the events surrounding the 2009 Iranian presidential elections and aftermath have upset the balance between the official and civil spheres of Iranian society and will have long term implications for both the government and the people of Iran and for U.S. policy. Candidates and Campaigns In 2009, nearly 500 candidates for Iran's presidency filed their candidacy with the Guardian Council. On May 20, 2009, the council announced that four candidates had been approved: incumbent president Mahmoud Ahmadinejad, conservative Mohsen Reza'i, reformist Mir Hussein Musavi, and reformist Mehdi Karrubi. Social and political restrictions are often eased in Tehran during campaign season, but observers remarked that public activity this year was notably more energetic than would be expected. Some attribute this shift to the four years of crackdowns on social freedoms that have characterized President Ahmadinejad's term in office. Others attribute the pre-election atmosphere to increased public tension between the candidates in the days leading up to the election, when the campaign became increasingly acrimonious. During the week of June 3, 2009, the candidates participated in six live debates. The debate between incumbent President Mahmoud Ahmadinejad and reformist candidate Mir Hussein Musavi was particularly heated, most notably because of Ahmadinejad's open criticism of Musavi's wife, Zahra Rahnavard. The debates offered the public an opportunity to observe fierce exchanges between the candidates for the first time in a presidential election and reportedly were watched by 40 to 50 million viewers, according to Iranian media reports. On June 9, Ali Akbar Hashemi Rafsanjani, a former president who now heads two powerful oversight bodies, issued an open letter complaining about the silence of Khamenei following the "insults, lies, and false allegations" by Ahmadinejad during the campaign debates. It is rare in Iran for senior leaders to publicly criticize the supreme leader and many observers viewed the letter as a reflection of the intensity of the campaigns. Others perceive that Rafsanjani, who is often at odds with the Khamenei and lost the 2005 presidential race to Ahmadinejad, may be interested in forming an alternate power center in the government. Rafsanjani later accepted the election results, perhaps out of political self-interest. Musavi appeared to experience a surge in public support in the final days of the campaign. The night before the election, on June 11, Musavi supporters reportedly formed a human chain on a main thoroughfare through Tehran. The mass rally prompted some analysts and observers to speculate that Ahmadinejad's chances at reelection were dwindling. Some reports that the rural and urban poor population of Iran was shifting its support away from Ahmadinejad also surfaced in the week before the election. Many attributed this to increases in inflation and unemployment, compounded by international sanctions and the global financial crises that had disproportionately affected the poor, despite increases in wages and pensions provided under the Ahmadinejad government. The large rallies in favor of Musavi during the last days of the campaign may have caused alarm among some factions of the Iranian government. Prior to the election, Iranian Revolutionary Guard Corps (IRGC) commander General Mohammad Ja'fari publicly stated that any attempt at a velvet revolution in Iran would be crushed. The statement further fueled speculation that the regime felt threatened by the apparent popularity of Musavi in the last days of the campaign. As observers watched the campaign unfold, most predicted a close race between Musavi and Ahmadinejad and many anticipated that a run-off would be necessary to determine a winner. Many observers also agreed that voter turnout may tip the election in favor of Musavi. During past elections, low voter turnout has been due in part to boycotts on the part of reform-minded Iranians, including many Iranian Americans who are eligible to vote. The Iranian system, in which the Guardian Council chooses which candidates are eligible to run, has in the past led some Iranians to feel that they have no genuine choice among the candidates. Election and Results On June 12, following the heated campaign between Musavi and Ahmadinejad, Iranians went to the polls. Record voter turnout was reported throughout the day and the Interior Ministry ordered that voting centers stay open to accommodate those waiting to vote. Many observers were optimistic that pro-reform segments of the population, who had boycotted elections in the past, had gone to the polls in favor of Musavi. Large campaign rallies prior to the election had even sparked discussion of a possible "Green Revolution." As the polls closed, however, the prospects began to dim for a Musavi victory, and for a popularly-accepted election outcome. As the polls closed, police and Basij paramilitary forces reportedly were deployed throughout Tehran, locking down the Interior Ministry where votes were being counted. Internet sites and mobile phones were also reportedly disabled. Less than three hours after the polls closed, the Interior Ministry announced that the election results were in and that Mahmoud Ahmadinejad had won, capturing 62% of the vote. The Interior Ministry also reported that 39 million votes were cast (about 85% of Iran's eligible voters), an unprecedented turnout. Following the announcement by the Interior Ministry, Supreme Leader Ayatollah Ali Khamenei issued a statement congratulating President Ahmadinejad, which most observers interpreted as a certification of the election results. Khamenei said the "miraculous hand of God" was evident in the "great epic" of the election. Both Ahmadinejad and Musavi claimed victory as the announcement was made, even before the Guardian Council certified the results. Allegations of Fraud Since no independent international observers were present for Iran's elections, it is difficult to ascertain the extent of alleged vote rigging or election violations that may have taken place. The expulsion of most foreign journalists from Iran and the government's interruption of mobile and internet communication have further complicated efforts to gain a clear picture of the events surrounding the election and its aftermath. While many democracy promotion groups and NGOs have criticized the elections process in Iran as undemocratic, most agree that Iran's election procedures have been relatively well codified and that the irregularities reported in this particular election were substantial. However, in the 2009 presidential election, doubts about the wide margin of victory reported for Ahmadinejad have overshadowed a number of serious procedural irregularities reported on election day, which are the subject of the formal complaints filed by the defeated candidates. The Guardian Council reportedly received and nearly 650 poll complaints from the three losing candidates. Musavi's formal complaints include: the heads of governors' offices sabotaged the issuance of identification cards to electoral observers before the ballots were collected and counted manually; ballot papers were not distributed properly in Shiraz and Tabriz; additional television campaigning was allowed for Ahmadinejad; the headlines of agencies including Rajanews, Fars, and IRNA focused on Ahmadinejad's victory in the election; and Article 40 of the Criminal Code regarding army-related crimes was broken through the involvement of Basij members in Ahmadinejad's campaign meetings. Karrubi expressed similar concerns. Conservative candidate Mohsen Reza'i also filed formal complaints, which some have perceived as an indication that it is not just reformist candidates and supporters who are dissatisfied with the results. According to the official result totals he received 678,000 votes. He argues that he received between at least 5.3 and 7 million votes and that some estimates could be as high as 9 million. He says that his claim is based on his observers' reports from polling stations, information collected from 1,000 ballot boxes by his electoral headquarters, official opinion polls held in the country, and remarks addressed to him by voters and members of his electoral headquarters. Taken together, doubts about the margin of victory and concerns over perceived fraud stemming from procedural violations fueled the largest protests since the Iranian Revolution and stoked international concerns about the legitimacy of the election results. Initially, the candidates, the Iranian people, and many who followed the election expressed doubts that the record 39 million votes cast could have been counted in such a short time, especially in light of reports that voting times were extended. Others have pointed to additional irregularities. While individual reports are difficult to verify, some reports suggest that, in some cases, ballot boxes were picked up by Interior Ministry officials before polling places closed which would mark a change in election procedures whereby ballots are typically counted by officials at the local level. Khamenei urged the Guardian Council on June 15 to examine seriously the allegations of vote rigging, but urged the candidates to pursue their complaints through legal channels. He went on to state that the probe into vote-rigging allegations would be completed by June 25. Musavi has said that invalidating the election is the only way to regain the people's trust in the regime and rejected outright the Guardian Council's offer to recount some of the votes. Some observers dismissed the investigation into the election results as an attempt to provide a cooling off period for the demonstrators and dissatisfied public, rather than a legitimate review of the results. On Saturday, June 20, the Guardian Council held a meeting with all presidential candidates to discuss the election outcome and fraud allegations. Reformist candidate Mir Hussein Musavi did not attend the meeting on Saturday on the grounds that he has already rejected any solution to the current stand-off other than a new election. Reports circulated on Monday, June 22 that the number of ballots cast in at least 50 voting stations as reported by the government exceeds the number of registered voters in that area. The Guardian Council acknowledged the "irregularities," but insisted that they in no way would have changed the election outcome. Some observers argue that the election results could be valid, despite the appearance of irregularities. They support this assertion with the claim that the young, liberal demographic in Iran is much smaller than it is often portrayed and that Ahmadinejad enjoys widespread support among the rural and urban poor, a more significant group in terms of size. These analysts also question the reliability of the polls prior to the election that indicated a close race. Others say that Ahmadinejad is often underestimated, as he was in 2005, and that his message of piety and anti-corruption coupled with his hard line on national security issues are both popular among the majority of Iranians. Others have argued that election fraud on such a massive scale would have involved many levels of the government and would be difficult to perpetrate and conceal. Other analysts assert that the allegations of fraud are likely true, and that the regime had motivation to interfere with the results. These analysts argue that the Iranian government might have felt sufficiently threatened by the success of Ahmadinejad's reformist opponents to mobilize a segment of the population that in large part boycotted the last elections. Some analysts have speculated that Khamenei engineered the election results in Ahmadinejad's favor so drastically in an effort to avoid a close election that could have been contested. Others argue that Khamenei wanted to send a political message to the U.S. and others that overtures to the Iranian public did not sway Iran from its policies—a commitment to the nuclear program and an approval of Ahmadinejad's inflammatory rhetoric about Israel—and that discussions with the U.S. are not perceived by the Iranian people as a coveted prize. Some agree that Khamenei miscalculated, either by misjudging popular opinion or out of paranoia over suspected regime change efforts on the part of the U.S. and the West. Regardless of the actual election results, the public demonstrations on election night and continued protests in major cities across Iran caused observers to speculate about how the stand-off between the government and Musavi's supports would be resolved, and what the outcome might mean for U.S. efforts to resolve the issue of Iran's nuclear weapons program, its support for terrorism, and other national security concerns. Aftermath Demonstrations in Iran Shortly after the election results were announced, Iran's interior ministry issued a ban on unauthorized public gatherings. Despite the warning, protests reportedly continued every day in Tehran and other major cities—including Mashhad, Tabriz, Shiraz, and Isfahan, until the Basij crackdown on June 20. Restrictions on journalists and government efforts to restrict telecommunications made it difficult to know the scope of the public protests, but most accounts indicate numbers in the hundreds of thousands or more in Tehran. A counter demonstration in support of President Ahmadinejad also was reported, but most estimates indicate that it was significantly smaller than those in protest of the results—less than 10,000 people. Some media outlets alleged that the images of the Ahmadinejad rally were doctored to inflate the apparent size of the crowd. Smaller protests have reportedly continued since June 20, with estimates ranging from hundreds to thousands of people. In his speech on Friday, June 19, Supreme Leader Khamenei demanded an end to the protests, reiterated his support for President Ahmadinejad, and accused foreign "enemies" of interfering in Iran's domestic affairs. Protests continued in Tehran and in other cities, however, and on Saturday, June 20, Iranian Basij and Revolutionary Guard forces reportedly used tear gas and live ammunition to disperse crowds. Ten deaths were reported, bringing the unofficial toll to at least 17, although many speculate that violence between police and military forces and the protestors may be more widespread and lethal than media reports indicate. On June 22, reports indicated that the Basij and Revolutionary Guard have been deployed throughout Tehran as the government crackdown on demonstrations continues to intensify. In addition, the Iranian government also appears to be continuing its arrests of reformist leaders. On June 21, members of former President Rafsanjani's family were reportedly arrested, causing speculation that rifts in Iran's religious leadership could be widening. Smaller protests have reportedly continued since June 20, with estimates ranging from hundreds to thousands of people. Reports of arrests, injuries, and deaths are difficult to substantiate, but have gained international attention and raised concerns about human rights and freedom of expression. As of July 1, according to the Iranian government, 627 people have been arrested and 27 have died since June 13. Most observers believe that the actual numbers are much higher. International Response World wide, attention has focused on the events unfolding in Iran. Demonstrations took place in Western Europe and in other regions to protest the election outcome or the use of force against the demonstrators in Iran. Iranian expatriates also joined the protests. In the United Arab Emirates, protesters gathered in front of the Iranian consulate in Dubai to protest alleged election abuses. The consulate denied that any protests had taken place. After protests were held for five consecutive days, UAE authorities ordered the protestors to disperse. While some leaders offered congratulations to Ahmadinejad after the election, others withheld their felicitations until the Guardian Council's election probe is completed. The international community, particularly the United States and the European Union, has now focused its attention on the public demonstrations in Iran, but most official statements have been cautious, likely to avoid the appearance of interference in Iran's domestic affairs. The European Union expressed concerns about the alleged irregularities, adding that it "expects the new Government of the Islamic Republic of Iran will take its responsibility towards international community and respect its international obligations." Britain's Foreign Secretary David Miliband also expressed concerns about the elections in Iran, saying that Britain had "followed carefully, and admired, the passion and debate" during the election and that the reports of irregularities and accusations of fraud were "a matter for the Iranian authorities to address" and that "our priority is that Iran engages with the concerns of the world community, above all on the issue of nuclear proliferation." U.S. Response The Obama Administration's response has been cautious. President Obama expressed "serious concern" about the events in Iran and the allegations of election fraud. He also indicated after the election that he would pursue his policy of engaging with Iran to find a solution to the nuclear issue regardless of the outcome of the election. Some analysts fear, however, that recent events have diminished the prospects for diplomacy, particularly as use of the Basij to violently confront civilian protestors renewed concerns about Khamenei's disregard for human rights and basic civil liberties. At a State Department press conference on June 17, U.S. Secretary of State Hillary Clinton said that the people of Iran deserve to have their voices heard and votes counted, and reiterated the position of other Administration officials that it is for the Iranians to determine how best to resolve the current situation in Iran. She also expressed the Administration's intent to pursue engagement regardless of the election outcome. The U.S. government's response has been praised by some who argue that avoiding any appearance of involvement or meddling in Iranian affairs is the most likely choice to avoid provoking a harsh response from the Iranian government, one that would likely further endanger the lives of the demonstrators. These arguments tend to highlight the nationalist tendencies of Iranians from all parts of the political spectrum, particularly with regard to the complex history of intervention by the United States and other powers in Iran's domestic affairs. Others have criticized President Obama's response as too conciliatory toward Iran's existing leadership, particularly what some view as a lack of a strong enough condemnation of the use of force against civilians. On June 16, 2009, President Obama drew criticism after saying in an interview with CNBC and the New York Times that, from an American national security perspective, there may not be a significant difference between Ahmadinejad and Musavi. He went on to say that the United States is going to be dealing with an Iranian regime that has historically been hostile to the United States. Critics of the statement argue that the President may be viewing the events in Iran solely through the lens of the nuclear issue. Other analysts have argued that if Obama does not offer a stronger statement on the current situation it may be perceived by Iranians as a green light for Khamenei and the IRGC to use force to dispel the demonstrations. On June 19, the U.S. House of Representatives passed 405-1 H.Res. 560 , which expresses support for Iranian citizens and "condemns the ongoing violence against demonstrators by the Government of Iran and pro-government militias, as well as the ongoing government suppression of independent electronic communication." The Senate also passed two measures— S.Res. 193 and S.Res. 196 —which express support for Iranian citizens who "embrace freedom, human rights, civil liberties and rule of law" and which express the sense of the Senate on freedom of the press, freedom of speech, and freedom of expression in Iran. As the government crackdown against protestors increased, the Obama Administration's position on Iran somewhat hardened. President Obama on June 20 called upon the government of Iran to "stop all violent and unjust actions against its own people" and stated that, "The Iranian people will ultimately judge the actions of their own government. If the Iranian government seeks the respect of the international community, it must respect the dignity of its own people and govern through consent, not coercion." On June 25, the Administration announced that it was withdrawing its prior invitation to Iranian diplomats for U.S. embassy Fourth of July parties, citing the recent events in Iran. Some observers believed that this small gesture indicates that the Administration is gradually moving away from its policy of engagement. Many observers believe that President Obama is attempting to balance the need to condemn the violence against the protestors with the need to avoid the perception of U.S. interference, which some worry could prompt the Iranian government to clamp down further on freedom of expression as well as jeopardize U.S. efforts to engage Iran on the issue of its nuclear program. Possible Outcomes and Implications for U.S. Policy There is much debate about where the current situation in Iran could lead, with some experts predicting significant changes in Iran's political and social structure, and others arguing the Iranians at present do not appear to be seeking or experiencing a wholesale change in the basic nature of their government. Among those predicting significant change, some analysts are arguing a brewing "green revolution" is about to unfold in Iran. They cite the continued momentum of the protests, and say that the damage done by the regime to its own legitimacy is irreversible. Other observers have stated that the circumstances surrounding the election amount to a military coup, orchestrated by Khamenei and his allies in the military establishment. Both groups maintain that the current situation in Iran has caused or will cause significant changes that may even mean the end of the "Islamic Republic." At the opposite end of the spectrum are experts and practitioners who have argued that the public protests have more to do with Iranians' complaint that the Islamic Republic's electoral system was abused, rather than dissatisfaction with the notion of the Islamic Republic itself. These analysts tend to believe that some negotiated solution could possibly resolve the situation in Iran. Given the widespread popular dissatisfaction with the actions and statements of Supreme Leader Khamenei, it is possible that the doctrine of velayet e faqih that undergirds the supreme leader's position may be losing more support among some Iranians. As the Iranian government continues to use the Basij and Revolutionary Guard to enforce the election outcome, reports of arrests, injuries, and deaths fuel human rights concerns and diplomatic tensions. The long-term implications on U.S. policy of post-election unrest and government infighting in Iran are difficult to foresee. Prospects for Engagement The Obama Administration has maintained its commitment to engaging with Iran to resolve the issue of Iran's nuclear weapons program, its support for terrorism, and other national security concerns. Some analysts have speculated, however, that the long-term implications of the post-election events in Iran may complicate or alter the course of U.S. policy. Optimists consider the recent outpouring of public support for Musavi and calls for a new election from his supporters and some members of the clerical establishment as an indication that the Iranian public is no longer satisfied with the existing social contract, and may be less willing, as a result, to accept the international isolation that accompanies the government's position on the nuclear program, support for terrorism, and Ahmadinejad's rhetoric toward Israel. Even if the government manages to repress this popular opinion in the short run, some observers have acknowledged the possibility that, over the long run, the regime might not be sustainable against public unrest and widespread perceptions of illegitimacy. Skeptics see the recent events differently. Some argue that the engineered election outcome is a signal that Khamenei and the government establishment do not see engagement with the United States as a "prize to be won," and that no amount of diplomacy could change the perception that the United States is using the nuclear issue as a cover under which to pursue its real objective of regime change. As the Obama Administration works to strike a balance between not being perceived as interfering in Iranian affairs while appearing sympathetic to the civilian demonstrators, Khamenei has continued to accuse Western leaders of encouraging popular unrest. Continued calls for an end to the protests and warnings during his June 19 speech indicate, according to some analysts, that the Iranian government is prepared to take whatever means necessary to protect against a breakdown of the current system. While the Obama Administration has become increasingly willing to more harshly condemn the deaths and arrests of protestors and British embassy officials, it has not articulated a change in U.S. policy toward Iran. Some speculate that blatant human rights abuses on the part of the current government, coupled with criticism of its tempered response, could make it difficult for the Obama Administration to negotiate with Iran over its nuclear program and other issues. These analysts argue that engaging with Iran undermines U.S. commitments to human rights, democracy, and freedom of expression, and that this policy could alienate supporters of Musavi who have historically been more sympathetic to U.S. interests in the region. Others argue that continuing on the path of engagement is the only viable mechanism for dealing with Iran's nuclear ambitions, and that all other issues are subordinate to the nuclear issue as time is short for reaching a solution.

On June 12, 2009, following a heated campaign between reformist candidate Mir Hussein Musavi and incumbent President Mahmoud Ahmadinejad, Iranians turned out in record numbers to vote in the presidential election. Shortly after the polls closed, the Interior Minister announced that President Ahmadinejad had been reelected by a 62% margin. The announcement was followed by allegations of vote rigging and election fraud and prompted supporters of leading reformist candidate Mir Hussein Musavi and others to hold public demonstrations in several major cities of a size and intensity unprecedented since the Iranian Revolution of 1979. Despite a government ban on unauthorized public gatherings, protests reportedly have continued since the election. Restrictions on foreign and domestic journalists, reported disruptions of mobile phone networks, limited accessibility of some internet sites, mass arrests, and clashes between civilian protestors and Basij forces have garnered international attention and increased concerns about the Iranian government's apparent disregard for human rights and basic civil liberties. Regardless of the actual election results, the Supreme Leader Khamenei, along with the Revolutionary Guard and the Basij, appear determined to impose the election outcome by force. The government crackdown on protestors appears to be effective, even as smaller gatherings have continued in Tehran and other major cities. Attention has now focused on the potential long-term effects of the post-election unrest on Iranian government and society, and what the outcome might mean for U.S. efforts to resolve the issues of Iran's nuclear program, its support for terrorism, and other national security concerns. The Obama Administration's response has been cautious, but somewhat has hardened as reports of deaths, injuries, and mass arrests of Iranian citizens have increased. Many observers believe that President Obama is attempting to balance the need to condemn the violence against the protestors with the need to avoid the perception of U.S. interference, which some worry could prompt the Iranian government to clamp down further on freedom of expression or jeopardize U.S. efforts to engage Iran on the issue of its nuclear program. For more information and background on Iran, see CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by [author name scrubbed].

Introduction Since the early 1980s, the periodic debate over reauthorization of federal surface transportation programs has been primarily about money and its distribution. In each of the five reauthorizations that took place during that period (1982, 1987, 1991, 1998, and 2005), the federal fuel taxes and other sources of revenue dedicated to the highway trust fund (HTF) were reliably providing the various surface transportation programs with more money year after year. In 2009 this was not the case. For the first time in decades, driving declined significantly, with a concomitant decrease in fuel tax revenues. Going forward, the program cannot count on new money from the familiar sources. The law authorizing federal surface transportation programs expired at the end of FY2009, but Congress has failed to enact a new authorization. Surface transportation programs continue to operate on the basis of authority provided in continuing resolutions and extension legislation. Reauthorization has become a difficult undertaking in the last two decades. The most recent multi-year law, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA) ( P.L. 109-59 ) was enacted 22 months after previous legislation had originally expired. The bill prior to SAFETEA, the Transportation Equity Act for the 21 st Century (TEA21) ( P.L. 105-178 , as amended by P.L. 105-206 ) was also passed well after previous legislative authority had originally expired. In fact, no surface transportation authorization bill has been enacted on time since the 1970s. Over time, these bills have become increasingly complex in their structure and in their politics as states, other program beneficiaries, and related interest groups compete for constrained federal transportation resources. SAFETEA has led to controversies over funding parity among the states (the so-called donor-donee debate), its large number of earmarks (exemplified by the so-called "bridge to nowhere"), and the funding problems ahead. Additionally, the structure of the surface transportation programs under SAFETEA and its predecessors has made it difficult for the federal government to respond to certain intermodal transportation needs. These issues could cause Congress to make significant changes to the surface transportation programs in this reauthorization. This report focuses on the major issues underlying the SAFETEA reauthorization debate. Program Structure The surface transportation programs can be difficult to understand. The language of transportation finance—contract authority, obligation limitations, and so on—is unfamiliar even to many who have a basic understanding of the annual congressional budget process. This section explains in basic terms how the surface transportation programs are structured and financed. The Federal-Aid Highway Program The modern federal-aid highway program dates to the 1956 enactment of legislation that provided for the construction of the interstate highway system and created the highway trust fund to finance its construction. The program has been reauthorized and expanded on numerous occasions during the last five and a half decades. The federal-aid highway program is fundamentally a state-run program. The state departments of transportation, within the federal programmatic framework, largely determine where and on what the money is spent (but have to comply with detailed federal planning guidelines as part of the decision-making process). The states let the contracts and oversee the project development and construction. The flow of federal-aid highway funds to the states to support this spending operates as follows. At the beginning of each fiscal year each state department of transportation is notified of the federal funds available to it to construct and maintain a designated system of roads known as the federal-aid highway system. The states do not get the money up front. Instead, as work is completed the states submit vouchers to the Federal Highway Administration (FHWA) and are reimbursed. The federal-aid highway program can be viewed as an umbrella term for various separately funded programs administered by FHWA. The programs, which are mostly for construction project spending, receive their funding in two ways: they are either "apportioned" (formula) programs or "allocated" (discretionary) programs. Core (Apportioned) Programs Most highway funding is reserved for six major programs, which are usually referred to as the core programs. They, along with the Equity Bonus Program, accounted for 82.5% of the highway spending authorized for FY2005-FY2009 by SAFETEA. Each of these programs provides funding for specific segments of the federal-aid highway system or other statutorily enunciated activities, such as congestion relief projects. SAFETEA also combined many formerly separate highway safety programs into one Highway Safety Improvement Program. Although it does not provide direct spending for highways, the Equity Bonus Program, discussed in more detail later in this report, provides additional funds for the six core programs. The equity bonus is the largest single highway program in SAFETEA, accounting for approximately 20% of all available funding. Funds for the core programs and the Equity Bonus Program are apportioned to the states on an annual basis using formulas found in SAFETEA. As a result, they are sometimes referred to as the "apportioned" programs. The FY2011 apportionments for the core programs appear in Table 1 . In addition to the core programs there are a few smaller apportioned programs: Coordinated Border Infrastructure Program; metropolitan planning; and the Recreational Trails Program. SAFETEA also creates some formulas within formulas. This is most notably the case for the Surface Transportation Program, which has a minimum set-aside for transportation enhancements and a sub-state distribution formula that allocates funds within states. Allocated (Discretionary) Programs All remaining highway programs are subject to allocations that are based on criteria established in highway authorization and appropriation laws and/or subject to congressional earmarking. Although all of the programs in this category are smaller than the core programs, there are nonetheless some programs with significant funding. The largest allocated program is for congressionally mandated High Priority Projects Program. This earmark program, which has a five-year authorization of $14.8 billion, is reserved for projects specifically designated in SAFETEA. Two other large earmarked programs, Projects of National and Regional Significance and Transportation Improvements, received $1.78 billion and $2.55 billion, respectively, over the same period. Among the other allocated programs are the Federal Lands Program, the National Corridor Infrastructure Improvement Program, the Interstate Maintenance Discretionary Program, the Bridge Discretionary Program, and the Transportation and Community and System Preservation Program. (CRS contacts: Bob Kirk, Will Mallett, and Randy Peterman) The Transit Program The federal transit program, administered by Federal Transit Administration (FTA) of the U.S. Department of Transportation (DOT), is a collection of individual programs, each with its own funding distribution mechanism and spending eligibility rules. Of the $10.3 billion made available for transit programs in FY2011, the Urbanized Area Formula Program accounted for about 40% ($4.2 billion), and the Capital Investment Program accounted for 41% ($4.2 billion). The Capital Investment Program has three elements: the Bus and Bus Facilities Capital Program, which receives about 20% of all transit capital investment funds; the Rail Modernization Program, which receives 40%; and the New Starts Program, which also has a 40% share. The remaining 18% of federal transit monies ($1.9 billion) funds several other programs, such as the Other Than Urbanized Area Formula Program (commonly referred to as the Rural Formula Program), the Elderly Individuals and Individuals with Disabilities Formula Program, and the Job Access and Reverse Commute Program, as well as state and metropolitan planning; research; and FTA operations. (CRS c ontact: Will Mallett) Other Transportation Programs A number of transportation activities are outside of the highway and transit programs that are authorized by surface transportation legislation. These include highway safety, motor carrier safety, transportation research, hazardous materials transportation, some elements of rail transportation, and transportation planning activities. Some of these programs are discussed in more detail later in this report. (CRS c ontacts: Randy Peterman and [author name scrubbed]) Surface Transportation Finance Federal funding for surface transportation has historically been linked to the revenue stream provided by the highway trust fund. The trust fund has two separate accounts—highways and mass transit. The primary revenue sources for these accounts are the 18.4 cent-per-gallon tax on gasoline and a 24.4 cent-per-gallon tax on diesel fuel. Although there are other sources of revenue for the trust fund (truck registrations, truck tires, etc.), the fuel taxes provide about 90% of the income to the funds. The transit account receives 2.86 cents per gallon of fuel, and there is also a 0.1 cent per gallon fuel tax reserved for the Leaking Underground Storage Tank Fund, which is not included in the surface transportation programs. The federal motor fuels tax has been increased several times since its inception in 1956. At the time of the last increase, in 1993, some of the receipts were deposited in the Treasury general fund, but since FY1998 these revenues have been directed to the highway trust fund. Other changes in recent years have modestly increased trust fund revenues. The American Jobs Creation Act of 2004 ( P.L. 108-357 ) provided the trust fund with additional future income by changing elements of federal gasohol taxation. At the time, there were estimates that these changes could provide the trust fund with an additional $4 billion per year. SAFETEA also included a number of tax and other changes in its finance title. The revenue increases in this title were viewed as quite modest and were derived mostly from cutting back on tax fraud and by transferring some Treasury general fund revenues associated with transportation-related activities to the trust fund. It was believed at the time of passage that the changes enacted in SAFETEA, combined with the changes in gasohol legislation enacted in 2004 and enhanced by expected economic growth, would be sufficient to finance the act through FY2009. The financial estimates associated with SAFETEA have proved to be overly optimistic. The highway account has already required three transfers from the general fund totaling $29.7 billion, without which FHWA might not have been able to pay states for work they completed. In late FY2008, $8 billion was transferred to carry the highway account into the 2009 fiscal year ( P.L. 110-318 , September 15, 2008). In FY2009 the transfer was $7 billion ( P.L. 111-46 , August 7, 2009). The Surface Transportation Extension Act of 2010 ( P.L. 111-148 , March 18, 2010) transferred $14.7 billion more to the highway account. Historically, the trust fund-based revenue collection system was a reliably growing source of funding for surface transportation, as the trust funds collected more than was expended to implement the program defined by Congress. This situation has changed under SAFETEA as spending on highways and transit has exceeded both highway and transit account revenues on a regular basis. The Congressional Budget Office (CBO), in its August 30, 2011 HTF baseline projection, showed that the highway account is expected to have an unexpended balance of $4.2 billion at the end of FY2012 and a negative $8.4 billion by the end of FY2013. CBO estimates that the highway account will be unable to meet obligations in a timely manner near the end of FY2012 or during FY2013, depending on the cash flows into and out of the fund. The CBO projections show the excess of outlays over tax revenues plus interest as $9 billion for FY2012 and $11.6 billion for FY2013. A gap in the neighborhood of $10 billion remains through FY2021. CBO projects that the mass transit account, which received a $4.8 billion general fund transfer in FY2010, will also remain above zero well into through FY2014. The mass transit account's end of year negative balance jumps to a negative $5.6 billion for FY2015 and grows rapidly thereafter. The recent declines in motor fuel tax receipts are unprecedented. Even during the oil shocks of the 1970s, driving, as measured by vehicle miles traveled, returned fairly quickly to the 2% average annual growth rate experienced since the 1960s. The same thing has not happened since 2007, even though fuel prices fell to below $2 by December 2008 from their highs of around $4 per gallon in mid-2008, as the sluggish economy depressed freight, leisure travel, and commutes to work. Gas prices have since increased and have remained above $3.00 per gallon since December 2010. As a rule of thumb, adding a penny to the federal fuels tax provides the trust fund with between $1.6 and $1.8 billion per year in new revenues. Without an increase in the existing fuel taxes, the mostly fuel-based trust fund taxation system will not be able to support increased surface transportation spending over the next few years. The immediate choice for policymakers, therefore, is to find new sources of revenue for the trust fund, or alternately, to settle for a smaller surface transportation program that might look very different than the one currently in place. However, if Congress chooses to address the short-term funding issue, it will need to address the viability of the trust fund mechanism over the longer term. In recent years, Congress has acted to mandate higher fuel-economy standards for gasoline-powered cars and to encourage development of hybrid and battery-powered vehicles. As these more fuel-efficient vehicles come to make up a larger share of the U.S. vehicle fleet, consumption of motor fuels may decline even if driving increases. If it wishes to maintain or increase the size of the surface transportation programs, Congress may need to explore alternatives to the motor fuels tax as possible sources of funding. The difficult outlook for motor fuel tax revenues clouds the outlook for surface transportation reauthorization. In the past, steady revenue growth enabled Congress to meet the competing demands for funding in each reauthorization. TEA21 benefitted from a run-up in fuel usage during the boom years of the late 1990s that was at least partially the result of the popularity of sport utility vehicles during the period. SAFETEA did not have quite the same financial backing, but the authors of the act were nonetheless able to find sufficient new revenues to expand the programs. The next reauthorization bill, as the above discussion indicates, lacks a ready source of cash to support expansion—a situation that could define the upcoming legislative debate much more than issues such as program structure and infrastructure needs. In addition, overriding concerns regarding reducing the federal budget deficit could trump efforts to increase or even maintain current spending on surface transportation infrastructure. The American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5) The ARRA contained significant funding for activities normally funded through federal surface transportation legislation. It provided $27.5 billion for federal-aid highways, $8.4 billion for public transit, $1.5 billion for a new Surface Transportation Discretionary Grant Program, and $8 billion for high-speed rail. All money provided by the ARRA is from the general fund and carries no requirement for state or local matching funds. This one-time infusion represented a bit less than one year's funding for the existing surface transportation programs, although it was distributed differently. High speed rail, for example, is a very small program under SAFETA, but received a large share of funds in the ARRA. The SAFETEA Legacy In public, the SAFETEA debate focused on the donor/donee issue and a later, more public, controversy over earmarking. The actual process of crafting the law, however, was complicated by the political need to satisfy the large number of interest groups supporting specific programs, most of which are funded from the highway trust fund but do not involve building highways. Donor/Donee The donor/donee debate concerns the efforts of individual states to achieve or maintain as large a share of the total distribution federal highway funds as possible. A donor state is one whose highway users pay more in revenues to the trust fund highway account than it receives in federal highway assistance. Conversely, a donee state receives more in assistance than it contributes to the trust fund. The debate is generally driven by representatives of donor states, who frame their arguments in terms of "equity" in the distribution of federal highway funds. The donor/donee state distinction, however, is far less straightforward than it appears. Federal fuel taxes are not actually collected at the state level, so determining whether a state is a donor or a donee requires a complicated mechanism that attributes fuel usage and associated revenues to individual states. In the last three surface transportation authorization bills, the donor/donee issue was resolved only by the availability of more money and the creation of a process to distribute it. In SAFETEA, this process, called the Equity Bonus Program, is the largest single highway program. For FY2008 and FY2009 SAFETEA promises that each state will receive a funding share of the major highway program allocations equal to at least 92% of the revenue share its highway users pay into the highway trust fund, an increase from the 90.5% promised under the prior legislation, TEA-21. The Equity Bonus Program, however, is so complicated that effectiveness of the guarantee is unclear. For FY2010 and FY2011Congress based the distribution to the six core formula programs on their FY2009 totals. There was no equity bonus calculation for FY2010 or FY2011. The transfer of $29.7 billion in general fund revenues to the highway account complicates the donor-donee framework as a basis for analyzing transportation funding. This is because the taxes that support the general fund have nothing to do with highway use or highway taxes. For FY2007 through FY2010 each of the 50 states received more federal highway funding than it contributed to the highway account. Earmarking When the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240 ) passed in 1991 it included 548 individual highway earmarks with a total value of $6.2 billion. In 1998, TEA21 incorporated 1,883 highway earmarks adding up to $9.6 billion. In SAFETEA, earmarking expanded exponentially, with over 5,600 earmarks accounting for $21.7 billion in the highway title of the act alone. With a few highly publicized exceptions, there was very little debate about the benefits or drawbacks of the individual earmarks in the bill. Following the 2010 congressional elections, proposals to abolish the earmarking of individual projects became the policy of Republican leadership in the House. An earmark-free reauthorization could increase the attention given to program structure, funding formulas, and eligibility criteria, as Members attempt to assure the flow of transportation funds to their congressional districts or states. SAFETEA Funding SAFETEA provided $286.4 billion in guaranteed spending authority for the six-year period FY2004-FY2009. This was a significant nominal increase over the level in TEA-21, which provided $218 billion over the six-year period FY1998-2003. In reality, however, SAFETEA was barely a five-year bill by the time of its passage late in FY2005. A more useful representation of SAFETEA is that it provided $244 billion in spending authority from FY2005 through FY2009. (CRS contacts: Bob Kirk and Will Mallett) Table 2 shows that all major programs affected by the legislation received significant new funding (the exempt obligation category is provided for equity bonus and emergency funding purposes and does not reflect a program per se). Spending increased in each year and total spending in FY2009 was almost 23% higher than spending in FY2005. For FY2010 and FY2011, total obligations under the extension acts, were roughly $52.5 billion for each year. (CRS contacts: Bob Kirk and Will Mallett) Issues Shaping the Current Reauthorization Debate The reauthorization process will involve detailed consideration of the way in which surface transportation programs are funded, organized, and managed. A handful of fundamental issues, however, will influence the way in which the eventual legislation is constructed. National goals and purposes. Today's surface transportation programs have their origins in the creation of the interstate highway program (1956) and the collapse of public transit systems (early 1960s). In the intervening decades, it has become difficult to discern how federal surface transportation spending relates to national needs, as the vast majority of the funding is granted to states and localities based not on maximizing the national return on transportation investment, but as an entitlement to be spent largely as state and, to a lesser extent, local authorities think best. Changing the existing decision-making process, however, could involve a transfer of authority from state and local authorities to the federal government. Productivity and performance management. With the operation of surface transportation programs left largely to states and localities, federal officials often have a poor understanding of the efficiency and effectiveness with which federal funds are being used. States and localities have, in many cases, very robust processes in place to measure and analyze their programs. However, these mechanisms are largely internal, and their diversity makes it difficult to compare performance across the country. Federal performance standards might make such comparisons easier, potentially allowing the federal government to direct funding to the state and local governments with the most efficient and effective programs. Once imposed, however, such measures might be "gamed" by state and local officials in ways that negate their value. Even if Congress should decide to enforce performance measures by funding penalties, it is possible that the effect of such penalties would be counteracted by funding guarantees in the bill. Accelerating project d elivery. 17 Major highway and transit facilities, which often take somewhere on the order of 10 to 15 years to plan and build, are frequently said to take much too long deliver. Studies show that project delay can occur during any of the five main phases in delivering major highway and transit projects: planning; preliminary design and environmental review; final design; right-of-way acquisition and utility relocation; and construction. Many proposals, particularly for highways, focus mainly on speeding the environmental review process required by the National Environmental Policy Act (NEPA) and other federal environmental laws and regulations. One proposal that might be considered is making permanent the Surface Transportation Project Delivery Pilot Program and expanding it to allow delegation of NEPA authority for highway projects to any state. Another is to reduce the number of steps in the public transit New Starts program and the elimination of the alternatives analysis that is often seen as a duplication of the requirements in NEPA. Structural issues. SAFETEA created two commissions to study the structure and the financing imperatives of the surface transportation programs. One of these, the National Surface Transportation Policy and Revenue Study Commission, called for a major reorganization of the federal surface transportation programs into 10 new program areas, often across existing programmatic modal boundaries. A report issued by the George W. Bush Administration entitled "Refocus, Reform, Renew: A New Transportation Approach for America," included several proposals for new and reorganized surface transportation programs, with a heavy emphasis on expanding the role of market forces and the private sector in the provision of surface transportation infrastructure. Numerous think tanks, research organizations, and transportation groups have called for organizational changes in the way federal surface transportation programs are administered. Reducing program size. If Congress chooses not to make changes that would increase the flow of revenue into the highway trust fund, it will face a choice between continuing to authorize annual general fund expenditures for surface transportation and reducing the programs' size. It could simply choose to limit the funding authorized in the surface transportation bill to the HTF revenues and interest projected to be available over the life of the bill (plus the general fund component of the transit title). It could shift some programs currently funded by the highway trust fund, such as the Appalachian Roads Program, to general fund status. It might reduce matching ratios (90:10 for interstates, 80:20 for most other roads, varying proportions for transit projects) in order to spread the available federal funds more broadly. More dramatically, it could limit surface transportation funding to programs that it determines fulfill clear national needs, and devolve other responsibilities to the states. Alternative funding mechanisms. Public-private partnerships, in which private companies take responsibility for construction, operation, and/or maintenance of particular transportation projects in return for a flow of payments from government agencies or project users, have been widely encouraged as a means of decreasing reliance on the trust fund. Other proposals for expanding alternative funding include federal grants or loans to state infrastructure banks; increased authority to lend to local agencies under the Transportation Infrastructure Finance and Innovation Act (TIFIA); increased reliance on Grant Anticipation Revenue Vehicles (known as GARVEE Bonds) and the private activity bonds authorized by SAFETEA; and creation of a national infrastructure bank, as proposed by the Obama Administration in its FY2010, FY2011, and FY2012 budgets. Tolling. Congress could choose to expand the role of tolling in federal highway policy. Currently most interstate system highways are under a tolling prohibition. Tolling could help pay for the rebuilding or reconstruction of congested urban interstate highways. Tolling could also be encouraged to provide the funding flows often needed to support public private partnerships. Raising tolling to greater prominence in federal highway policy faces significant obstacles, notably the general public hostility to tolls and the difficulty of garnering political support. Revenue issues. The two commissions established in SAFETEA both recommended increases in the motor fuel tax to meet the immediate funding needs of surface transportation programs. Both urged an eventual shift to charges based on vehicle miles traveled as a longer-term funding source. VMT charges represent one type of user fee, but alternatives such as tolls and weight-distance taxes, which are already imposed in some instances on trucks, also might be employed to force road users to pay the costs of surface transportation programs. (CRS contacts: Bob Kirk and Will Mallett) Highway Issues Funding Equity Among States The donor-donee debate has historically been one of the major hurdles that authorizers must overcome during the periodic reauthorization of federal surface transportation programs. The last several reauthorizations have resolved the disagreements over equity by creating a separate arrangement, currently known as the Equity Bonus Program, under which nearly all states are entitled to highway funding above and beyond that provided for in the funding formulas in specific programs. Under the Equity Bonus Program, FHWA is directed to allocate sufficient funds to ensure that each state receives a minimum share return on its highway payments—92% in FY2008 and FY2009. The calculation is more complicated than this figure suggests, as certain surface transportation programs are not included. The Equity Bonus Program includes a number of "hold harmless" provisions to guarantee minimum state shares of funding, based on certain thresholds. These thresholds include state population, population density, highway fatality rates, median household income, and state fuel tax rates. In part, these criteria appear to have been devised to assure the bill would get at least 60 votes in the Senate. The Equity Bonus Program also sets an annual percentage floor, relative to a state's TEA-21 average apportionment, beneath which no state can fall. The money is distributed to the states by increasing the amounts apportioned to the core formula programs. There was no equity bonus calculation for either FY2010 or FY2011. The distributions for these years were simply based on FY2009 overall funding distributions. The distribution of the equity bonus has had a number of unanticipated consequences. One of these is its interaction with High Priority Program earmarks used by Members of Congress to define their project priorities through the authorization process to their state DOTs. High Priority Program earmarks do not add significant amounts of money to a state's share of highway spending, because states whose earmarks are small tend to receive relatively larger equity bonus distributions than states that receive relatively large earmarks. This means that the total amount received by a state tends to be roughly the same whether or not it receives a large dollar total of earmarks. A corollary of this situation is that the more of a state's total funding is derived from High Priority Program earmarks, the less is ultimately available to the state for the federal-aid highway core formula programs, on which state departments of transportation depend to fulfill their state transportation plans. The equity bonus distribution also negates the imposition of some penalties that are designed to discourage certain activities of the states. For example, a state that transfers some of its Highway Bridge Program funds to other programs is penalized by having its deficient bridge cost-to-repair total reduced a like amount in the next year's formula calculation. The purpose of this was to encourage states to reserve their Highway Bridge Program funds for bridges. However, the equity bonus distribution in effect gives back what the penalty takes away. The equity bonus overlay combined with the extensive ability given states to transfer funds across programs may undercut the effectiveness of the programmatic structure in achieving the national surface transportation goals specified by Congress. Since 1982 the equity provisions in surface transportation have been changed many times, and there is a high probability that changes will be discussed in the current reauthorization. Among the possible changes are: Increasing the share of its highway tax revenue that is guaranteed to each state above the current 92% level. However, the closer the guaranteed percentage comes to 100% of the total program the more difficult an increase becomes. Bringing the percentage guarantee closer to 100% would probably require a weakening of some of the "hold harmless" provisions that protect certain donee states from losing share. The hold harmless provisions exist primarily due to the practical politics of getting authorization bills through both houses of Congress, so eliminating them may raise political concerns. Expanding the scope of the equity provisions. This would require growth in program size to fund a larger equity overlay unless the underlying core program formulas were rewritten to bring the initial program apportionments more into line with the goals of an increased percentage return guarantee. Eliminating the counteracting impact of the equity bonus distribution on the highways program penalty provisions. This could be accomplished by imposing the penalties after rather than before the distribution of the equity bonus funding. However, this could affect some states' guaranteed percentage shares. Eliminating the equity provision altogether and allowing program formulas to determine the distribution of highway funds to the states. One way of doing this would be to modify the core formula programs so that they are all entirely weighted at or near 100% on states' annual contributions to the highway account. Providing an equity guarantee for transit funding. Roughly 80% of the Federal Transit Administration's budget comes from the fuel taxes paid by highway users. This funding could also be subject to a rate-of-return guarantee. While such a scenario might be attractive to some donor states not already receiving significant transit assistance, there are other donor states which might not benefit from a transit equity distribution. Further, any inclusion of transit in an equity bonus scenario is likely to be opposed by heavily urbanized states and states with large transit systems. The equity debate is complicated by the fact that significant amounts of general fund money have been transferred to the highway trust fund. Although much of transferred funding reflects interest payments on the trust fund's unexpended balances, such interest not paid directly by highway user fees. Other funds have been transferred to the highway trust fund for a variety of reasons, such as compensation for lower ethanol tax rates. Further transfers may be necessary in the years ahead. The larger the general fund share of federal highway spending, the harder it is to argue that states should get a return based on their highway users' payments, raising the question of whether the Equity Bonus Program is an appropriate part of a reauthorization bill. (CRS contact: Bob Kirk) Earmarking Large-scale earmarking was a prominent and controversial feature of SAFETEA. Earmarking has not, however, always been a significant feature of surface transportation bills. Until the late 1980s, earmarks amounted to about 1% of authorized federal-aid highway spending. By way of comparison, SAFETEA earmarked almost $22 billion or roughly 11% of the $199.5 billion highway construction title of the bill. A 2007 DOT report found that earmarking can reduce the states' core transportation programs, lead to funding of low-priority projects ahead of higher priority, non-earmarked projects, and result in funding of projects that do not meet eligibility requirements. Following the 2010 congressional elections, proposals to abolish the earmarking of special projects have received increased interest. Certain transportation groups which were largely silent on this issue during the last reauthorization debate are now taking the position that earmarking needs to be controlled and limited. An earmark-free reauthorization could increase the attention given to program structure, funding formulas, and eligibility criteria, as Members attempt to assure the flow of transportation funds to their congressional districts or states without earmarking. (CRS contacts: Bob Kirk, Will Mallett, and Randy Peterman) Highway Programmatic Structure According to the National Surface Transportation Policy and Revenue Study Commission established under SAFETEA, the federal government has 108 separate surface transportation programs. Of these, 62 involve highways, 20 concern transit, and the remainder are scattered among other activities. The commission recommended combining all of these programs into 10 broad intermodal programs. It may be difficult, however, for Congress to consolidate programs to that extent. There are numerous potential and competing organizing rationales, and each existing program has specific stakeholders whose support for the overall surface transportation program is associated with the continuation of the mission the program was created to carry out. The federal-aid highway program gives states a great deal of control over the selection, planning, and construction of federally funded highway projects. This flexibility might, for example, allow a state to shift money from the Highway Bridge Program to the Surface Transportation Program, even though it might have unmet needs in the original program area. This flexibility also has allowed transfers between highway and mass transit programs. Programmatic restructuring that restricts state flexibility could be a source of contention during the reauthorization process. Congress may also wish to consider project eligibility changes. For example, broadening project eligibility within the Congestion Mitigation and Air Quality Improvement (CMAQ) Program could allow more projects designed to increase road capacity on the grounds that increased capacity would improve traffic flow in congested areas. There may be interest in creation of new programs, such as a program to address bottlenecks in major freight corridors. Rather than refining or restructuring the various formula programs within the highway program, Congress might opt to replace the existing formula programs with block grants provided directly to the states. This might reduce federal administrative overhead, although it could weaken the ability of Congress to set spending priorities consistent with its determination of national needs. Bridge Policy In December 2010, roughly 69,000 bridges were designated by FHWA as "structurally deficient." The Highway Bridge Program is the primary federal program to fund the replacement or rehabilitation of structurally deficient or functionally obsolete bridges. Funds are apportioned to the states by formula based on each state's relative share of the total cost to repair or replace deficient highway bridges. Each state is guaranteed at least 0.25% of total program allocation, and no state may receive an allocation greater than 10%. The federal share is 80%, except that for interstate highway system bridges the federal share rises to 90%. If Congress chooses to retain a distinct bridge program, the rate of repair and replacement of deficient bridges and the funding needed to support any proposed acceleration of that rate would be major issues. The authorizing committees may hear proposals to limit the use of Highway Bridge Program funds for spending on non-federal-aid highway system bridges and to change bridge inspection standards. There are also concerns that linking funding to a state's number of deficient bridges creates a perverse incentive for states to keep their deficiency rates high. A GAO report found that the program lacks focus, performance measures, and sustainability. On the other hand, program consolidation could merge the Highway Bridge Program's funding and activities into a broader program, perhaps a program dedicated to keeping federal highways, in general, in a state of good repair. (CRS c ontacts: Bob Kirk and Will Mallett) Transit Issues The federal government provides support for transit agencies' capital investments and operating costs. Although federal transit programs direct most funding to capital investment, transit agencies have some discretion over the use of their federal funds among capital and operating purposes. The mass transit account of the highway trust fund is the source of approximately 80% of federal transit program monies, with the remaining 20% drawn from the general fund of the U.S. Treasury. Although the transit account is in somewhat better financial shape than the highway account, the unexpended balance is projected to reach zero in FY2014. Despite uncertainty surrounding this projection, it is clear that current revenue into the transit account will not sustain Federal Transit Administration programs and activities at current levels through another four- to six-year authorization period. Within this context, there are both funding and programmatic issues that could arise during reauthorization. The prospect of constrained federal transit funding is occurring in conjunction with financial problems in the transit industry itself. The immediate causes are flat or declining government assistance at the state and local levels due to budget conditions and lower patronage due to a high unemployment rate. But financial problems in public transit are a long-term issue, primarily caused by declining transit system productivity, that results in an increasing requirement for government support from all levels of government. Fares and other operating revenue were only 26% of capital and operating funding sources in 2009. For that reason, Congress may want to consider whether modifications in the federal transit program might boost ridership at a lower cost per rider to the government. Transit Funding Issues How much to spend overall on transit is the main issue in the upcoming reauthorization. Various interest groups have argued that America is under-investing in transportation infrastructure, including public transit infrastructure, and called for a significant increase in federal infrastructure investment. Both DOT and the congressionally created Surface Commission have estimated that the capital cost to maintain and improve transit systems in the United States is substantially more than is being currently spent on transit systems by all levels of government. Because many transit agencies currently face severe budget problems, there also have been calls for more federal support of operating expenses. Support for increased federal spending on transit is by no means unanimous. The growth in transit capacity has outpaced the growth in ridership at the national level, and the physical condition of transit systems has generally improved over the past decade. Nor is there agreement on the proper level of transit spending relative to highway spending; while transit receives approximately 14% of federal highway and transit capital expenditure, only about 2% of all trips and 5% of commuting trips are made by this mode. Given that a significant proportion of federal transit funding, roughly 80%, comes from taxes paid by highway users, the relationship between highway outlays and transit outlays is a sensitive issue. Federal Fuel Tax One way to increase transit funding would be increase the percentage of funds coming from the general fund. An alternative would be to raise the federal fuels tax and dedicate 20% of any increase to the transit account, as has been the case since 1983. Calculations based on CBO projections indicate the fuel tax would need to be raised by 10 cents per gallon (with 2 cents per gallon dedicated to the transit account) to close the gap between revenue and expenditures in the transit account for FY2012, assuming no growth in the program. Federal Matching Share A potential way to make the federal transit dollar stretch further would be to lower the federal matching share. A larger local match might help ensure that only the most important projects are supported by state and local officials. On the other hand, if the federal government provides a much lower share of the cost of transit projects than of highway projects, state and local decision-makers might favor highway projects regardless of the potential demand for public transit. PPPs and Innovative Financing SAFETEA provides limited support for private participation in developing transit projects through public-private partnerships (PPPs) and other types of innovative financing. In reauthorization, Congress likely will consider ways to encourage a larger role for the private sector. While some PPPs have been highly successful, their overall contribution to meeting transit financing needs is likely to be relatively small, as the possibilities for generating new revenue streams from transit operations are limited to situations in which new services encourage land development near transit stations. (PPPs may be more readily used for roads, bridges, and tunnels on which vehicle tolls will provide a source of new revenue, but even then it may be unrealistic to expect private funding to supply more than 5%-10% of needed funds). Transit Structural Issues Congressional discussion of possible ways of restructuring federal public transit programs is likely to explore alternatives to the present configuration of programs. One way to reorder federal priorities would be to focus more resources on major capital investment for the rehabilitation and expansion of transit service in places that are best served by this mode, primarily the densely populated parts of large and often heavily congested cities. This might entail expansion of the programs that make up the transit capital investment program—the New Starts Program, the Rail Modernization Program, and the Bus and Bus Facilities Capital Program—while cutting back on formula grants that are spread more broadly and go for smaller and more routine types of expenses. This change would likely result in a concentration of resources in a few large cities where transit usage is relatively high, an effect that has obvious potential political problems. Alternatively, Congress may decide that the era of retrofitting large and medium-sized cities with new transit rail systems is largely over, and that resources should now go to supporting and rehabilitating existing systems. This could entail a reduction in spending on the New Starts Program, currently about 16% of the federal transit program, and more support for the other capital programs and the formula grants programs. The effect of these changes on the distribution of funds would depend on the shares of funds dedicated to the Rail Modernization Program, which affects relatively few cities, and to buses and formula programs, which provide support in a much larger number of localities. A third way to restructure the federal transit program would be to eliminate the capital programs altogether, to be replaced with a block grant that might be distributed based on transit ridership or population. This would allow state and local governments to decide how best to allocate transit funding support among existing and new services. Funds distributed according to transit ridership would reward areas that commit their own resources to providing transit service. The distribution of funding in this way would depend on how this new program is structured, but might encourage states and localities to react to the changes by aggressively promoting transit ridership. A fourth alternative would be to fold most of the transit programs into a broader "metropolitan mobility" program that would distribute federal surface transportation funding to large urban areas, say those of 1 million people or more, on a mode-neutral basis. It would then be up to states and localities to decide how to allocate the money to transit and highway infrastructure. Small Cities and Rural Areas Because most transit ridership is concentrated in a few large cities, most formula funding goes to the largest urbanized areas. Whether and how much the federal government should assist small city and rural mass transit systems may be an issue in the current reauthorization. Paratransit The demand for and cost of paratransit has grown rapidly over the past two decades, placing added pressure on state and local government transit budgets. Paratransit is typically provided by vans rather than buses and serves passengers with limited physical mobility. A number of federal transit programs exist to help states and localities provide paratransit service, and funding is also available from the federal government outside the transit program. Nevertheless, transit agencies are likely to ask for more federal money for paratransit in reauthorization. One consideration, given the social service nature of paratransit services and their generally poor fit with regular bus and rail services, is whether FTA should administer paratransit funding at all. Transit Industry Productivity Regardless of whether federal transit funding is tightly constrained or not, but especially if it is, Congress may want to consider a number of options for encouraging transit industry productivity. Performance Measurement As noted earlier, there have been many proposals for incorporating performance measures as a central tenet in the distribution of surface transportation program funds. This includes federal transit program funds. The main reason for using performance measurement incentives would be to reward transit agencies for providing more and better service per dollar of public support. Competition In most cases, public transit service is a monopoly; even where transit vehicles are operated and maintained by private companies, a local transit agency almost always selects and subsidizes a single operator for that purpose. Reauthorization could include language encouraging more competition in the provision of transit service. This might entail requiring transit agencies to competitively bid transit service provision and/or to allow private operators to provide new services to compete with public transit agencies. Many of the barriers to competition are in state or local laws and regulations that give monopoly power to regional transportation agencies, and it would be possible to make the elimination of these barriers a condition of federal funding. One consideration is the possibility that competition could allow private operators to "cherry pick" routes and services, operating profitable routes at rush hour while leaving public agencies to sustain services on less dense routes or at less popular times. Work Rules Some advocate loosening work rules in the transit industry in an effort to boost productivity. This might, for example, include renegotiating union contracts that often do not allow transit agencies to employ part-time workers or to require split shifts to cover rush-hour demand peaks. It might also include changes in federal labor protections in the transit sector, originally established in Section 13(c) of the Urban Mass Transit Act of 1964 (P.L. 88-365). Fares Another potential way of reducing the need for public assistance is to increase fares to more accurately reflect the cost of providing a particular service. This occurs at present with some services, such as the distance-based fares on the Washington, DC Metro, but most transit systems charge a flat fare regardless of distance or time of day. The reauthorization might encourage transit systems to collect variable fares, particularly as newer electronic fare payment technology makes it relatively easy to do so. Congestion Pricing Pricing automobile use, particularly in congested periods, might reduce the need for government assistance to public transit. One way to do this is to institute highway tolls, particularly ones that vary based on traffic levels. This might encourage some drivers to switch to transit and may provide a source of funds to enhance transit service. Such road pricing schemes usually make the most sense in severely congested regions where good transit options exist. Congress way want to consider whether congested metropolitan areas should adopt comprehensive congestion management schemes that incorporate highway pricing and transit. (CRS c ontact: Will Mallett) Intercity Passenger Rail Transportation Historically intercity passenger rail transportation programs have been a very minor part of surface transportation program authorization legislation, if present at all. In SAFETEA-LU, for example, the major initiative was to rename the High-Speed Rail Corridor Planning program as the High-Speed Rail Corridor Development program, with acquisition of tracks and equipment added as an eligible expense. The program authorization was $70 million annually from the general fund, but Congress did not provide any funding for the program until FY2008. Meanwhile, Amtrak, a railroad company created and owned by the federal government, was authorized and funded outside of the surface transportation authorization acts. Since 2005, federal initiatives in intercity passenger rail transportation have expanded greatly. In 2008 Congress passed the Passenger Rail Investment and Improvement Act, which authorized increased funding for Amtrak and for states wishing to develop intercity passenger rail service. In the 2009, ARRA, provided $8 billion for grants to states to develop intercity passenger rail service, and another $2.5 billion for this purpose was included in the FY2010 DOT appropriations act. This increased federal interest in intercity passenger rail, due in part to concerns over growing highway congestion, rising gasoline prices, and carbon emissions, makes is more likely that rail will be a larger part of a future surface transportation reauthorization. In February 2011, the Administration proposed to provide $53 billion over six years in grants to states and to Amtrak for improvements to intercity passenger rail service, including development of high-speed rail corridors. The grants would be funded from the highway trust fund, which would be renamed the transportation trust fund. As the highway trust fund is already oversubscribed, it is not clear how the additional money would be raised. Intercity passenger rail also was included in the outline reauthorization initiative released by the House T&I Committee in July 2011. Among the issues mentioned are the role of Amtrak, the opportunity for private-sector companies to build and operate intercity passenger rail infrastructure and services, and funding. In the past, all of the funding provided to Amtrak and to state governments for intercity passenger rail has come from discretionary annual appropriations; in the FY2011 DOT appropriations act, Congress provided no funding for grants to states and rescinded $400 million of the funding appropriated in FY2010. In the FY2012 DOT appropriations act, Congress again provided no funding for grants to states for intercity passenger rail. Given that planning, construction, and equipment manufacturing for passenger rail projects can take several years, a more predictable funding mechanism might be considered, if Congress wishes to expand the federal role. Freight Issues Up until the world economy began to slow late in 2007, the immediate concern of freight carriers and shippers was congestion. Major ports and land gateways experienced a notable run-up in import volumes in the early years of the last decade, But even under reduced freight volume, congestion persists, including on certain highway segments. Congestion frustrates a freight carrier's ability to provide reliable scheduling. Unreliability is costly because it requires shippers to carry buffer stock, reducing an efficient "just-in-time" logistics strategy to a "just-in-case" strategy. DOT projects that total tons transported will grow 68% by 2040. Freight Transportation Planning Doubts about whether the nation's transportation infrastructure will keep pace with the projected growth in freight traffic have led to calls for stronger federal leadership in developing a systematic approach to addressing freight transportation needs. A national transportation plan that identifies key freight corridors and gives priority to funding these corridors would be a departure from the current planning process, which relies heavily on state departments of transportation and metropolitan planning organizations to plan and select which transportation projects to fund in their jurisdictions. Local action to eliminate a freight bottleneck may merely relocate it to another community, without reducing the unpredictability of travel time across an intermodal network that is North American in scope. Unlike commuter trips, which generally begin and end within a metropolitan area, freight trip lengths often exceed the jurisdiction of a single metropolitan planning organization or even a state. Thus, these planning institutions have difficulty taking a corridor or an "end-to-end" approach in addressing freight improvements. They also may have a disincentive to do so because, while they bear the costs of improvements, the economic benefits may accrue nationally. Some hub cities have a preponderance of freight that is merely passing through rather than serving local producers or retailers. Land border ports of entry, gateway seaports, and interchange points in the rail network, in particular, must live with the negative effects of freight traffic that is largely serving distant locations. At the national level, freight transportation may not be able to compete with other pressing priorities. At the local level, however, especially at major freight hubs like Los Angeles, freight transportation may be a priority because residents recognize the pollution and congestion caused by truck traffic and thus support projects to streamline freight movement in the area. Because freight issues vary dramatically from one hub or region to the next, it can also be argued that they are best addressed at the state and local level. For instance, air cargo hubs such as Memphis or Louisville face different problems from large railroad hubs like Chicago or St. Louis, and seaports are tackling different problems than land border crossings like Laredo or Detroit. Rural areas may be more concerned with preserving short-line rail access to the transcontinental rail network and the (not unrelated) issue of upgrading roads to accommodate heavy trucks carrying agricultural and mineral products. Also, local desires to retain jobs that are tied to freight activity and to improve the quality of life may be sufficient incentive for state and local transportation planners to address freight bottlenecks. One possible way for Congress to facilitate a wider geographic perspective in planning freight-related transportation improvements is to make funding for nationally or regionally significant projects contingent on state and local coordination. The I-95 Corridor Coalition, an association of state DOTs and transportation authorities from 16 states from Maine to Florida, is one model of freight planning from a corridor perspective. In pursuit of its goal of improving traffic movement on I-95, the coalition has investigated rail and waterborne modes as alternatives for freight transport to mitigate congestion on the highway. Freight Funding Concerns about capacity limits and financial shortfalls have led to several suggestions for imposing user charges dedicated to funding projects that would improve goods movement. Suggestions include assessing a container fee, a freight waybill tax, or an intermodal terminal facility charge. Selection of a fee mechanism entails trade-offs involving equity, efficiency, and administrative simplicity. In addition, some freight interests have conditioned their support for new user fees upon assurances that the money will be dedicated only to net new capacity on new projects. This may be a difficult condition to meet, particularly in congested metropolitan areas where additional highway construction would be unpopular. Targeting Freight Investment If Congress were to create a separate funding program for freight transportation improvements, it could steer funding toward certain inefficiencies in the national surface transportation network. Trucks, and therefore highway infrastructure, are vital for efficient goods movement because they carry 65% of the tonnage and 75% of the value of domestic cargo. FHWA has found that the preponderance of truck delays are at urban freeway interchange points and that steep grades, signalized intersections, and lane drops were other problem areas. Some states are evaluating the feasibility of segregating truck traffic from automobile traffic on highways with heavy truck traffic, either on short segments or on long-distance routes connecting to a seaport or other freight hub. All air cargo begins and ends its journey in trucks as does almost all intermodal rail and containerized seaborne cargo. Intermodal shipments, the fastest growing segments of goods movement in the United States, consist of higher-value goods and are closely tied to international trade. The "intermodal connector" roads linking ports, airports, and rail terminals to the interstate highway system tend to be relatively short segments, generally less than two miles in length, but DOT studies have found that they often suffer from poor pavement condition and substandard geometrics (narrow lanes, small-radius curves) because the roads often were not originally designed for the heavy truck traffic they handle. In some cases, transfers between ports and railroads and between railroad networks still require a container to be drayed, or trucked, in order to make the interchange. In Chicago (and to a lesser extent in St. Louis, Memphis, and New Orleans), where the eastern and western rail networks converge, and at many seaports, drayage generates significant truck traffic that co-mingles with commuter traffic on beltways and arterials. At certain of these locations, additional "on-dock" or "near-dock" rail terminals and "steel-wheel" interchanges might lessen heavy truck traffic on urban roads. The development of "logistics parks"—clusters of warehouses built around a rail terminus—are essentially an effort by the railroads to re-consolidate product distribution centers that have been scattered by circumferential highway building, and may also offer opportunities to reduce drayage. Congress may want to consider whether the federal government should support such private undertakings in order to limit wear and congestion on urban roadways. Even though almost all U.S. freight railroads are private enterprises, Congress has authorized some public investments in freight rail infrastructure. Most of these, such as grants to improve rail lines serving rural communities, are quite small, but the federal government has also contributed to large-scale efforts to eliminate grade crossings and separate rail lines in Los Angeles and Chicago. Rail users, particularly intermodal customers who demand faster, more reliable, and more precise scheduling than other rail shippers, want railroads to accelerate investment in passing sidings and double tracking to better accommodate freight trains traveling at different speeds. Congress may be asked to consider options such as a federal tax incentive to spur investment in railroad facilities or a dedicated trust fund for freight rail infrastructure. The federally supported expansion of commuter rail service will play a role in this discussion, as commuter trains may occupy track capacity that otherwise would be available for freight service. Congress may also consider steering funding toward projects that mitigate the negative affects of increases in freight traffic. Some localities have experienced significant increases in freight train traffic, resulting in prolonged blockages of rail-grade crossings. If Congress chooses to direct additional funding to grade-separation projects along heavily used rail corridors, the share of the cost borne by railroads will be a major point of debate. (CRS c ontact: [author name scrubbed]) Highway Safety Highway safety in the United States has improved in recent years. Traffic fatalities have declined by 25%, from 43,510 in 2005 to an 32,885 in 2010, the lowest number since 1950. The traffic fatality rate (the number of fatalities adjusted for exposure to the risk of dying in a crash) in 2010 was 1.10 fatalities per 100 million vehicle miles traveled, the lowest level on record. By comparison, the fatality rate in 1965 was 5.3 fatalities per 100 million vehicle miles traveled. However, DOT failed to reach its goal of reducing the fatality rate to 1.0 by 2008 (which would have required a reduction in fatalities to around 30,000). Moreover, since the 1960s, when the United States had the best safety record of any country, several other countries have surpassed the United States in lowering their fatality rates. Most of the fatalities occur to three groups: passenger car occupants (67%, or 22,187 deaths in 2010); motorcyclists (14%, or 4,502 fatalities in 2010; and pedestrians (13%, or 4,280 fatalities in 2010). Highway Safety Countermeasures Countermeasures to improve highway safety can be divided into three general categories: changes to roadways, changes to vehicles, and changes in driver behavior. Changes to roadways are the responsibility of FHWA, which distributed $1.2 billion to the states in FY2011 under the Highway Safety Improvement Program. Changes related to vehicles and drivers are the responsibility of the National Highway Traffic Safety Administration (NHTSA) and, in the case of commercial vehicles and drivers, of the Federal Motor Carrier Safety Administration. In FY2012 Congress gave NHTSA $250 million for its own operations and for research, and $550 million for grants to be provided to states to improve highway safety with an emphasis on altering driver behavior. Driver Behavior Incentive Programs Driver behavior is the primary factor in the vast majority of fatal crashes, so programs directed at altering driver behavior are considered to offer the greatest safety impact. The driver behaviors which are most significantly related to traffic fatalities are driving while impaired, speeding, not wearing a seat belt, driver distraction, or in the case of motorcyclists, not wearing a helmet. In SAFETEA, Congress established or renewed programs providing grants to states that take specified actions to promote the use of seat belts and to reduce the incidence of drunk driving. In some cases, the incentive programs have achieved limited success: for example, in the case of the program that provides grants to states that allow law enforcement agents to stop and ticket motorists for not wearing seat belts, the number of states qualifying for grants increased from 21 in its first year to 29 in its fourth year. In the case of the program that provides grants to states to adopt measures to reduce drunk driving, all 50 states and the District of Columbia qualified for grants in the first year; in the fourth year, as the number of measures required in order to remain eligible rose, four states and the District of Columbia failed to maintain their eligibility. In some cases, there are questions about the eligibility measures set forth in SAFETEA for the program; for example, the program that provides grants to states to improve motorcycle safety excludes promoting the wearing of a motorcycle helmet—demonstrated to be the single most effective motorcycle safety measure—as an eligible use of program funding, while measures that are eligible, such as motorcyclist training programs and programs to promote motorist awareness of motorcyclists, are of unproven value in reducing fatalities. Highway Safety Issues in Reauthorization Highway safety programs tend to be less controversial than construction grant programs, because the amounts of money at stake are much smaller. Nonetheless, Congress will likely be asked to consider significant changes to federal safety programs. Consolidating the Application Process There are currently five separate NHTSA incentive grant programs, and states have complained that the application process is unnecessarily difficult. Each program has a separate process, all the program applications are due between June 15 and August 1 each year, and each application requires significant attention from relatively small state traffic safety offices. Congress may be asked to direct NHTSA to consolidate or simplify the application processes. Increased Flexibility in the Use of Incentive Grant Funding One of the incentive programs in SAFETEA allows states to use the funds for any safety-related expense that is eligible for federal funding, but most of the programs require the money to be used for a limited range of eligible activities. In some cases, the restrictions are even more limiting: motorcycle safety program grants can be used only for safety training provided to motorcyclists, motorcyclist awareness programs aimed at motorists, and public awareness and outreach programs. Officials in Montana told GAO that they would like to use some of the funds to build new motorcycle training sites or expand existing sites, but the grant does not allow that. Congress may be asked to give states greater flexibility in use of highway safety funds. Switching from Incentives to Sanctions on States Sanctions, in the form of withholding of federal funds, have been found by some studies to be more effective than incentives in gaining state compliance with federal goals. States generally oppose sanctions, but even so the Governors Highway Safety Association testified that it would vigorously oppose any effort to repeal an existing sanction requiring states to make purchase and public possession of alcohol illegal for those under age 21. That sanction, established by Congress in 1984, was preceded by an incentive program which failed to induce many states with lower minimum purchase ages to change their laws. Linking Grants to Performance Most of the eligibility criteria for the various incentive programs are actions—passage of laws and implementation of programs—rather than measures of results. Thus, states can receive safety grants under these programs without demonstrating improved highway safety. One possible reform would link the receipt of a grant, or the size of a grant, more closely to a state's performance. Such a change, however, might require data that are not currently available; for example, not all states are able to calculate motorcyclist vehicle miles traveled, which is necessary to measure changes in the rate of motorcyclist fatalities. Past surface transportation reauthorizations have included federal support for data collection related to highway safety. For example, Congress provided funding for improvements to states' traffic safety information systems in SAFETEA. (CRS c ontact: [author name scrubbed]) Motor Carrier Safety Issues Congress tends to treat commercial vehicle safety issues separately from passenger vehicle safety issues, as matters related to commercial vehicles and their drivers come under a specialized agency, the Federal Motor Carrier Safety Administration. Increases in federal limits on the size and weight of commercial trucks may be among the most controversial proposals related to safety, as they would increase the productivity of the trucking industry but might have adverse effects on safety as well as on roadway life. Congress may choose to explore the potential of in-vehicle technologies, such as driver-fatigue warning systems and lane departure warning systems, to promote safety. Inspections of commercial vehicles are considered important in promoting compliance with federal safety requirements, but there is concern that the resources available to support inspections do not allow inspections to be done on more than a fraction of the commercial vehicles, making the risk of discovery of noncompliance low. A separate set of issues concerns the behavior of commercial drivers. Previous laws have funded efforts to prevent drivers from driving while drugged or with serious medical conditions that may impair their driving. GAO, however, found that it was easy for drivers to avoid detection because many collection sites did not follow regulations intended to maintain the integrity of urine tests. GAO also found that drivers who failed a drug test were able to continue driving without submitting to the required return-to-duty process by hiding their past drug history from employers, many of whom did not conduct thorough background checks. Among the measures that Congress may wish to consider to deal with this issue are the establishment of a national database for drug testing, additional funding for inspectors, and additional authority to impose fines for failure to comply with federal requirements. FMCSA has asked for legislative changes that it said would help it enforce bus safety. (CRS c ontact: [author name scrubbed]) Research, Development, and Technology Deployment The federal surface transportation program supports research in many areas, from system efficiency and passenger safety to environmental degradation stemming from transportation projects. FHWA has the largest research budget of the DOT agencies, while NHTSA, FTA, and the Research and Innovative Technology Administration also have significant roles. Title V of SAFETEA authorized $411 million annually for research. Of that, $196 million went to the surface transportation research program; $110 million to research on intelligent transportation systems (ITS); $70 million to support research at university transportation centers; $27 million to the Bureau of Transportation Statistics; and $27 million to training and education programs. Congress is likely to face questions about the adequacy of transportation research funding; under SAFETEA, federal spending on surface transportation research is approximately 0.9% of total federal expenditures on highways, and some advocates contend that a higher share will have a payoff in terms of reduced costs from crashes, congestion, and environmental damage. Congress also faces competing claims for how transportation research funding should be used. In SAFETEA's research title, Congress earmarked more funding than the total amount that was authorized by the title, with the result that individual research programs and projects received less funding than each was authorized in order that the available funding could be stretched to cover all the designated programs and projects. No unearmarked research funding was available for some FHWA projects, such as the biennial conditions and performance reports, that in previous years had been funded with such moneys. In 2008 Congress addressed these funding shortfalls by enacting the SAFETEA Technical Corrections Act ( P.L. 110-224 ), which added additional funding to all of the research programs. The lack of peer review in the allocation of research funding has also surfaced as a concern. (CRS contact: [author name scrubbed]) Environmental Issues Environmental Compliance During past reauthorization debates, environmental requirements have drawn attention due to both the impact that surface transportation projects can have on the environment and the impact that compliance with environmental requirements can have on project delivery. Previous reauthorization legislation has attempted to address environmental compliance issues by authorizing funding for projects to mitigate or minimize environmental impacts associated with surface transportation and by specifying procedures intended to expedite compliance with certain environmental requirements. The upcoming reauthorization process may include debate over ways to speed the environmental compliance process and fund certain regulatory requirements. Reviews Under the National Environmental Policy Act Before final design, property acquisition, or construction on a highway or transit project can proceed, FHWA and FTA must comply with all applicable environmental review requirements, including those of the National Environmental Policy Act of 1969 (NEPA; 42 U.S.C. 4321 et seq.). NEPA requires all federal agencies to consider the environmental impacts of their proposed actions. To ensure that environmental impacts are considered before final decisions are made, NEPA requires the preparation of an environmental impact statement (EIS) for any federally funded project that significantly affects the quality of the human environment. If the level of significance of a proposed project is unclear, the agency must prepare an environmental assessment in order to make that determination. Projects that do not individually or cumulatively have a significant social, economic, or environmental effect, and which DOT has determined from past experience have no significant impact, are processed as categorical exclusions. DOT regulations require the final NEPA documentation to demonstrate that a project will be in compliance with all applicable environmental laws and related requirements. This means that, for any given transportation project, any environmental study, review, or consultation required by law should be conducted within the framework of the NEPA process. According to FHWA, legal requirements most frequently applicable to its projects are the Endangered Species Act of 1973 (16 U.S.C. 1531 et seq.), National Historic Preservation Act (16 U.S.C. 460 et seq.), Clean Water Act (33 U.S.C. 1251 et seq.), and "Section 4(f)"of the Department of Transportation Act of 1966 (40 U.S.C. 303). To meet the requirements of these laws, various agencies, such as the U.S. Fish and Wildlife Service, the Advisory Council on Historic Preservation, the U.S. Army Corps of Engineers, or the Environmental Protection Agency (EPA) may be required to participate in the NEPA process. That participation may involve performing scientific analysis or issuing permits. SAFETEA, and TEA-21 before it, both included legislative changes intended to streamline the NEPA process. Debate continues on the impact that environmental compliance requirements have on transportation project delivery, with more efficient interagency cooperation frequently identified as an area in need of improvement. Additional provisions intended to expedite NEPA reviews may be debated in the upcoming reauthorization process. "Section 4(f)" Requirements Another requirement generally carried out within the context of the NEPA process is compliance with Section 4(f) of the Department of Transportation Act of 1966. Section 4(f) requirements apply to the use of publicly owned parks and recreation areas, wildlife and waterfowl refuges, and publicly or privately owned historic sites of national, state, or local significance. The law prohibits the use of a Section 4(f) resource for a transportation project unless there is no "prudent and feasible" alternative, and requires all possible planning to minimize harm to the resource. When a proposed project would use a Section 4(f) resource, a separate "Section 4(f) evaluation" must be prepared and included with the appropriate NEPA documentation. SAFETEA amended Section 4(f) to allow for the use of parks, refuges, and historic sites if that use results in "de minimis impacts." SAFETEA also required DOT to issue regulations clarifying factors to be considered and standards to be applied in determining whether alternatives are "prudent and feasible." Due to the continued prohibition on most uses of Section 4(f) resources, further changes to the requirements may be debated during the upcoming reauthorization process. The CMAQ Program The Congestion Mitigation and Air Quality Improvement (CMAQ) Program was created in by ISTEA in 1991, and was reauthorized in TEA-21 and again in SAFETEA. It provides funds to states for transportation projects designed to reduce traffic congestion and improve air quality, particularly in areas of the country that do not attain National Ambient Air Quality Standards. In particular, it authorizes funding for programs and projects intended to reduce carbon monoxide, particulate matter, and ozone. CMAQ funds are apportioned in accordance with a formula based largely on a state's population and pollution reduction needs. During the reauthorization process, there will likely be debate regarding the level of CMAQ funding and possibly the types of projects eligible for funding. From FY2005 to FY2009, the CMAQ program provided over $8.6 billion to state departments of transportation and local transit agencies. Specific types of projects eligible for CMAQ funds include, but are not limited to: programs for improved public transit; traffic flow improvement programs that reduce emissions; and programs to control extended idling of vehicles. SAFETEA required states and metropolitan planning organizations to give priority in distributing CMAQ funds to diesel engine retrofits and other cost-effective emission reduction and congestion mitigation activities that provide air quality benefits. SAFETEA also expanded eligibility requirements to specifically allow certain types of projects to qualify for CMAQ funding. SAFETEA also directed DOT to evaluate and assess a representative sample of CMAQ projects, in consultation with EPA, to determine their impacts on air quality and congestion levels and to ensure the effective implementation of the program. Further, SAFETEA directed DOT to maintain and disseminate a database describing project impacts. In response to SAFETEA requirements, in October 2008, FHWA released a report that studied the effectiveness of 67 CMAQ-funded projects. (CRS c ontact: [author name scrubbed]) Conformity of Transportation Plans and State Implementation Plans (SIPs) Under the Clean Air Act, areas that have not attained one or more of the six National Ambient Air Quality Standards must develop State Implementation Plans (SIPs) demonstrating how they will reach attainment. As of September 2010, at least 47 areas with 119 million people were subject to the SIP requirements. Other areas are likely to be added to this list in the next few years, as more stringent air quality standards for ozone and particulate matter take effect. Section 176 of the Clean Air Act prohibits federal agencies from funding projects in these areas unless the projects "conform" to the SIPs. To demonstrate conformity, a transportation improvement program (TIP) must show that the projects to be undertaken will not lead to an increase in emissions that would delay attainment of air quality standards. New highway and transit projects cannot receive federal funds unless they can make this demonstration. There are some exceptions: highway safety projects, rehabilitation and reconstruction of transit facilities, purchase of replacement buses and rail cars, noise attenuation projects, and pedestrian and bicycle facilities are all allowed to proceed whether or not an area's conformity has lapsed. But the threat of a conformity lapse and the potential "loss" of highway funds has been a powerful incentive to get local officials to focus on air quality considerations as they plan transportation projects. In surface transportation reauthorization, Congress may weigh the benefits of conformity in achieving air quality goals against the burdens it imposes on proposed transportation projects. (CRS contact: Jim McCarthy) Climate Considerations If the United States is to address climate change, legislation and regulations will need to require significant reductions in emissions of "greenhouse" gases (GHG) from transportation sources. Transportation accounts for about one-third of U.S. emissions of the leading greenhouse gas, carbon dioxide (CO 2 ), and about 27% of total emissions of the six major GHGs typically considered. CO 2 is largely a product of combustion: the carbon in fuel (be it gasoline, diesel, natural gas, or whatever) combines with oxygen in the atmosphere when the fuel burns. Thus, the principal method of reducing CO 2 emissions from transportation sources is to burn less fuel. Emissions can also be reduced by substituting fuels that contain less carbon. In the case of motor vehicles, this would mean substituting natural gas or other lower-carbon fuels for gasoline and diesel fuel. In the Energy Independence and Security Act of 2007 (EISA; P.L. 110-140 ), Congress required both improved fuel economy for new cars and trucks and a lower carbon content in renewable transportation fuels. The law required that new motor vehicles attain an average improvement of 40% in fuel economy by 2020 with incremental improvements between now and then, and that future renewable fuels have a lower carbon content on a life-cycle basis. The Obama Administration has now advanced the schedule for EISA's fuel economy standards, with nearly full implementation scheduled by 2016. Further, the Administration has proposed even more stringent standards for 2017-2025. Surface transportation reauthorization offers the possibility to look at transportation emissions in a broader context, and could provide incentives for systemic changes that might lower the carbon footprint of the transportation sector. Electrification of truck stops to reduce idling, congestion mitigation, high occupancy vehicle lanes, funding for pedestrian and bicycle facilities, preferences for lower carbon vehicles in FTA grants, incentives to shift freight and people to less-carbon-intensive modes, and incentives for "smart growth" are among the potential policy options. (CRS contact: Jim McCarthy) Alternative Fuels and Advanced Technology Vehicles Current laws provide subsidies to promote the use of alternative motor fuels. For example, while gasoline, regardless of its ethanol content, is taxed at 18.4 cents per gallon, every gallon of ethanol blended into gasoline is subject to a credit of 45 cents per gallon. (This credit is set to expire at the end of 2011.) Therefore, the effective tax rate on a 10% blend of ethanol in gasoline is 14.9 cents per gallon. A credit of 50 cents per gallon for natural gas, hydrogen, and other alternative fuels, along with tax credits for biodiesel and renewable diesel, expired at the end of 2009, but were extended through FY2011. While these various incentives were enacted as provisions in energy and economic legislation, there may be interest in using surface transportation reauthorization to extend them. With interest growing in the environmental effects of alternative fuels, there also may be interest in modifying the fuel credits to reflect their performance on environmental measures. Recent debate in the Senate, however, raises questions about the future of these incentives, especially for corn-based ethanol. SAFETEA and various energy laws include incentives to promote alternative fuel and advanced technology vehicles. For example, the Energy Policy Act of 2005 established tax credits for the purchase of alternative fuel and hybrid vehicles, many of which expired at the end of 2010. FTA bus programs provide additional matching funds to transit agencies that purchase alternative fuel and advanced technology buses, including advanced diesel buses, beyond those available for conventional buses. Congress may wish to use reauthorization to modify these incentives to focus more on their energy efficiency or environmental performance. To expand the use of alternative fuels and advanced technology vehicles, infrastructure to support them must also grow. Just as there are incentives for the purchase of new vehicles, there are tax credits for retail stations to install refueling infrastructure, although these also expire at the end of FY2011. As part of the surface transportation reauthorization debate, there may be interest in providing additional incentives, including grants, for tax-exempt entities such as transit agencies to install additional refueling infrastructure, especially if those stations are accessible to the public. (CRS c ontact: Brent Yacobucci)

The law authorizing federal surface transportation programs expired at the end of FY2009, but Congress has failed to enact a new authorization. Surface transportation programs continue to operate on the basis of authority provided in extension legislation. This situation should not be a surprise to those familiar with the history of the reauthorization process. Especially during the last two decades, reauthorization has become a difficult undertaking. This is primarily due to controversy over how and to whom federal-aid highway funds should be distributed. The most recent law, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA) (P.L. 109-59), was enacted 22 months after previous legislation had originally expired. Previous reauthorization bills also were enacted well behind schedule. The most difficult issue to be considered during reauthorization is how to finance federal surface transportation programs. The highway trust fund and the revenue sources that feed it have been a reliable mechanism for financing highway and transit programs for five decades, but this is no longer the case. Fuel taxes, which provide most of the money for surface transportation, are unlikely to provide a solid long-term foundation for the programs, although a rate increase could help in the near-term. The choice for policymakers, therefore, is to find new sources of income for the current-size program or an expanded program, or alternately, to settle for a smaller program that might look very different from the one currently in place. The growing consensus on the need to reduce the federal budget deficit will likely influence this debate. One perennial subject of debate concerning the highway program is whether grants to individual states are in line with the taxes those states' motorists pay into the highway trust fund—the so-called donor-donee issue. Program consolidation, restructuring, and elimination are expected to receive extensive congressional attention due to public concerns about the condition of the nation's transportation infrastructure and the efficiency of existing programs. The speed of project delivery and environmental review streamlining are of growing interest in Congress. Congress also can be expected to look closely at transit program spending levels and priorities. Freight and passenger rail issues have also been of growing importance in recent years and figure to get significantly more attention than in past reauthorization debates. This report will not track legislative action on surface transportation reauthorization.

Genetically Engineered Foods "Genetic engineering" refers to the scientific methods "use[d] to introduce new traits or characteristics to an organism. " These procedures can create a tolerance to herbicides, promote resistance to viruses, increase yields, and alter acidic content. "Genetically engineered foods" (GE foods), also referred to as "genetically modified foods" (GMO foods), are foods that are derived from these methods or include ingredients that are derived from these methods. Food and ingredients from GE plants were first introduced into the food supply in the mid-1990s. Common GE plants include corn, canola, soybean, and cotton. These plants, in the form of cornstarch, corn syrup, canola oil, and soybean oil, are used as ingredients in common food products, such as salad dressings, cereals, soups, breads, and snack foods. The FDA has found that GE foods are generally as nutritious as traditionally bred plants. The World Health Organization has reported that GE foods currently on the market are not likely to present human health risks. However, some members of the public generally oppose GE foods and have demanded specific labeling requirements for food products containing GE ingredients. Labeling Requirements Impacting GE Foods Federal law does not impose specific labeling requirements on food just because it may or may not contain GE ingredients or was derived using GE techniques. Labels of GE foods follow the same federal labeling requirements and guidelines outlined in the FFDCA as non-GE foods. The FDA has issued informal policy statements emphasizing its position that specific labeling requirements for GE foods are unnecessary because the general labeling provisions in the FFDCA will guide and protect consumers. However, some states have enacted laws that specifically demand manufacturers disclose the presence of GE ingredients in certain foods on the label. This section first examines the federal statutory requirements that the FDA has highlighted as particularly relevant to the labeling of GE foods. The section then reviews the informal policy statements issued by the FDA concerning GE food labeling and the state laws enacted to address this particular issue. The section concludes with a brief discussion about the use of the word "natural" on GE food labels. The Federal Food, Drug, & Cosmetic Act While the FFDCA does not differentiate between GE and non-GE foods regarding labeling requirements, the FDA has specifically highlighted Sections 403 and 201 as provisions that may potentially impact the labeling of GE foods. These sections enable the FDA to expressly require that specific information must appear on the food label. Sections 403 and 201 were both enacted in 1938 before GE foods entered the food supply. In prohibiting misbranded foods, Section 403 enables consumers to choose foods wisely by ensuring that the labels communicate essential and accurate information. Section 403(a) states that a food is misbranded if its labeling is false or misleading in any particular. Section 403(i) requires each ingredient listed in the label's ingredient statement to bear the common or usual name. Therefore, under these sections, if a GE food is significantly different from its traditional counterpart such that the common name no longer adequately describes the GE food, the name or the label should describe this difference; otherwise the label may mislead the consumer. Similarly, Section 201(n) states that a label is misleading if it fails to reveal facts that are material in the light of representations made on the label, or in light of consequences that may result from the use of the food. The legislative history reveals little about the meaning or scope of "material" in this provision. In the past, the FDA has required specific labeling on the basis of it being "material" information if the absence of such information would "(1) pose special health or environmental risks ... ; (2) mislead the consumer in light of other statements made on the label ... ; or (3) in cases where a consumer may assume that a food, because of its similarity to another food, has nutritional ... , or functional characteristics of the food it resembles when in fact it does not." The FDA has concluded that the presence of GE ingredients/methods itself is not material information requiring explicit disclosure on a food label because "the agency is not aware of any information showing that foods derived by [GE] methods differ from other foods in any meaningful or uniform way." However, the FDA has highlighted scenarios where GE food may differ from its traditional counterparts in some fashion such as a different nutritional property. According to the FDA, this difference, but not the fact that GE was used, may be material to the consumer under Section 201(n). For example, if the GE food includes an allergen that the consumers would not expect to be present based on the name of the food, the presence of that allergen must be disclosed on the label as "material" information, enabling the consumer to avoid certain health risks. "Natural" Labels The use of the word "natural" on labels of GE foods is often the source of deceptive and misleading legal complaints. Similar to the term "genetically engineered foods," neither the FFDCA nor the corresponding regulations directly define "natural" in the labeling context. The FDA has issued an informal policy that ultimately defines "natural" through exclusion. According to the FDA, "natural" on a food label "mean[s] that nothing artificial or synthetic (including all color additives regardless of source) has been included in, or been added to, a food that would not normally be expected to be in the food." The FDA has declined to establish a formal definition for "natural" through rulemaking. FDA Policy The FDA has not yet adopted a formal policy on the labeling of GE food, but has issued nonbinding guidance on this topic in 1992 and 2001. The FDA's 1992 policy statement addressed foods derived from new plant varieties, including plants developed using GE techniques. This policy statement responded to requests received by the FDA from industry representatives, other government agencies, academia, and the general public, seeking clarification about the regulation of foods derived using GE techniques. Under this policy, foods derived from GE are "regulated within the existing framework of the [FFDCA], the FDA's implementing regulations, and current practice, utilizing an approach identical in principle to that applied to foods developed by traditional plant breeding." The FDA supported this position on GE regulation by emphasizing that the regulatory status of any food depends upon certain objective characteristics and the intended use of the food, irrespective of the method by which the food was developed. In 2001, the FDA issued draft guidance reaffirming its position that GE foods do not require special labeling. The 2001 statement, however, also acknowledged public comments on the 1992 policy that emphasized the need for more information available to consumers about GE foods. Responding to this request, the FDA's 2001 guidance encourages manufacturers to voluntarily label food products that have or have not been developed using GE "so that the labeling statement is truthful, not misleading, and scientifically valid" as already required by FFDCA provisions on food labeling. State Laws Several states have recently passed laws imposing specific labeling requirements on GE food. Enacted in 2013, Connecticut's Act Concerning the Labeling of Genetically-Engineered Food provides that certain food items are misbranded unless labeled as "Produced with Genetic Engineering." These foods include wholesale and retail food, raw agricultural commodities, and seeds or seed stock that are, or may have been, at least partially produced by GE. In 2014, Maine enacted Act to Protect Maine Food Consumers' Right to Know about Genetically Engineered Food and Seed Stock, which requires any GE food or seed stock to be labeled as "Produced with Genetic Engineering." GE foods that do not follow this requirement are subject to sanctions for misbranding. The act exempts restaurants, alcoholic beverages, and medical food from these labeling requirements. Enacted in 2014, Vermont's Act Relating to the Labeling of Food Produced With Genetic Engineering requires food that was produced either entirely or partially by GE to be labeled as such. Labeling may include the phrases: "partially produced with genetic engineering," "may be produced with genetic engineering," or "produced with genetic engineering." The act also prohibits manufacturers from labeling the food as "natural" if produced entirely or in part from GE. Foods exempted from these requirements include alcoholic beverages, processed food with GE materials that do not account for more than 0.9% of the food's total weight, medical food, and food served in restaurants. Vermont's GE labeling act will take effect on July 1, 2016. However, both the Connecticut and Maine statutes contain a provision stating that the state will not enforce the labeling requirements outlined in the respective acts until a requisite number of states pass similar legislation. These state laws raise various legal issues, such as whether the state labeling requirements violate the First Amendment rights of the manufacturers; whether the state laws are preempted by federal labeling requirements; and whether these laws place an impermissible burden on interstate commerce. Trade organizations have filed a lawsuit challenging the constitutionality of Vermont's labeling law on these and other grounds. However, potential legal issues with these state laws are beyond the scope of the report. Litigation & Labeling of GE Foods Consumer claims in litigation concerning GE food often focus on allegedly misleading or deceptive terms on the label when the food contains GE ingredients. Defendants in these cases typically make a motion to dismiss the case based on deference to the FDA's expertise in this area as articulated in the primary jurisdiction doctrine. However, courts have not consistently interpreted the primary jurisdiction doctrine in the context of GE labeling, creating some ambiguity as to when courts should defer to the FDA's expertise if the FDA has repeatedly declined to take action on this particular labeling issue. Consumers tend to bring these legal claims under state unfair competition laws and not the FFDCA, despite similarities in statutory language, because the FFDCA prohibits private litigants from suing to enforce compliance with the statute. Only the federal government may enforce the provisions under the FFDCA. This section begins with an explanation of the primary jurisdiction doctrine and the factors a court considers when applying this doctrine. Then, this section examines the role of the primary jurisdiction doctrine in cases where consumers have brought misleading and deceptive labeling claims against a defendant's use of the term "natural" on GE foods labels. Primary Jurisdiction Doctrine Courts invoke the primary jurisdiction doctrine when a controversy requires an agency's expertise and uniformity of ruling. The primary jurisdiction doctrine permits courts to stay proceedings or dismiss a complaint without prejudice "if a claim 'requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency.'" Usually technical or policy issues that should be addressed in the first instance by the agency to which Congress has granted that particular regulatory authority trigger the primary jurisdiction doctrine. Courts weigh four factors when determining whether to apply this doctrine: "(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration." After a court has invoked the primary jurisdiction doctrine, the court may "refer" the issue to the relevant agency. This referral permits parties to then seek an administrative ruling. However, a formal transfer mechanism between the court and the administrative agency does not exist as it is the parties' responsibility to initiate the administrative proceeding. Application of the Primary Jurisdiction Doctrine to GE Food Labeling Claims Lawsuits brought by consumers against manufacturers of GE foods generally focus on the allegedly misleading use of the word "natural" on labels of GE foods. Consumers claim that the use of "natural" and similar phrases such as "100% natural" are misleading under state unfair competition laws because the food contains GE ingredients, which, according to the claimants, are not "natural." In these suits, defendants often file motions to dismiss based upon the doctrine of primary jurisdiction. Courts, however, have inconsistently applied this doctrine to these types of claims. While courts have at times deferred to the FDA and dismissed or stayed the proceedings, in other cases courts have found that the primary jurisdiction doctrine does not apply to natural/GE misleading claims, for primarily two reasons: (1) the misleading/deceptive claims are legal questions within the province of the courts and not the FDA, and (2) the FDA has refused to consider referrals by the courts to the agency in the past. The primary jurisdiction doctrine triggers deference to the agency when the claim involves an issue of first impression more appropriately considered by the agency with its expertise in that particular area. Courts, which have refused to invoke this doctrine in GE labeling cases, have generally maintained that questions of deceptive labeling belong in the courts, and do not involve the expertise of the FDA as the questions are legal in nature requiring consideration of whether the defendant has violated a particular law. For example, in Bohac v. General Mills, Inc., the plaintiff brought a class action suit against General Mills claiming that the company's inclusion of "100% Natural" on its products' labeling was deceptive and misleading under California unfair competition laws because of the presence of GE ingredients. General Mills moved to stay the case on the grounds that the FDA has primary jurisdiction over the term "natural." The court disagreed, stating that defining "natural" is not an issue of first impression. The court further explained that "determining whether a term is false or misleading is within the province of the courts" and does not require the expertise of the FDA. Reaching a similar conclusion, the court in Ault v. J.J. Smucker Co. stated that a definition of "natural" from the FDA would not necessarily help to determine whether the consumer is deceived by "All Natural" on the food label when evaluating the plaintiff's claim. Similarly, the court in Rojas v. General Mills, Inc. stated that the FDA's position on certain food labels may be relevant to the analysis of consumer deception, but it is not the "sole or dispositive factor." As discussed above, when a court finds that the agency has primary jurisdiction over a particular issue, the court will "refer" the case to the agency. However, the FDA's refusal to consider similar referrals in the past has discouraged certain courts from referring misleading "natural" claims. For example, in R e Frito-Lay North America, Inc ., the plaintiff claimed that Frito-Lay products were deceptively labeled as "All Natural" when the products contained GE ingredients. Frito-Lay responded that the case should be dismissed or stayed pending a referral to the FDA pursuant to the primary jurisdiction doctrine. The court disagreed and declined to apply the primary jurisdiction doctrine because the "FDA is unlikely to respond in a timely manner to any referral from this [c]ourt." The court in Ault v. J.J. Smucker Co. expanded upon this position, declaring that FDA's past refusals of a referral for the plaintiff's particular claim weighs against the court's invocation of the doctrine of primary jurisdiction. Despite the arguments that these misleading claims are legal questions for the courts to consider, at least one court has deferred to the agency's authority in this area. In Cox v. Gruma Corp., the plaintiff brought a class action suit alleging that the defendant's labeling of its food was false and misleading because the defendant indicated that the food was "natural," when it contained corn grown from GE seeds. The court dismissed the case on primary jurisdiction grounds finding that the FDA has regulatory authority over food labeling as granted by Congress. Citing the Ninth Circuit decision in Pom Wonderful v. Coca-Cola, the court deferred to the FDA regulatory authority in this area. Nevertheless, the court recognized that there is a regulatory "gaping hole" regarding natural claims and GE foods, where further clarification from the FDA may help both consumers and manufacturers. When making the motion to dismiss under the primary jurisdiction doctrine, defendants in these cases have argued that the primary jurisdiction doctrine should apply as the agency should receive deference in the food labeling area. The defendants in Rojas v. General Mills and Cox v. Gruma cite the Ninth Circuit decision of Pom Wonderful v. Coca-Cola, in which the court deferred to the FDA and its authority and expertise in food labeling, as support for their motions to dismiss. The U.S. Supreme Court, in June 2014, overturned the Ninth Circuit decision in Pom Wonderful v. Coca-Cola , holding that FDA regulation in the particular area of juice labeling does not extend deference to the FDA that would preclude a competitor from bringing a federal unfair competition claim. At the time of this report, it is unclear how the Court's holding in this case will impact GE food labeling and lower court deference to the FDA when the FDA has not yet promulgated specific regulations regarding these types of labels. Legislation in the 114th Congress Several bills have also been introduced in the 114 th Congress that address labeling of GE foods. The Genetically Engineered Food Right-to-Know Act would amend the FFDCA to classify any food as misbranded that has been GE or contains one or more GE ingredients, unless such information is clearly disclosed. The bill would exempt any food that (1) is served in restaurants or other similar eating establishments, (2) is a medical food, (3) would be subject to such requirement solely because it was produced using a GE vaccine, or (4) would be subject to such requirement solely because it includes the use of a GE processing aid or enzyme. The bill defines "genetically engineered" food as a material intended for human consumption that is an organism produced through the intentional use of GE, or the progeny of intended sexual or asexual reproduction (or both) of organisms that are the product of GE. The Safe and Accurate Food Labeling Act of 2015 would establish different certification programs and labeling requirements under the oversight of both the FDA and the USDA. First, Section 101 of the bill would direct the FDA to continue its current premarket consultation process for food derived from new plant varieties, including GE plants. Under the bill, the FDA may require that the labeling of food produced from, containing, or consisting of a GE plant display a statement to inform consumers of a difference between food so produced and a comparable non-genetically engineered food. Under this proposed requirement, the FDA may require such labeling if the agency has determined that there is a material difference between the two foods and the disclosure of such difference is necessary to protect public health or to prevent the label from being false or misleading. Additionally, the bill would amend the Plant Protection Act to create a notification program requiring those who plan to introduce into interstate commerce GE plants for the use of food to notify the Secretary of Health and Human Services (HHS), who must then evaluate the food under the premarket consultation process described above. The bill would then require the entity to submit the evaluation to the Secretary of Agriculture. The bill's Section 201 would establish a voluntary GE food certification program within the USDA to govern label claims with respect to the use or non-use of GE in the production and process of food. Section 301 of the bill would amend Section 403 of the FFDCA to deem a food misbranded if its labeling contains an express or implied claim that food is "natural" unless the claim uses terms that have been defined by regulations promulgated by the FDA. The bill also contains several provisions that would impact a state's regulation of GE food labeling. In February 2016, Senator Pat Roberts introduced a bill, S. 2609 , that would establish a national voluntary bioengineered food labeling standard, overseen by the USDA. Specifically, the bill would require the USDA to promulgate regulations that would outline the process the agency would follow to determine when a food may be labeled as bioengineered. These regulations would also prohibit an express or implied claim that a food is or is not safe solely based on whether the food is bioengineered. Additionally, the bill includes a provision with respect to preempting state laws relating to the labeling requirements of GE food in interstate commerce. However, the bill would permit a state to establish food labeling requirements for bioengineered food in interstate commerce that are identical to the proposed voluntary labeling standard. In March 2016, Senator Merkley introduced S. 2621 , the "Biotechnology Food Labeling Uniformity Act." Unlike Senator Roberts's bill, this act would amend the FFDCA by stating that a GE food would qualify as misbranded unless it bears a label stating that it is GE. According to the bill, the mandatory label must include either the words "genetically engineered" or "GE" immediately following the common name of the GE ingredient, an asterisk that denotes GE ingredients, a statement disclosing that the food is produced with GE or contains GE ingredients, or a symbol established by the Secretary of HHS that would disclose the presence of a GE ingredient. The misbranding provision would not apply to processed food that contains GE ingredients that do not account for more than nine-tenths of one percent of the total weight of the processed food; food that may be considered GE solely on the basis that it was subject to a GE vaccine at some point; and food that would be considered GE solely on the basis that it was produced using a GE processing aid. Like the other GE labeling bills, this act also contains a federal preemption provision that intends to preempt state GE labeling requirements that are different from those that would be imposed by the act. However, the bill would further clarify the intended scope of this preemption clause by also expressly stating that other food labeling laws or common law remedies would not be preempted.

Genetically engineered (GE) foods, sometimes referred to as genetically modified foods (GMO foods), are foods that are derived from scientific methods used to introduce new traits or characteristics to an organism. The labeling of GE foods has been the subject of debate among members of the general public and federal and state governments since the introduction of GE foods to the food supply in the 1990s. Federal law does not impose specific labeling requirements on a food just because it may or may not contain GE ingredients or was derived using GE techniques. The Food and Drug Administration (FDA) has yet to issue formal regulations and policies on the labeling of GE food. However, this absence of direct federal regulation does not mean that GE foods are free from any federal oversight. Instead, labels of GE foods follow the same federal labeling requirements and guidelines outlined in the Federal Food, Drug, and Cosmetic Act (FFDCA) as non-GE foods. These labeling requirements prohibit false or misleading labels and address material information that may be relevant to the consumption of that food. However, some states have enacted laws that specifically demand manufacturers disclose the presence of GE ingredients in certain foods on the label. The United States Department of Agriculture's (USDA's) oversight over organic meat and poultry products involves the regulation of GE ingredients. However, the discussion of such oversight is beyond the scope of this report. In the context of this regulatory ambiguity, consumer claims in litigation concerning GE food often focus on allegedly misleading or deceptive terms on the label when the food contains GE ingredients. Defendants in these cases typically make a motion to dismiss the case on the basis of deference to the FDA's expertise in this area as articulated in the primary jurisdiction doctrine. However, courts have not consistently interpreted the primary jurisdiction doctrine (court deference to an agency when deciding an issue of first impression) in the context of GE labeling. This inconsistency has created further ambiguity concerning the broader issue of when courts should defer to the FDA's expertise if the FDA has repeatedly declined to take action on a particular regulatory issue. Several bills have been introduced in the 114th Congress that address labeling of GE foods, including the Genetically Engineered Food Right-to-Know Act (H.R. 913, S. 511) and the Safe and Accurate Food Labeling Act of 2015 (H.R. 1599), the Biotechnology Food Labeling Uniformity Act (S. 2621), and S. 2609, which would amend the Agricultural Marketing Act of 1946. Generally these bills would amend the FFDCA to impose specific labeling requirements disclosing information about GE techniques used in the production of a particular food product.

Overview Congress has historically recognized the importance of teacher quality in improving the academic performance of elementary and secondary school students. The latest amendments to the Higher Education Act (HEA) align with past efforts to improve quality through support and accountability for teacher preparation programs. The Elementary and Secondary Education Act (ESEA) has long sought to improve quality by supporting better professional development, effective recruitment and retention, and smaller class sizes. In perhaps its most direct effort to improve teacher quality, the 107 th Congress established new federal highly qualified teacher requirements through the No Child Left Behind Act of 2001 (NCLB, P.L. 107-110 ). In recent years, researchers and policy-makers have begun to consider and implement ways to use compensation reform to improve teacher quality; however, federal policy up to this point has not been heavily focused on the issue of teacher pay. There is growing concern that the single salary schedule currently in place in nearly all of the nation's schools may be a barrier to improving quality. Many believe that teachers' pay should be used to leverage changes in behavior, knowledge, and skills, and make teaching more financially attractive to successful teachers and to highly able individuals outside of teaching. The recent policy focus on student academic achievement has led some reformers to advocate for various systems of pay-for-performance based on achievement gains, including the use of value-added methods. Others argue that pay differentiation should reward a broader set of factors. These reforms include incentives based on such things as teacher evaluations, advanced credentials, career ladders, and service in hard-to-staff schools or high-need subject areas. Apart from the recently enacted Teacher Incentive Fund (TIF), federal education policy has not significantly addressed the nature of teacher compensation. Nevertheless, significant amounts of funding from several federal programs support the salaries of certain kinds of teachers, including teachers and paraprofessionals serving educationally disadvantaged students under the compensatory education program (ESEA, Title I-A), newly hired teachers under the continuation of activities provided by the Class Size Reduction program (antecedent to ESEA, Title II-A) and special education teachers (under the Individuals with Disabilities Education Act). As Congress moves to reauthorize the ESEA, proposals to leverage federal education spending to reform teacher compensation systems may receive serious consideration. Congress could scale up the current federal role in compensation reform through continued expansion of the TIF program; which is basically providing funding for promising programs that already exist (mainly) at the local level. However, Congress may also consider alternative approaches that would alter or expand the federal role. An example of such a proposal would be to strengthen current language supporting pay reform under ESEA Title II (Sections 2113 and 2123). This report is intended to discuss a variety of issues that relate to compensation reform and the proposals Congress may consider during ESEA reauthorization. The report first provides background on the teacher pay system, including the history behind the development of the dominant feature of this system—the single salary schedule. Second, the report discusses the basic elements of compensation reform, namely performance-based pay, competency-based pay, and service-based pay. The third section of the report describes several reform efforts that are currently underway around the country at the national, state, and local levels. Finally, the report concludes with a discussion of recent legislative action and issues for ESEA reauthorization. Background on Teacher Compensation The origins of the current system of teacher compensation can be traced to the turn of the 20 th century and the labor movement's drive to improve pay equity in public education and the civil service at large. Prior to that time, "room and board" and "grade-based" compensation models allowed large discrepancies to develop, particularly along racial and gender lines. By the 1920s, new systems of uniform pay steps were taking hold to ensure teachers with the same years of experience and education level would receive the same salary. These systems came to be known as the single salary schedule and have been nearly universal in public schools since the mid-20 th century; adopted in 97% of all schools by 1950 and operational in 96% of schools in 2000. Teacher salary schedules are primarily determined at the level of the individual school district. They are often the subject of negotiation between local school boards and teacher unions where applicable. This salary schedule bases a teacher's pay primarily on two factors—the number of years of teaching experience the individual has and the number of educational credits and degrees the individual has earned. Increases in both teaching experience and credits/degrees lead to increases in salary, up to absolute limits imposed by the applicable pay schedule. Critics view the single salary schedule as largely rewarding longevity and the accumulation of college credits, not classroom effectiveness. Some researchers have found that the schedule's main factors—experience and level of education—have relatively little beneficial impact on classroom effectiveness as measured by the achievement of a teacher's students. Hanushek and Rivkin have concluded: "The results [of a review of the available research] are startlingly consistent in finding no strong evidence that teacher-student ratios, teacher education, or teacher experience have an expected positive effect on student achievement." Other research challenges these conclusions. For example, based on their analysis of the literature, Rob Greenwald et al. concluded: "[R]esource variables that attempt to describe the quality of teachers (teacher ability, teacher education, and teacher experience) show very strong relations with student achievement." Regardless of the strength of the relationship between teacher quality and student achievement, the single salary schedule (and perhaps low overall pay, see box below) is argued by some to fail to draw the highest caliber of potential teachers into the field; to fail to reward teachers who are exceptionally productive; or to fail to allocate the supply of teachers to fields where they are most needed (like math and science). Criticism of the single salary schedule has undergirded efforts to implement performance-based pay plans in elementary and secondary education. Elements of Compensation Reform Teacher compensation reform efforts have a long history and have fallen into and out of favor in public schools repeatedly throughout the 20 th century. Throughout this history there has been a consistent tension in the balance between rewarding inputs versus outputs . Put simply, should teachers be given additional pay for improving the skills and abilities they bring into the classroom or should they get additional pay for improving the skills and abilities their students carry away from school? Reflecting this debate, a recent review of the history of compensation reforms described the two classic approaches as (1) knowledge-based pay and (2) merit-based pay. Many writing in this area conflate these two reforms (among other reforms) under terms like "performance-based pay" and "pay-for-performance." To avoid confusion, in this report, the term performance-based pay is used to refer strictly to output-based compensation reforms that reward teachers for improving student performance. Input-based incentives (such as rewards for improving a teacher's knowledge) are referred to as competency-based pay . In addition to these two types of reform, there exists a third category that will be called service -based pay . These reforms include financial rewards for those teaching in hard-to-staff schools and hard-to-staff subject areas, but can also include rewards for those who move up the career ladder to serve in more advanced roles (e.g., team leadership) and take on additional responsibilities (e.g., mentoring). Performance-Based Pay In the labor market generally, performance-based pay policies attempt to correlate employee pay directly with employee output and take the form of either individual incentive plans or group incentive plans. Performance-based pay is consistent with widely held beliefs that employees should be rewarded based on effort and with theories of human motivation which contend that effective motivation is predicated on a close relationship between performance and rewards. Most employers rely principally on time-based pay (paying employees on an hourly or salaried basis) but incorporate some form of performance-based pay on an adjunct basis. Implementation of performance-based pay requires supervisory time and, consequently, entails costs for employee monitoring among other managerial problems. However, it is presumed that because of the additional incentives to individual performance, less supervision will be required than under strictly time-based pay. These performance incentives may reward productive workers with larger annual wage increases (or one-time bonuses) on an individual basis. As an alternative to supporting individual performance, group incentive plans reward organization-wide effort. Because group incentive plans ideally foster cooperation and teamwork rather than competition among coworkers, they overcome one of the potential limitations of individual incentive plans. On the other hand, group incentive plans are sometimes criticized for not sufficiently recognizing individual effort. In practice, many employers rely on both group and individual incentives to try and enhance individual performance and teamwork. Gain-sharing plans, which tie part of pay to some measure of group effort, often include some components of individual performance plans, thereby potentially enhancing group and individual effort. Gain-sharing rewards are tied to improvements in organizational performance attributable to factors controllable by employees. Thus, gain-sharing plans affect performance by influencing employee motivation and organizational culture. Merit Pay for Teachers The first wave of performance-based pay reforms for teachers mainly took the form of so-called merit pay . Merit pay is a, "system that hinges on student outcomes attributed to a particular teacher or group of teachers rather than on 'inputs' such as skills or knowledge." Following the release of A Nation at Risk in 1983, a significant number of public school districts began considering merit pay as a supplement to the single salary schedule. These merit pay systems provided bonuses to individual teachers, groups of teachers, or schools based on any number of factors including student performance, classroom observations, and teacher portfolios. A 2002 report by the Progressive Policy Institute found that the most common form of merit pay were school-based performance awards. These bonus awards were based on the aggregate performance of schools that may include a wide range of possible measures. Student-related measures may include achievement levels, attendance rates, dropout rates (for secondary schools), participation rates in advanced placement courses (for secondary schools), and college going rates (for secondary schools). Measures of school performance need not be student-based. For example, they may include the extent of parental and community involvement in school activities, or whether the schools have developed and implemented new curricula. The awards are made to individual schools for use at the school level. Some, but not all, of the initiatives being implemented that include school-based performance awards require the distribution of these awards to individual teachers as additional compensation. Early pay reform efforts demonstrate that measuring teacher performance is quite difficult. Many highly valued activities by teachers are qualitative, and as a consequence, hard to measure: One key problem in predicting teacher quality is that managers using the criteria demand quantitative measurements, while the factors that actually relate to classroom performance are typically qualitative and vague. Even if the factors important in producing a good teacher were known, specifying true quality and implementation standards would still be exceedingly difficult. Historically, merit pay reforms foundered frequently on the evaluation portion of the plans which often involved subjective assessments of teacher performance by principals, teachers, or others. In many instances, teachers considered this process to be ill-defined, overly subjective, or basically biased. Measuring performance remains one of the biggest obstacles to these reforms. Heneman et al. point out that teachers do not necessarily object to merit pay itself, "but the way in which plans were designed, implemented, and administered." Measuring Performance and Value-Added Modeling In recent years, much has changed in the area of measuring teacher performance. With the growth of student assessments and related data systems, student test scores are increasingly used as a measure of teacher effectiveness. To many advocates, test scores are viewed as a more quantitative and less subjective way of gauging teacher performance than traditional evaluation procedures. Debate over the use of student test scores for this purpose focuses on the attribution of changes in student test scores to the effectiveness of an individual teacher, given the multitude of other factors, including family background and the quality of previous teachers, that are known to influence achievement. In addition, issues arise concerning the validity and reliability of the testing instruments, and whether such assessment instruments measure the full range of student outcomes that policymakers and others desire. Goldhaber summarizes the debate this way, "while such research has taught us valuable lessons about the appropriate ways to measure teacher effectiveness, it is an overstatement to suggest that debates about how precisely to measure teacher contributions to student learning are anywhere close to settled." One avenue of research that has attempted to address the debate over the use of student assessments for teacher evaluation has come to be known as value-added modeling (VAM). Most notably tied to the work of William Sanders at the University of North Carolina and later at the SAS Institute, Inc., VAM attempts to estimate the improvement in student achievement that can be attributed to teachers' interventions net of the effect of all other factors. In its pure form, these procedures use linked student-teacher unit records to identify teacher effects; however, at the present time such data systems exist in only a handful of states. A recent comprehensive review of VAM research undertaken by the RAND corporation declared the lack of these data systems to be "among the greatest challenges facing VAM" and concluded that "the research base is currently insufficient to support the use of VAM for high-stakes decisions." Competency-Based Pay In contrast to performance-based pay incentives that attempt to reward teacher output, other pay reform programs reward teachers for improving inputs thought to lead to better student performance. In the private sector, such reforms are often referred to as "competency pay" in which employees receive pay increases or bonuses for obtaining skills needed by the employer. Odden and Kelley have identified several ways in which competency-based pay reforms have been implemented in public schools including financial incentives for obtaining additional licensure or certification, such as National Board Certification, and teacher performance as measured by a standards-based teacher evaluation system. Advanced Certification Obtaining additional formal training leading to an advance degree is built into the current salary schedule; however, teachers are increasingly being offered financial incentives to obtain additional certification. Teachers may receive extra pay for obtaining certification in a second or third subject area or for earning advanced certification. Probably the best known and most widespread example of the latter is additional compensation awarded to teachers who become certified by the National Board for Professional Teaching Standards (NBPTS). Such certifications are growing in popularity among a significant number of states and school districts, with many of them adopting incentives designed to reward teachers for becoming NBPTS-certified, and in some cases these rewards are quite large. Teacher Evaluation In standards-based teacher evaluation systems, teachers' performance is evaluated against a set of standards that define a competency model of effective teaching. Such systems replace the traditional teacher evaluation system and seek to provide a more thorough description and accurate assessment of teacher performance. A popular competency model of teacher performance intended to apply to all grade levels and subjects is the so-called "Framework for Teaching," developed by Charlotte Danielson. The framework attempts to describe the full range of teacher performance, from beginner to expert. It defines four performance domains: planning and preparation, the classroom environment (classroom management), instruction, and professional responsibilities. For each domain there is a set of specific performance components, each of which has one or more elements (a total of 66). Each element has four performance levels/standards, defined by specific behavioral rubrics. Service-Based Pay This section discusses two teacher compensation reforms that involve increased pay for teachers who fill hard-to-staff positions or take on advanced responsibilities. Compared to the reforms described above, these reforms have a relatively short history. The notion of hard-to-staff teaching positions was recognized recently as a turnover and distributional problem rather than a result of a labor shortage. Thus, recruitment policies have been tailored to encourage teachers to move into schools and subjects which are experiencing the greatest demand. Meanwhile, retention policies often seek to keep veteran teachers by providing them with incentives to advance their educational roles. Hard-to-Staff Positions Teaching jobs can be deemed "hard-to-staff" for several reasons. For one, the position may be in a school that presents undesirable working conditions. Second, the subject area or academic background required for the position may be in a field that commands higher pay in non-teaching professions. Finally, the population of students served by the position may require special skills or may be otherwise difficult to teach. Hard-to-staff schools might be most directly identified by human resource data such as unfilled vacancies at the start of the school year and the rate of teacher turnover; however, often proxy measures are used such as poverty rates, school lunch subsidies, crime statistics, and Medicaid enrollment. Incentive pay is provided for teachers willing to work in these hard-to-staff schools even though research suggests that money alone is insufficient to attract and retain them in such schools. Pay for high-need subject areas can be thought of as an attempt to meet the "market demand" for a particular set of skills (e.g., additional pay for teachers with math degrees who could earn more in the private sector). While this can be considered a type of knowledge-based pay system, it fits more in the service-pay category because, unlike pay systems for knowledge and skills (which are generally designed to be consistent from year-to-year), pay systems for high-need subjects areas may shift as the needs of a given school change from year-to-year. The same can be said for those teaching high-need student populations such as students with disabilities and migratory students. Advanced Responsibilities Professional development has traditionally been provided to teachers through in-service workshops, conferences and training sessions. Over 90% of teachers participate in some professional development activities in this manner. In many cases, an outside consultant or curriculum expert is brought in on a staff-development day to give teachers a one-time training seminar on a general pedagogic or subject-area topic. Criticism of this model has led to more ongoing and intense professional development activities. One of the new delivery methods for ongoing professional development has been for veteran teachers to take on mentoring roles as "master" teachers. Teachers that assume such expanded responsibilities may be offered additional pay and release time to assist in the development of new teachers. Initiatives like these that provide incentives for teachers to take on advanced roles are often referred to as Career Ladder programs. Current Teacher Incentive Pay Efforts The teacher compensation reforms discussed above have not been implemented on a widespread basis. Two surveys conducted by the National Education Association (NEA) found that fewer than one in ten teachers receive some form of "performance-based or incentive pay (e.g., merit pay, stipends for teaching in critical shortage areas, incentives for National Board Certification, etc.)." More specifically, the NEA found that 5% of teachers surveyed during the 1995-1996 school year and 8% of those surveyed during the 2000-2001 school year were receiving this type of pay. Data from a more recent survey conducted by the Department of Education suggest that compensation reforms may be spreading. The 2003-2004 Schools and Staffing Survey (SASS) found that 14% of teachers reported receiving a "merit pay bonus [or a] state supplement" to their regular salary. The Federal Role As with educational expenditures in general, the federal government plays a somewhat limited role with respect to teacher compensation. Federal education appropriations have historically accounted for less than 10% of all education spending. In the 2005-2006 school year, a total of $529 billion was spent on public elementary and secondary education; $39 billion (7.4%) of these funds came through ED. That same year, $274 billion of the total was spent on instruction and nearly all ($246 billion) of that amount was used for staff salaries and benefits. A recent ED study found that roughly half of the major sources of federal K-12 education funds are used by schools and districts for instructional staff (e.g., 59% of Title I funds, 63% of Title II funds, and 55% of Title III funds). Even with these large shares of the federal effort going to instructional staff, it is still a very small proportion of all spending on teacher salaries and benefits. With respect to Title I, the ED report concluded that, "In an average-size Title I school of 500 students, Title I resources added a total of 3.5 full-time equivalent (FTE) staff, including 1.9 teachers, 1.2 teacher aides, and 0.4 non-instructional staff." Until recently, the federal role has also been limited in terms of the way in which teachers are compensated. Prior to the creation of the Teacher Incentive Fund (TIF), this role was limited to the inclusion of pay reforms among a list of allowable uses of funds under the two main federal teacher programs. The HEA, Title II-A, Teacher Quality Enhancement Grants program (enacted through the 1998 HEA amendments) authorized participating states to develop "performance-based compensation systems." Although the 2008 amendments to the HEA eliminated the Title II grants to states, the retained Title II partnership grant program contains support for activities that may include "bonus, differential, incentive, or performance pay" for mentor teachers. The ESEA, Title II-A, Improving Teacher Quality State Grants program (enacted through the NCLB amendments of 2001) allows grantees to use these funds for, among many other activities, "merit pay programs" to promote teacher retention. According to a recent study, only 4% of ESEA, Title II-A funds were used for "scholarships, signing bonuses, or other financial incentives, such as differential pay" or "merit pay programs." The establishment of the TIF represents a notable change in the federal stance on teacher compensation. Rather than simply allowing states and districts to use federal funds for incentive pay (as is the case under the ESEA and HEA, Title II programs), the TIF actively seeks out and supports promising pay reform efforts. Though limited in scope, this program establishes a targeted federal role in supporting compensation reforms. Funding has always been one of the major barriers to the development of pay reform. The merit pay reforms of the 1970s and 1980s came in the form of bonuses (instead of salary increases) that did not outlive periodic budget shortfalls. Unlike that previous wave of reforms, current efforts depend heavily on outside financing such as foundation support to supplement funds from state and local budgets. The Teacher Incentive Fund The TIF represents the paramount federal effort to reform teacher compensation. This program was first funded through the FY2006 Labor-HHS-Education Appropriations Act ( P.L. 109-149 ) which provided $261 million for activities authorized under Title V, Part D of the ESEA. A portion of these funds ($99 million) was reserved for activities under Subpart 1 which gives the Secretary general authority to award discretionary grants "to support nationally significant programs to improve the quality of elementary and secondary education." The act stipulates that these $99 million are to be used for five-year grants competitively awarded to local education agencies (including charter schools) or states individually or in partnership with each other or with a non-profit organization. According to the act, the goal of these projects is to "develop and implement performance-based teacher and principal compensation systems in high-need schools." The act further requires that TIF project compensation reforms "must consider gains in student academic achievement as well as classroom evaluations conducted multiple times during each school year" among other factors and provide educators with incentives to take on additional responsibilities and leadership roles. The Secretary is given a 5% set-aside to support the Center for Educator Compensation Reform which raises national awareness about alternative and effective strategies for educator compensation reform and provides technical assistance to TIF grantees. Beginning in 2007, the FY2006 appropriation was used to fund 34 TIF projects; no funds were appropriated for TIF in FY2007. Program funds may be used to pay the costs of developing and implementing performance-based compensation systems for the benefit of teachers and principals in high-need schools. For example, in addition to costs associated with the incentives given to teachers and principals, other project costs could include professional development activities for those teachers in high-need schools, evaluation and analysis tools, project staff salaries at the applicant level, and reasonable travel necessary for project development and implementation. The FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) contained the same authorizing language that was in the FY2006 Appropriations Act and provided $97.3 million to continue funding for all 34 projects. The Omnibus Appropriations Act of 2009 ( P.L. 111-8 ) appropriated $97.3 million to support the 34 continuation awards. These FY2009 funds were supplemented with an additional $200 million under the American Recovery and Reinvestment Act ( P.L. 111-5 ). These additional funds were used to award 60 new TIF grants. The Consolidated Appropriations Act of 2010 ( P.L. 111-117 ) provided $400 million to support 94 continuation awards and 65 new TIF grants. National Programs CRS was able to identify four fairly sizable non-federal national-level efforts to reform teacher compensation currently in existence. In keeping with the TIF approach of funding promising pay reforms, each of these four efforts receives financial support from the TIF as well as from private sources. The most prominent of these is the Teacher Advancement Program (TAP). Teacher Advancement Program The Teacher Advancement Program (TAP) grew out of the Milken Family Foundation's earlier support for the Milken Educator Awards. TAP was launched in 1999 as a comprehensive strategy to find and reward excellent teachers. In 2005, TAP began operating under the National Institute for Excellence in Teaching (NIET), an independent 501(c)(3) public charity. Under the NIET, TAP currently receives support from over a dozen major foundations as well as through a federal TIF grant. The TAP model of reform has four components: (1) multiple career paths; (2) on-going applied professional growth; (3) instructionally focused accountability; and (4) performance-related compensation. Multiple Career Paths. TAP's multiple career paths allow high quality teachers to pursue a variety of positions, advance professionally, and earn higher salaries without leaving the classroom. If teachers demonstrate consistent success, they have the opportunity to become career, master, or mentor teachers and earn salary increases of up to $15,000. Ongoing Applied Professional Growth. The program allocates time during the instructional day for teachers to meet and collaborate on instructional and curricular issues. These meetings are either group- or individual-focused and often scheduled with a TAP-identified mentor or master teacher. Instructionally-focused Accountability. Instructionally-focused accountability refers to TAP's mechanism for evaluating teachers. In an effort to assess teacher performance appropriately, TAP employs a grading rubric to measure systematically a teacher's content knowledge, instructional methods, and student learning gains. These evaluations are ultimately used to determine a teacher's career ladder advancement within the school. Performance-related Compensation. TAP's performance-related compensation scheme rewards teachers across three dimensions: (1) student performance; (2) increased roles and responsibilities; and (3) classroom teaching performance. High-performing teachers can earn salary increases of up to $4,000 annually. TAP currently operates in more than 125 schools in 9 states and 50 districts. Another 10 states presently are pursuing program implementation in routinely low-performing schools. In the aggregate, there are approximately 3,500 teachers and 56,000 students in TAP schools across the country. Other National Programs Three other national programs exist, but on a much more limited scale compared to TAP. The Institute for Compensation Reform and Student Learning , operated by the Community Training and Assistance Center (CTAC), assists in the implementation of performance pay initiatives in about 16 locations including a TIF-funded project in the Charlotte-Mecklenburg, North Carolina school district. The Partnership for Innovation in Compensation for Charter Schools , coordinated by the Center for Educational Innovation (CEI), received a TIF grant to implement performance pay in 10 charter schools in New York City and also provides support to other charter schools around the country. The Effective Practice Incentive Community , established by New Leaders for New Schools (NLNS), received a TIF grant to implement performance pay in 66 charter schools affiliated with the National Charter School Consortium. NLNS is also partnered with three other TIF grantees in the Memphis, Denver, and District of Columbia school systems. State Programs CRS was able to identify seventeen states that currently have teacher compensation reform efforts underway. This section discusses initiatives in three states – Minnesota, Arizona, and Texas – these are among the more prominent efforts underway. An Appendix at the end of this report provides a table which identifies the main components of all of the aforementioned state-level programs. Minnesota Quality Compensation Program In 2005, the Minnesota legislature approved the Quality Compensation (Q-Comp) program. Q-Comp incorporates both career ladder and traditional professional development for teachers, while compensating teachers according to state approved measures of student achievement. The program was funded at $13 million in FY2006, $76 million in FY2007, and $64 million in FY2008. Under Q-Comp guidelines, 60% of any compensation increase must be based on district professional standards and on classroom-level student achievement gains. School districts wishing to participate in the program must submit a Q-Comp proposal to the state department of education. Districts with approved plans are awarded up to $260 per student to support implementation and sustenance of their compensation plan. The number of participating districts has grown from 22 in 2005-06 to 43 in 2008-09; the state's 15 TAP schools (all located in the Minneapolis school district) receive Q-Comp funds. Arizona Career Ladder Program and Classroom Site Fund Since 1993, 28 of Arizona's 200 school districts have participated in the state's Career Ladder Program (which began as a pilot program in 1985). As of 2006, the same 28 districts continued to participate. At that time, these districts enrolled 31% of the state's 865,000 students and employed 40% of the state's 43,000 teachers. Roughly seven in ten of all eligible teachers participate in the program. Arizona Revised Statute 15-918 requires that participating districts must provide for: (1) increasingly higher levels of pupil academic progress as measured by objective criteria; (2) increasingly higher levels of teaching skills; (3) increasingly higher levels of teacher responsibility; (4) professional growth; and (5) equal teacher pay for equal teacher performance. In 2000, Proposition 301 was passed by 53% of Arizona voters. This initiative established the Classroom Site Fund which provides funding, from a dedicated sales tax, for districts to participate in some form of pay-for-performance plan for teachers. Career Ladder districts, as well as districts with other forms of diversified compensation programs in place, already meet this requirement. In FY2007, sales tax collections plus other sources of revenue for this fund totaled more than $400 million. Districts are required to direct 20% of the funds received toward increasing teachers' base pay and another 40% toward performance pay. Texas Educator Excellence Award Programs In 2006, the Texas Legislature enacted the three Educator Excellence Award programs, creating one of the largest state-level performance-related pay program in the nation. For FY2008, these programs were appropriated $340 million including (1) $10 million for the Governor's Educator Excellence Grant, (2) $100 million for the Texas Educator Excellence Grants, and (3) $230 million for a district-level grant yet to be named. Governor's Educator Excellence Grants (GEEG) . Under this program, funds are distributed through formula grants to schools that are in the top third of Texas schools in terms of percentage of economically disadvantaged students. To be eligible, schools must also meet certain performance criteria on the state's pupil assessment, the Texas Assessment of Knowledge and Skills. Approximately 100 schools qualified in 2008 and individual campus-award amounts varied according to student enrollment, ranging from $60,000 to $220,000. GEEG schools are required to use 75% of these funds for direct incentives to full-time teachers based both on improvement in student achievement and on teacher effectiveness in collaborating with colleagues. The other 25% may be spent on (1) direct incentives to other school employees (including principals) who contribute to improved student achievement, (2) professional development, (3) teacher mentoring and induction programs, (4) stipends for participation in after-school programs, (5) signing bonuses for teachers in hard-to-staff subjects, and/or (6) programs to recruit and retain effective teachers. Texas Educator Excellence Grants (TEEG) . The eligibility criteria, purposes, and activities supported under this program are nearly identical to those of the GEEG program; however, schools must be in the top half of Texas schools in terms of percentage of economically disadvantaged students. GEEG grantees are not eligible for TEEG grants. TEEG grantees must reapply annually, while GEEG grants are awarded for a period of three years. For the 2006–07 school year (the most recent data available), 1,163 campuses were eligible for grants and award amounts ranged from $40,000 to $295,000. District-Level Grant s . All districts in the state are eligible for funding under this program and they may apply for funds for all campuses or for selected campuses. Districts are required to use at least 60% of funds to directly reward classroom teachers based on improvements in student achievement. The remaining funds may be used: (1) as stipends for mentors or teacher coaches, teachers certified in hard-to-staff subjects, or teachers who hold post-baccalaureate degrees; (2) as awards to principals based on improvements in student achievement; or (3) to implement components of the TAP. State Program Inventory Table A-1 (in the Appendix to this report) displays information for all state-level teacher compensation reform programs CRS was able to identify as of December of 2008. These programs were identified through three main sources: (1) the National Center on Performance Incentives (NCPI) based at Vanderbilt University, (2) the U.S. Department of Education, Office of Academic Improvement and Teacher Quality Programs, and (3) the Education Commission for the States, Teacher Quality and Leadership Institute. Detailed information on these programs was collected through a variety of secondary sources, including (1) an extensive review of the academic literature and educational press, (2) a thorough search of the internet for project websites, (3) a review of documentation made available by state education departments, policy centers, associations and commissions, and (4) numerous discussions with experts and practitioners in the field. The table lists the project name for each program in the left-hand column, while the remaining columns provide program information including the method of program funding, the criteria used to award performance incentives, and the extent of district or school eligibility and/or participation. At the present time, CRS has identified 20 teacher compensation reform programs in 17 states. Every program uses student performance as a criteria for rewarding teachers with incentive pay. At least 7 of the 20 programs also base incentive pay on some form of teacher evaluation. As many as eight programs provide additional pay for teachers who move up the career ladder. At least nine offer extra pay to those who teach in high-need schools and/or hard-to-staff subjects. Programs vary in terms of school and district eligibility—some offer incentives to just a few schools or districts, others make all LEAs eligible, still others require all LEAs to participate. Programs also vary in the amount and type of incentive awarded—some offer a school-wide increase of a few hundred dollars per student, others give individual teachers as little as $1,000 or as much as $11,000. At least 10 of the state programs deliver funds for incentive awards through a formula. These programs provide supplemental formula funding (often on a per pupil basis) to schools or districts that apply to be included in the program. Such funding strategies exemplify an alternative to the TIF approach of awarding competitive grants to a select set of promising reform efforts. Local Programs CRS has identified over 80 teacher compensation reform efforts that exist at the local level in 25 states and the District of Columbia. This section discusses initiatives in three locations—Denver, CO; Guilford County, NC; and Hamilton County, TN—these are among the more prominent local efforts and are profiled to provide a sense of how local efforts are structured. An Appendix at the end of this report provides a table ( Table A-2 ) which identifies the main components of all identified local-level programs. Denver Professional Compensation Systems for Teachers In 1999, the Denver Classroom Teachers Association and the Denver Public Schools reached agreement on an alternative teacher pay plan that linked pay to student achievement and professional evaluations. Following refinement of the pilot model by teachers, principals, administrators, and community members, the Professional Compensation Systems for Teachers (ProComp) was adopted in 2004 by the Board of Education and members of the Denver Classroom Teachers Association. Passage of a 2005 ballot initiative provided $25 million in dedicated tax funds for the program. In 2007, the Denver public school district was awarded a Federal TIF grant. Together, these funds will be used to expand ProComp to nearly 90% of the district's 150 K-12 public schools. The district has also created the ProComp Teacher Compensation Trust; with a balance of $44 million in 2007, the fund is projected to last for many years. ProComp has four components that enable teachers to increase their salary by as much as 18%, including (1) knowledge and skills; (2) professional evaluation; (3) market incentives; and (4) student growth. Teachers may get up to a 9% increase for completing an advanced degree or certification, 2% for professional development, and 3% for a satisfactory evaluation. Student achievement growth, which includes both teacher and school-wide growth awards, can generate up to a 6% increase. Filling a hard-to-staff position or teaching in a hard-to-staff school can each return a 3% salary increase. Mission Possible—Guilford County, NC In 2006, Guilford County Schools launched the Mission Possible program—a comprehensive teacher incentive plan that combines multiple components to keep and attract highly effective teachers and administrators. Twenty high-need schools were initially selected to participate in the program; an additional eight schools were added in 2007 following receipt of a TIF grant. The addition of a $2 million grant from the University of North Carolina system and Action Greensboro to support a math incentive pilot program, called Cumulative Effect, brought the total number of participating schools up to 30 for the 2007-2008 school year. In addition to a variety of teaching supports (including ongoing training and collaboration and reduced class sizes), Mission Possible teachers and administrators receive recruitment incentives and performance incentives. Mission Possible financial incentives are based on grade levels and subjects that are part of state and national accountability requirements. Teacher performance bonuses are based on student achievement in math and English and range from $2,500 to $4,000. Bonuses are paid the following school year in late November after the NC Department of Public Instruction releases student data. Guilford County Schools conducts a student-teacher linkage verification, and SAS, Inc. generates value-added data for each teacher. Benwood Initiative—Hamilton County, TN In 2001, the Benwood Foundation agreed to spend $5 million over five years and the Chattanooga-based Public Education Foundation added another $2.5 million to establish a performance incentive program in the nine lowest performing schools in the Hamilton County School District. In 2006, the two groups added another $7 million and $1 million, respectively, for another five-year phase to expand, what came to be known as the Benwood Initiative, to 16 additional schools. In addition to several activities to support effective teaching, the program provides salary bonuses of up to $2,000 per teacher based on school-wide improvement in student achievement on the Tennessee Value-Added Assessment System. Principals may receive up to a $10,000 bonus for school-wide student improvement. Teachers may also receive a $5,000 bonus after three years of growth in student achievement. The program also offers recruitment and retention incentives including a forgivable loan that can be used by staff to purchase a home near their schools. Local Program Inventory Table A-2 (in the Appendix to this report) displays all 82 identified local-level teacher compensation reform programs known to exist as of December of 2008. These programs were identified through the same sources as the state-level programs discussed above. Every program used student performance as a criteria for rewarding teachers with additional compensation and most programs also included a teacher evaluation component. In addition to these incentives, many programs incorporate service-based incentives. Tying teacher compensation to student performance is the one element every performance pay initiative has in common. Although achievement is measured in a wide variety of ways and factored into teachers' pay differently across programs, generally speaking, it is gauged through school-wide improvement in student performance on academic assessments and accounts for at least half of the overall incentive award. Some programs apply value-added modeling (VAM) techniques that link student achievement to teacher performance and provide individual teacher awards based on these data; however, VAM-based incentives are more commonly awarded on a school-wide basis. Roughly three-quarters (59) of the programs complement school-wide awards with individual teacher awards based on traditional teacher evaluation systems. Roughly three-quarters (58) of the programs also incorporate career ladder incentives for teachers and about one-quarter (21) of the programs provide pay incentives to those who agree to serve in high-need schools or teach hard-to-staff subjects. Of the 82 pay reform initiatives, most (72 programs) are influenced by either TIF funding or TAP assistance (or both). TIF funds support 30 of these programs; the smallest of the five-year TIF grants provides $1.6 million for two schools that comprise the Mare Island Technology Academy's "New 3Rs" program in Vallejo, California, while the largest provides $29.2 million for 11 schools participating in "Project EXCELL" in Tucson, Arizona's Amphitheater Unified School District #10. More typical of TIF grantees, the Mission Possible program (discussed above) received an $8 million award. According to Amy Holcombe of Guilford County Schools, this grant doubled the $4 million the district recieved from foundation and local funds. Information on whether this proportion of federal to non-federal funds is typical of TIF grantees is not available; however, grantees are required to meet 75% of their costs through non-federal funds by the final (5 th ) year of the grant. Forty-seven of the 82 local programs included in Table A-2 are affiliated with the TAP program. According to Kristan Van Hook, TAP's Senior Vice President, the funds used to support incentive awards under these programs come from non-TAP sources. Van Hook further indicated that districts working with TAP often use their federal Title II funds to support their performance pay activities. Results from ED's most recent survey on the use of Title II funds suggests that nationally this is a rare occurrence. The Department's report states that among the districts surveyed only, "Four percent of Title II, Part A funds were spent on mechanisms and strategies to help schools recruit and retain highly qualified teachers, principals and specialists in core academic areas, such as scholarships, loan forgiveness, signing bonuses or differential pay for teachers" [emphasis added]. Still, it is quite possible that the small fraction of the nation's 14,000 school districts which are working with TAP may use their Title II funds very differently than the typical district. At the same time, anecdotal evidence collected in this research suggests that, apart from TIF support, a great deal of the funds used to award performance incentives may come from private sources—such as grants and donations received from foundations. Reconsidering the Federal Role As Congress considers education legislation, including bills to reauthorize the ESEA, proposals to leverage federal education spending to reform teacher compensation systems may receive serious attention. The debate over expansion of the federal involvement in this area will likely raise questions about what role the federal government should play in reforming teacher compensation given that most funding for teacher compensation is provided at the local and state levels. Recent legislative action has mostly involved proposals that simply would expand the TIF approach of funding a limited number of promising reform efforts already underway, mainly at the local level. Although bills to expand TIF funding were not passed in the 109 th Congress and the 110 th Congress kept program funding level, the 111 th Congress tripled TIF appropriations for FY2009. Meanwhile, the program authority continues to provide only minimal guidance as to how these funds should be used. In recent sessions, Congress has considered alternative approaches that would have begun to alter or expand federal support for teacher incentives and compensation reform. During the last two Congresses, debate over this issue occurred both within efforts to amend the TIF and also around broader legislative activities. This section will discuss these recent congressional actions including two bills that were introduced to reauthorize the HEA and would also have amended the TIF program authority; two bills that would have established a new program, for so-called Innovation Districts , in which performance incentives for teachers were to play a major role; and several hearings in which a broader debate over the federal role in teacher compensation reform occurred. Following a review of recent congressional action is a discussion of some of the issues that may be raised as the process for reauthorizing the ESEA continues to unfold. Recent Congressional Action Amending and Extending TIF During the 109 th Congress, three bills were introduced to amend or increase funding for the TIF. Two of the bills simply would have increased funding, while the third bill ( H.R. 609 ) would have moved TIF authority from Title V-D of the ESEA to Title II-D of the HEA. The latter bill also further specified eligible entities and program activities, and would have required new non-federal matching funds as well as a program evaluation. During the 110 th Congress, this HEA reauthorization bill was reintroduced as H.R. 3746 and retained the TIF provisions; however, action on the bill stopped with committee referral. The HEA was eventually reauthorized by the Higher Education Opportunity Act (HEOA, P.L. 110-315 ); neither the HEOA nor the House and Senate-passed bills ( H.R. 4137 and S. 1642 ) contained the TIF provisions of the earlier reauthorization proposals. Three other TIF-related bills were introduced during the 110 th Congress. The Teacher Incentive Fund Act ( H.R. 1761 ) would have clarified and expanded the program's provisions, similar to the H.R. 3746 , and would have codified TIF authority in ESEA, Title II, Part C; the same provisions were included in a bill introduced in the Senate ( S. 1775 ). Action on both of these bills stopped with committee referral. Finally, the 110 th Congress reauthorized TIF through the FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) using the same authorizing language that was initially passed in the FY2006 appropriations act. The FY2006 authorizing language was again used to appropriate funds for TIF under the American Recovery and Reinvestment Act ( P.L. 111-5 ), the Omnibus Appropriations Act of 2009 ( P.L. 111-8 ), and the Consolidated Appropriations Act of 2010, ( P.L. 111-117 ). Incentive Pay Legislation Apart from the TIF bills just discussed, few bills related to teacher performance pay have been introduced in Congress. One notable exception was the Innovation Districts for School Improvement Act (introduced in the 109 th Congress as S. 2441 and reintroduced in the 110 th as S. 114 ) that would have required participating districts to establish metrics to evaluate teacher effectiveness and, "develop a differentiated pay scale to provide incentives for effective teaching, teaching specific subject areas, and teaching in specific schools, including hard-to-staff schools." The bills' provisions regarding these incentives were more specific than either the existing TIF language or the bills to amend the TIF, particularly with regard to district cooperation with teachers, union representatives, and the community. Another bill, the Teacher Excellence for All Children (TEACH) Act (introduced in the 109 th Congress as H.R. 2835 and S. 1218 and reintroduced in the 110 th as H.R. 2204 and S. 1339 ) would have required participating districts to award "premium pay" to those teaching "shortage" subjects in high-need schools and deemed exemplary "based on strong learning gains for students." Neither the Innovation Districts bill nor TEACH Act legislation moved beyond committee referral; although some non-performance pay provisions in the TEACH Act were enacted through the HEA reauthorization bill ( P.L. 110-315 ). ESEA Reauthorization Hearings Early in the 110 th Congress, both the House and Senate held hearings on the quality of K-12 teaching in which issues related to teacher incentives and performance pay figured prominently. Intended as early steps in the ESEA reauthorization process, testimony at these hearings often raised issues regarding compensation reform and several members asked specific questions about performance pay and other incentives. On March 6, 2007, the Health, Education, Labor, and Pensions Committee held a hearing entitled, "NCLB Reauthorization: Strategies for Attracting, Supporting and Retaining High Quality Educators" (S. Hrg. 110-154). On May 11, 2007, the Education and Labor Committee held a hearing entitled, "ESEA Reauthorization: Boosting Quality in the Teaching Profession" (Serial No. 110-34). The overarching sentiment among the education experts tapped for these panels was in favor of providing incentives to promote teacher quality. Several spoke in support of the pay incentive components of TIF and TAP; some comments were in response to committee members questions about the issue and several mentioned the need to use a variety of evaluation methods in addition to measures of student performance. One witness on the Senate panel submitted additional material following the hearing in which she argued against the use of value-added modeling for measuring the performance of individual teachers. In September 2007, the majority and minority leadership of the Education and Labor Committee released a discussion draft of proposed legislation to reauthorize the ESEA. Title II of the draft proposed the establishment of a discretionary grant program (similar to the TEACH Act proposal) which would have awarded "premium pay" to "exemplary teachers" serving in high-need schools. The draft required that LEAs, in collaboration with local teacher organizations, develop a system to identify "exemplary teachers" that must be (1) based on strong learning gains for students; (2) based on classroom observation and feedback at least four times annually; (3) conducted by multiple sources, including master teachers and principals; and (4) evaluated against research-validated rubrics that use planning, instructional, and learning environment standards to measure teaching performance. The Committee held an all-day, six-panel hearing on September 10, 2007, for comments on the discussion draft. The "Teaching and School Leadership" panel included representatives from the Nation's two largest teacher unions – the National Education Association (NEA) and the American Federation of Teachers (AFT). Both representatives spoke out strongly against the premium pay provisions. In his prepared statement, Reg Weaver, President of the NEA, stated his organization's position plainly, "The NEA opposes federal requirements for a pay system that mandates teacher pay based on student performance or student test scores." The AFT opposition was less blunt; Vice-President, Antonia Cortese, expressed concern about the proposal's "top-down" approach which "jeopardizes buy-in" from teachers. Other members of the panel spoke favorably of the proposal's potential to remedy inequities in the distribution of quality teachers. Specifically, both Kati Haycock, President of the Education Trust, and Kristan Van Hook, of the National Institute for Excellence in Teaching, praised the use of premium pay to encourage teachers to work in hard-to-staff schools and career ladders to reward professional advancement. Ms. Van Hook discussed her support for performance pay at great length; emphasizing the importance of implementing such incentives as part of a "comprehensive approach, such as that that is taken in the bill before you today." Issues for ESEA Reauthorization Staying the Course with TIF Should the 112 th Congress consider compensation reform and teacher incentive pay proposals, it will inevitably be thinking about whether to stay the course with TIF. As it stands, the program is very broadly defined and has been implemented at the local level in varying ways. Should the federal role in this area continue to be a supporter of local pay reform experimentation and provider of seed money to encourage financial commitments from local, state, and other sources for these reforms? In light of recent appropriations and accompanying non-federal matching requirement, it appears this view may hold sway in future deliberations. If TIF remains an experimental approach to finding out what works, Congress may consider how long and in how many settings to continue to support this type of effort. Expanding the Federal Role Beyond TIF Alternatively, Congress may consider whether the federal role should be expanded beyond TIF. Should this role be greater than funding a limited set of reform efforts designed to meet a few broadly defined objectives? If the federal role is to expand, Congress may need to consider (or set up a process to consider) what elements of teacher compensation reform can or should be written into federal law. Recently considered legislation and testimony before the authorizing committees (mentioned in the previous section) provide some potential avenues for development and also point to potential areas of difficulty. Competency-based and service-based incentives appear to have much support, but some may feel they don't do enough to reward performance. On the other hand, performance-based incentives may be too controversial and may be difficult to enact on a large scale and in a manner that would achieve intended goals. State or Local Reform? Another element of the debate over pay reforms may occur around what level of the educational system these reforms are best applied. That is, either under TIF or through a different program, Congress may consider whether it wants federal involvement in this area to focus on state reforms or local reforms. Programs reviewed in the previous section of this report show reforms occurring at both levels in numerous locations throughout the country. Should future federal policy development encourage states to be more involved in compensation reform or instead provide direct support to local efforts? Scaling up federal support for TIF may be easier to implement at the local level, while an expanded federal role that includes more specified program activities may be better suited to the state level. Leveraging ESEA Title II-A The debate over local versus state reform may also involve proposals to amend the ESEA Title II-A state formula grant program. Currently, most of these funds go through state education agencies to local school districts and are mainly used for class size reduction and professional development; however, "merit pay" is also included in the program's authorized activities. Congress could consider placing greater priority on addressing compensation reform through ESEA Title II-A by strengthening current language (Sections 2113 and 2123). Measuring Teacher Performance Performance measurement may be the most hotly contested issue in the compensation reform debate. Current federal law governing TIF requires that teacher performance be based on student achievement and teacher evaluation, but does not provide any detail as to how this should occur. Traditional teacher evaluation has been common for decades, while, performance evaluation tied to student achievement is a more recent development. Significant improvements have been made in the effort to connect student achievement to teacher performance, particularly in certain subjects like math. Still, the research in this area provides reason for Congress to give serious thought to issues such as the use of value-added methods for high-stakes decision-making for individual teachers. One reason these methods are hard to apply to individual teachers is that, to produce reliable results, the statistical modeling employed requires large amounts of data. For example, an elementary school teacher with an average class size of 15 students assessed twice a year would produce too few data points on which to reliably estimate teacher effects apart from non-teacher effects. Individual Versus School-wide Incentives The problems associated with measuring individual teacher performance explain much of why school-wide incentives are the dominant mode for delivering performance rewards. Simply put, measuring a school's performance is easier than measuring an individual teacher's performance. Critics of school-wide awards point out that they fail to incentivize individual effort and defeat the purpose of compensation reform. The counter-argument holds that school-wide awards encourage cooperation and collegiality which are critical to the success of broad-based, systemic reform. Congress may wish to consider the extent to which school and individual performance goals can or should be collectively targeted by pay incentive programs. Developing Data Systems Data systems for both student achievement and teacher performance have greatly improved in recent years; however, these systems have by no means reached universal or consistent application. In addition to the many technical obstacles that remain when it comes to compiling the data many feel are needed to measure and reward teacher performance, there are also political barriers to linking teacher and student records; some states have moved to prohibit this practice. Congress should be award of the data limitations and obstacles and may want to consider basing performance incentives on data elements and linkages that can be expected to be consistently available. Appendix. Inventory of State- and Local-Level Incentive Pay Reforms, as of May 2009 CRS has constructed inventories of state and local programs, which are presented below. It is important to emphasize that these inventories are not comprehensive. Ideally, compiling complete inventories of all pay incentive programs would involve a proactive, investigative approach such as surveying all school districts or conducting a nationwide sample of school personnel. Given the limitations on our resources, however, CRS has collected information through somewhat less systematic methods based on secondary sources. These methods include (1) an extensive review of the academic literature and educational press, (2) a thorough search of the Internet for project websites, (3) a review of documentation made available by state education departments, policy centers, associations, and commissions, and (4) numerous discussions with experts and practitioners in the field. These inventories are provided to offer a sense of the landscape of programs in operation in states and localities. CRS believes this is useful in conveying basic information about the structure of programs and the range of characteristics programs feature. The inventories are not all-inclusive, and CRS can not be certain about the extent to which they reflect the actual universe of programs. On the following pages, Table A-1 contains the inventory of state-level incentive pay reforms and Table A-2 contains the inventory of local-level reforms.

Congress has historically recognized the importance of teacher quality in improving the academic performance of elementary and secondary school students; however, federal policy has only recently begun to address the impact of teacher compensation systems on both quality and performance. Growing concern about the dominant feature of these systems—the single salary schedule—has led to a variety of compensation reform efforts around the country. These efforts include pay-for-performance incentives that attempt to align teacher compensation more closely with student achievement, as well as other reforms that link increased pay to improved teacher competency or to service in hard-to-staff positions. Congress provided significant support to several existing compensation reform efforts by enacting the Teacher Incentive Fund (TIF) through the Labor-HHS-Education Appropriations Act of 2006 (P.L. 109-149). The concise passage that provides program authority for TIF states that funds are intended to "develop and implement performance-based teacher and principal compensation systems in high-need schools." Little additional guidance has been provided with respect to how these reforms are to be implemented. Subsequent congressional action to extend the TIF has left the authorizing language largely unchanged. Prior to the TIF, federal education policy had not significantly addressed the nature of teacher compensation. Nevertheless, significant amounts of funding from several federal programs support the salaries of specific kinds of teachers, including teachers and paraprofessionals serving educationally disadvantaged students, newly hired teachers, and special education teachers. As Congress moves to reauthorize the Elementary and Secondary Education Act (ESEA), proposals to leverage federal education spending to reform teacher compensation systems may receive serious consideration. Beyond recent increases in TIF appropriations through the American Recovery and Reinvestment Act (P.L. 111-5) and the Omnibus Appropriations Act of 2009 (P.L. 111-8), Congress may also consider altering and expanding the federal role in this area. Some proposals that would make changes to the federal effort in this area received attention in recent congressional sessions. These include a discussion draft for ESEA reauthorization circulated by the leadership of the House Education and Labor Committee as well as legislation to create Innovation Districts as part of the Obama Administration's education agenda. This report is intended to discuss a variety of issues that relate to compensation reform and the proposals Congress may consider during ESEA reauthorization. The report provides background on the teacher pay system, discusses the basic elements of compensation reform, and describes several reform efforts that are currently underway around the country. The report concludes with a discussion of recent legislative action and issues for ESEA reauthorization.

Introduction Federal rulemaking is an important mechanism through which the federal government implements policy. Federal agencies issue regulations pursuant to statutory authority granted by Congress. Therefore, Congress may have an interest in performing oversight of those regulations, and measuring federal regulatory activity can be a useful way for Congress to conduct that oversight. The number of federal rules issued annually and the total number of pages in the Federal Register are often referred to as measures of the total federal regulatory burden. Certain methods of quantifying regulatory activity, however, may provide an imperfect portrayal of the total federal rulemaking burden. For example, the number of final rules published each year is generally in the range of 2,500-4,500, according to the Office of the Federal Register. While some of those rules may have substantial economic, legal, or policy effects, many of them are routine in nature and impose minimal regulatory burden, if any. The Federal Register provides documentation of the government's regulatory and other actions, and some scholars, commentators, and public officials have used the total number of Federal Register pages each year as a measure for the total amount of regulatory activity. Because the Federal Register has been in print since the 1930s, the number of pages can be useful for cross-time comparisons. However, the total number of Federal Register pages may not be an accurate way to measure regulatory activity for several reasons. For example, the Federal Register contains many other items, not all of which are related to regulations. This report serves to inform the congressional debate over rulemaking by analyzing different ways to measure federal rulemaking activity. The report begins with a brief overview of how agencies issue rules, identifying the most significant statutory requirements, executive orders, and guidance documents that comprise the rulemaking process. The report then provides data on and analysis of the total number of rules issued each year, as well as information on other types of rules, such as "major" rules, "significant" rules, and "economically significant" rules. These categories have been created by various statutes and executive orders containing requirements that may be triggered if a regulation falls into one of the categories. For example, if a rule is designated "economically significant" under Executive Order (E.O.) 12866, the issuing agency is generally required to perform a cost-benefit analysis and submit the rule for review to OMB's Office of Information and Regulatory Affairs (OIRA). When available, data are provided on each type of rule. Finally, the report presents data on the number of pages and documents in the Federal Register each year and analyzes the content of the Federal Register . Brief Overview of Federal Rulemaking When Congress enacts legislation, it frequently delegates rulemaking authority to federal agencies. Regulations issued by agencies are often the means through which specific requirements are then established. Regulations must be issued pursuant to statutory authority, and the process under which agencies issue regulations is governed by numerous statutory requirements and executive orders. In addition, OMB has issued guidance to agencies detailing how some of those requirements should be met. This section of the report briefly describes the significant statutory and executive requirements and guidance documents. Statutory Requirements The most significant statute governing the rulemaking process is the Administrative Procedure Act of 1946 (APA). The APA defines a rule as "the whole or part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy." The APA established standards for the issuance of rules using formal rulemaking and informal rulemaking procedures. Informal rulemaking, also known as "notice and comment" rulemaking or "Section 553" rulemaking, is the most common type of rulemaking. When issuing rules under the APA, agencies are generally required to publish a notice of proposed rulemaking (NPRM) in the Federal Register , take comments on the NPRM, publish a final rule in the Federal Register , and provide for at least a 30-day waiting period before the rule can become effective. The APA specifically authorizes any federal agency to dispense with its requirements for notice and comment if the agency for good cause finds that the use of traditional procedures would be "impracticable, unnecessary, or contrary to the public interest." The APA also provides a good cause exception for the 30-day waiting period between the publication of a final rule and its effective date. While the APA's notice and comment procedures comprise the general structure of the rulemaking process, a number of other statutory requirements have been added to the process in the decades since enactment of the APA. The Paperwork Reduction Act (PRA), originally enacted in 1980, established a process under which agencies have to consider the paperwork burden associated with regulatory and other actions. Under the PRA, agencies generally must receive approval from OIRA for information collections from 10 or more nonfederal "persons." The Regulatory Flexibility Act (RFA), also originally enacted in 1980, requires regulatory flexibility analyses for proposed and final rules that will have a "significant economic impact on a substantial number of small entities" (SEISNSE). Other provisions of the RFA require that certain agencies convene advocacy review panels for rules that may have a SEISNSE to solicit feedback from affected entities and that agencies reexamine rules with a SEISNSE to determine whether any changes to or repeal of the rules may be necessary. Title II of the Unfunded Mandates Reform Act (UMRA) of 1995 added requirements for agencies (other than independent regulatory agencies) to analyze costs resulting from regulations containing federal mandates upon state, local, and tribal governments and the private sector. The analysis requirement in UMRA is triggered when a rule "may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any 1 year." The Congressional Review Act (CRA), enacted in 1996, established a mechanism through which Congress could overturn federal regulations by enacting of a joint resolution of disapproval. The CRA also requires that "major" rules (e.g., those that have a $100 million effect on the economy) have a delayed effective date of at least 60 days, and that agencies submit their rules to both houses of Congress and the Government Accountability Office (GAO) before the rules can take effect. Since it was enacted, the CRA has been used one time to overturn a rule. Executive Branch Requirements and Guidance In addition to the current statutory requirements for the rulemaking process, Presidents also have issued executive orders and OMB has issued guidance providing requirements and guidelines for agencies to follow when issuing rules. E.O. 12866 , issued by President William Clinton in 1993, calls for OIRA to review "significant" regulatory actions at both the proposed and final rule stage. It also requires agencies to assess potential costs and benefits for "significant" rules, and, for those deemed as "economically significant" regulatory actions, agencies are required to perform a cost-benefit analysis and assess the costs and benefits of "reasonably feasible alternatives" to the planned rule. Furthermore, under E.O. 12866, agencies generally must "propose or adopt a regulation only upon a reasoned determination that the benefits" of the rule "justify its costs." E.O. 12866's requirements for OIRA review and cost-benefit analysis do not apply to independent regulatory agencies. To provide guidance to agencies on what to include and consider in their cost-benefit analyses of rules, OMB issued OMB Circular A-4 , a document that describes "best practices" for agencies' regulatory impact analyses. OMB, under President George W. Bush, also provided guidelines for agencies to follow when issuing guidance documents. President Barack Obama has issued several executive orders on rulemaking, and his Administration has issued a number of guidance documents for agencies on how best to issue rules. Most importantly, E.O. 13563 reaffirmed many of the principles of E.O. 12866 and instructed agencies to conduct a retrospective review of their regulations. Following the issuance of E.O. 13563, President Obama issued E.O. 13579 , requesting that independent regulatory agencies also participate in the retrospective reviews. Number of Final Rules Published in Recent Years Table 1 presents the approximate number of rules by year since 1976, the first year for which the Office of the Federal Register has data available. The number provided in the table for each year is the number of documents published in the final rules section of the Federal Register . Although the number of regulations issued each year is generally in the thousands, many of those regulations deal with routine matters. For example, a rule issued on April 2, 2013, by the U.S. Coast Guard provided notice of a "temporary deviation from the operating schedule that governs the Third Street Drawbridge across the China Basin, mile 0.0, at San Francisco, CA. The deviation is necessary to allow the public to cross the bridge to participate in the scheduled CycleSF, a community event." Because the change is considered a rule but only has a temporary effect, it does not make any changes to the Code of Federal Regulations (C.F.R.), which is the comprehensive codification of permanent rules and regulations. Captured under the definition of a rulemaking in the APA, such items are published in the "Rules and Regulations" section of the Federal Register . The number of regulations issued each year includes both new regulations as well as deregulatory actions. Under the APA, a "rulemaking" is defined as "the agency process for formulating, amending, or repealing a rule," which means that agencies must undertake a regulatory action whenever they are issuing a new rule, changing an existing rule, or eliminating a rule. Therefore, not all of the regulations counted in the table above are necessarily new regulatory actions issued by agencies. Some of them could be minor amendments, including technical corrections without substantive change, or they could even include regulatory actions in which agencies are getting rid of regulations or attempting to make regulations less burdensome on the public. "Major" Rules As mentioned above, the CRA was enacted in 1996 and established procedures for the congressional review of agency regulations. Under the CRA, each federal agency is required to send its covered final rules to GAO and to both houses of Congress before the rules can take effect. Section 804(2) of the CRA also created a category of rules called "major" rules, which are those that the Office of Information and Regulatory Affairs Administrator determines 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. The CRA contains two requirements for major rules. First, agencies are generally required to delay the effective dates of "major" rules until 60 days after the rule is submitted to Congress or published in the Federal Register , whichever is later. Second, the Comptroller General must provide a report on each major rule to the appropriate congressional committees of jurisdiction within 15 days of when a rule is submitted or published. The report must include a summary of the agency's compliance with various rulemaking requirements (such as regulatory impact analyses that agencies may be required to perform while undergoing a rulemaking action). These reports are posted on GAO's website. Table 2 presents the total number of major rules published during each calendar year since 1997, as reported by GAO. Rules in the GAO database are those that have been submitted to GAO under the CRA (5 U.S.C. §801(a)(1)(A)(i)). Data begin in 1997 because the CRA was enacted in 1996, making 1997 the first full year for which data are available. A 2011 CRS report examined the 100 major rules published in 2010 and concluded that rules are determined to be "major" for a variety of reasons, not just due to compliance costs. For example, 37 of the rules appeared to be major because they involved transfers of funds from one party to another, most commonly the transfer of federal funds through programs such as grants, Medicare or Medicaid funds, special pay for members of the military, and crop subsidy payments. Ten other rules appeared to be major because they prompted consumer spending or because they established fees for the reimbursement of particular federal functions (e.g., issuance of passports and oversight of the nuclear power industry). Thirty-nine rules appeared to be major because they were expected to result in at least $100 million in annual benefits, costs, or both. "Significant" Rules The definition of a "significant" rule, found in E.O. 12866, is a rule that is likely to (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order. Under E.O. 12866, agencies (other than independent regulatory agencies) are required to submit rules to OIRA for centralized review that are identified by agencies or determined by OIRA to be "significant." The agency must provide specific information to OIRA, including the text of the action; a detailed description of the need for the action; an explanation of how the action will meet that need; an assessment of the potential costs and benefits of the regulatory action; and an assessment of how the regulation "promotes the President's priorities and avoids undue interference with State, local, and tribal governments." While the number of major rules is accessible on GAO's Federal Rules Database, the number of significant rules issued each year is not readily available. No requirement currently exists for agencies or other entities to keep track of how many significant rules are issued each year. However, data are available for the number of reviews at OIRA each year, because OIRA logs on its website each rule it receives for review under E.O. 12866. The number of "significant" rules reviewed each year is not the same as the number of "significant" rules issued each year—for example, a rule could be reviewed at OIRA late in one calendar year but not actually issued until the next calendar year. In addition, because OIRA reviews proposed and final rules, the total number of reviews is much higher than final rules issued each year. However, the number of reviews at OIRA each year may give some idea of annual regulatory activity. Table 3 lists the total number of reviews at OIRA annually from 1994 to 2015, including prerules, proposed rules, interim final rules, final rules, and notices. Data begin in calendar year 1994 because E.O. 12866 was issued near the end of 1993. "Economically Significant" Rules "Economically significant" rules are those rules that fall into category (1) of "significant" rules, or those that may (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. For rules that are considered "economically significant," agencies are required to complete a detailed cost-benefit analysis under Section 6(a)(3)(C) of E.O. 12866. Although the definition of an "economically significant" rule is very similar to the definition of a major rule, the definition of a major rule is a bit broader. Both definitions have a similar $100 million threshold, but the definition of major rule also includes other categories (see section entitled " "Major" Rules " above). As stated in OMB's guidance on implementing the Congressional Review Act, the main difference is that some additional rules may be captured by the CRA definition that are not considered "economically significant" under E.O. 12866, notably those rules that would have a significant adverse effect on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. Table 4 lists the total number of "economically significant" reviews and non-"economically significant" reviews by OIRA each calendar year from 1994 to 2015. The table refers to reviews, not just rules, because OIRA also reviews some agency guidance documents. In some cases, agencies may submit a single rule to OIRA for review more than one time in a year. Finally, Table 5 lists the average review times for "economically significant" and non-"economically significant" reviews from 1994 to 2015. Under E.O. 12866, OIRA has the responsibility to meet certain timelines for review of regulatory actions. For notices of inquiry, advanced notices of proposed rulemaking, or other "preliminary" regulatory actions, OIRA must respond to the agency within 10 working days. For other regulatory actions such as proposed and final rules, OIRA has 90 calendar days in which to review rules. However, there are no consequences in the order if OIRA fails to meet the deadline for review. In general, since 1996, the average time to review "economically significant" rules has been shorter than for non-"economically significant" rules. One possible explanation for this trend is that "economically significant" rules might be of higher salience and political importance, therefore warranting higher priority from OIRA. Another potential reason is that OIRA frequently engages in informal reviews, collaborating with the regulatory agency in advance of the official receipt of the rule. As a result, much of the work that goes into reviewing economically significant rules may take place in advance. Rules Issued Without Notice and Comment Under "Good Cause" As described above, under the APA, agencies are generally required to undergo some basic steps when issuing a rule. Those steps include the publication of a proposed rule in the Federal Register ; the opportunity for interested persons to submit comments on the proposed rule; publication of a final rule that includes a "concise general statement" of the "basis and purpose" of the rule; and at least a 30-day waiting period before the rule can take effect. The APA allows for an exception to two of these requirements if an agency has "good cause": the agency can issue a rule without notice and comment, or it can waive the 30-day waiting period before the rule can take effect. The agency must give supporting reasons for invoking the good cause exception, and its use of good cause is subject to judicial review. Proper use of the good cause exception must reflect that following the typical notice-and-comment procedures are "impracticable, unnecessary, or contrary to the public interest." "Interim Final" Rules One use of the good cause exception allows agencies to issue "interim final" rules. When issuing an interim final rule, an agency invokes good cause, issues a rule, and then holds a post-promulgation comment period. If the agency is persuaded by any of the comments and so chooses, the rule can be amended in light of those comments. "Direct Final" Rules Federal agencies sometimes invoke another use of the good cause exception to engage in "direct final" rulemaking. "Direct final" rulemaking is used when an agency deems a rule to be routine or noncontroversial. Under "direct final" rulemaking, an agency will issue a final rule without prior notice and comment. The rule may take effect unless at least one adverse comment is received by the agency, in which case the agency must withdraw the rule and proceed with the normal notice and comment procedures. If no adverse comments are received, the rule will become effective. Number of Pages and Documents in the Federal Register Under the APA, agencies are required to publish proposed and final rules in the Federal Register . Agencies also publish other items related to regulations in the Federal Register , such as notices of meetings and the extension of comment periods, as well as many other items related to non-regulatory governmental activities. Because the Federal Register provides documentation of the government's regulatory and other actions, some scholars, commentators, and public officials have used the total number of Federal Register pages each year, which has increased substantially since its creation, as a proxy measure for the total amount of regulatory activity. The number of pages in the Federal Register, however, may not be an accurate proxy for regulatory activity or measure of regulatory burden for several reasons. This section discusses the history and content of the Federal Register and why it may not provide an accurate measure of regulatory activity. The Federal Register Act The Federal Register Act created the Federal Register in 1935 as a result of the increasing number of administrative actions, laws, and regulations associated with the New Deal. During the New Deal, the role of federal agencies changed substantially—as one scholar noted, the federal government was entering new realms of public policy as a result of laws passed under the New Deal, such as agriculture, assistance for the aged and disadvantaged, housing and home ownership, and banking and securities. Many statutes that Congress passed granted rulemaking authority to these new federal agencies. To create a centralized mechanism for documenting the increasing number of rules and administrative actions, Congress created the Federal Register . Since the 1930s, the Federal Register has been the vehicle for notifying the public of the federal government's actions. The Content of the Federal Register As noted above, the number of pages in the Federal Register may be only a rough approximation of regulatory activity each year for several reasons. First, the section of the Federal Register devoted to publishing final rules is relatively small, because the Federal Register documents other non-regulatory activities as well. For example, in 2015, approximately 30% of the total pages were in the "Rules and Regulations" section, which is where final rules are published. The other portions of the Federal Register are used for such items as presidential documents, proposed rules, notices, and corrections. Other than the proposed rules, these additional sections typically have little, if anything, to do with federal regulations. Over 1,000 pages each year are blank pages or skips, which are designed to leave room for other materials and to maintain the integrity of the individual sections. Second, while the Federal Register provides a compilation of governmental activity that occurs each year, including new regulations that are issued, many of the final rules are amending rules that have been previously issued and therefore may not accurately be considered to be new rules. Similarly, as mentioned above, if an agency eliminates an already existing rule, this is considered a "rulemaking" action under the APA and would be published in the rules and regulations section of the Federal Register , even if it is a deregulatory action. Third, when agencies publish proposed and final rules in the Federal Register , they include a preamble along with the text of the rule. The preamble often includes such information as statements of the statutory authority for the rule; information and history which the agency deems to be relevant; a discussion of the comments received during the comment period; an explanation of the agency's final decision; and in some cases, information about certain analyses that may have been required during the rulemaking process. It is possible, therefore, that the actual regulatory text provided in a rule could be relatively small compared to the size of the entire rulemaking document in the Federal Register . For example, a rule issued on January 25, 2013, by the Department of Health and Human Services pursuant to the Affordable Care Act modifying Health Insurance Portability and Accountability Act (HIPAA) and other regulations was 137 pages in total. Of the 137 pages, 121 pages comprised the preamble and 16 pages actually amended the Code of Federal Regulations. Much of the preamble discussed the comments received following the NPRM, as well as estimates of costs and benefits and a list of the associated information collections. Finally, the number of pages in the Federal Register may also not be an accurate reflection of the amount of regulatory burden that stems from a rule. For example, a short rule could impose a very large burden on a large number of regulated entities. On the other hand, a lengthy rule could contain less burdensome requirements but greater detail and only apply to a small number of entities. Because the preamble to the rule contains detailed information about the rule itself and the agency's response to the comments it received, the number of pages of a particular rule in the Federal Register could be related to other factors such as a large number of comments received or an in-depth cost-benefit analysis completed by an agency. Figure 1 documents the change in the number of pages in the Federal Register over time. As the data show, the number of pages has increased since publication of the Federal Register began. The number of pages reached a peak in 1980 at 87,012 pages; decreased to 47,418 pages in 1986; then increased again and has been approximately between 65,000 and 85,000 pages for the past two decades. Table 6 provides a more detailed examination of the total page count provided in Figure 1 and provides information on the number of pages in each rulemaking section in the Federal Register . In addition, Table 6 provides data on the number of rulemaking documents in each section of the Federal Register . Data were obtained from the Office of the Federal Register and, at the time of writing of this report, were available from 1976 through 2015. The number of documents published in the proposed rule and final rule sections of the Federal Register can be useful for cross-year comparisons. However, as mentioned above, not all of the documents in each of these sections are rules, so these data may not provide a precise count of how many rules are issued each year or of the total regulatory burden each year. Other types of documents may also be included in the proposed and final rules sections of the Federal Register, as mentioned above . For example, on August 6, 2012, in the final rules section, the Federal Motor Carrier Safety Administration issued a two-page "Notice of public listening sessions and extension of comment period." Because this action was related to a regulation, the document was published in the final rules section, but the document itself is not a regulation. Finally, as previous mentioned in this report, under the APA's definition of "rulemaking," an amendment or repeal of a rule is considered a rule. Therefore, some of the pages and documents counted below could be reducing the burden associated with a previously issued rule by amending or repealing the rule.

Federal rulemaking is an important mechanism through which the federal government implements policy. Federal agencies issue regulations pursuant to statutory authority granted by Congress. Therefore, Congress may have an interest in performing oversight of those regulations, and measuring federal regulatory activity can be a useful way for Congress to conduct that oversight. The number of federal rules issued annually and the total number of pages in the Federal Register are often referred to as measures of the total federal regulatory burden. Certain methods of quantifying regulatory activity, however, may provide an imperfect portrayal of the total federal rulemaking burden. For example, the number of final rules published each year is generally in the range of 2,500-4,500, according to the Office of the Federal Register. Some of those rules have a large effect on the economy, and others have a significant legal and/or policy effect, even if the costs and benefits are minimal. On the other hand, many federal rules are routine in nature and impose minimal regulatory burden, if any. In addition, rules that are deregulatory in nature and those that repeal existing rules are still defined as "rules" under the Administrative Procedure Act (APA, 5 U.S.C. §§551 et seq.) and are therefore included in that total. The Federal Register provides documentation of the government's regulatory and other actions, and some scholars, commentators, and public officials have used the total number of Federal Register pages each year as a measure for the total amount of regulatory activity. Because the Federal Register has been in print since the 1930s, the number of pages can be useful for cross-time comparisons. However, the total number of Federal Register pages may not be an accurate way to measure regulatory activity for several reasons. In addition to publishing proposed and final rules in the Federal Register, agencies publish other items that may be related to regulations, such as notices of public meetings and extensions of comment periods. The Federal Register also contains many other items related to non-regulatory activities, including presidential documents, notices, and corrections. In 2015, approximately 30% of the total pages in the Federal Register were in the "Rules and Regulations" section, the section in which final rules are published. This report serves to inform the congressional debate over rulemaking by analyzing different ways to measure federal rulemaking activity. The report provides data on and analysis of the total number of rules issued each year, as well as information on other types of rules, such as "major" rules, "significant" rules, and "economically significant" rules. These categories have been created by various statutes and executive orders containing requirements that may be triggered if a regulation falls into one of the categories. When available, data are provided on each type of rule. Finally, the report provides data on the number of pages and documents in the Federal Register each year and analyzes the content of the Federal Register.

Introduction On February 13, 2016, Justice Antonin Scalia unexpectedly passed away at the age of 79, vacating a seat on the Supreme Court that he had held for nearly 30 years. A vacancy on the Supreme Court that arises during a presidential election year is a relatively rare occurrence, with the last such vacancy arising in 1968, when Chief Justice Earl Warren submitted a resignation letter less than six months before the general election. While Chief Justice Warren's seat was not filled until the following year, the last time a Supreme Court vacancy arose in an election year and the Senate approved a new appointee to the Court in that same year was 1932, when the seat vacated by the retirement of Justice Oliver Wendell Holmes Jr. in January of that year was filled by Justice Benjamin Cardozo two months later. Given this history and with suggestions that Justice Scalia's successor may not be confirmed for several months, let alone before the fall election, the possibility exists that Justice Scalia's seat on the High Court may remain open for an extended period of time, including throughout the remainder of the 2015 Supreme Court term. This report provides an overview of the Supreme Court's procedural rules and requirements when the Court is staffed with less than nine members. Included in this discussion is an overview of the Supreme Court's quorum requirements, rehearing procedures, and vote count practices, with a focus on how the Court has traditionally responded to a change of composition during a term. The report concludes by highlighting over a dozen cases from the current term that could result in an evenly divided Supreme Court. The Supreme Court Without Nine Justices Article III of the U.S. Constitution provides that the judicial power of the United States shall reside in "one Supreme Court" and any lower courts Congress chooses to establish. Although the Constitution creates the Supreme Court, the nation's founding document is silent on the Court's makeup and design, and, as a result, Congress has generally exercised the authority to define the Court by statute. The first Congress, for example, enacted the Judiciary Act of 1789, which stated that the Supreme Court consists of "a chief justice and five associate justices." The size of the Court varied during the 19 th century, with the Court shrinking to five judges following the passage of the Judiciary Act of 1801 and growing as large as 10 judges after the enactment of the Judiciary Act of 1863. In 1869, Congress reduced the number of judges on the Supreme Court to nine, and the size of the Supreme Court remains the same today. In contrast to the federal appellate courts, the Supreme Court has, perhaps because of the constitutional establishment of "one" court, "always functioned as a single body, without dividing into panels." While the Supreme Court consists of nine Justices, it does not need nine Justices to decide a case. Instead, Congress has established quorum requirements for the Court, providing that any six Justices "shall constitute a quorum." By tradition, the agreement of a majority of the quorum is necessary to act for the Court. In recent years, the most likely reason for a Justice to be unavailable to participate in a proceeding before the Court has occurred when a Justice determines that he has a personal or financial interest in a case. Nonetheless, recusals are a rare occurrence on the Court. In the last five terms, only a handful of opinions have been released by an eight-member Court, and none have been released by a Court of seven or six members. If the Court is scheduled to hold a session but a quorum of Justices is not present, the Justices attending, or the Clerk or a Deputy Clerk, if no Justice is present, may announce that the Court will not meet until there is a quorum. Congress has delineated the procedures to be followed if the Supreme Court cannot hear or decide a case because of the absence of a quorum. These procedures differ depending on if the case is coming before the Court on direct appeal from a district court. While the majority of cases arrive at the Supreme Court from the lower appellate courts or are a part of the Court's original jurisdiction, a small number of cases, mostly respecting redistricting and campaign finance, come to the Court through a direct appeal after being heard initially by a three-judge district court. If the High Court cannot meet to rule on a case on direct appeal from a district court because of the absence of a quorum, Section 2109 of Title 28 allows the Chief Justice to remit the case to the court of appeals for the circuit that encompasses the district in which the case arose. Upon remittance to the appellate court, the lower court, sitting en banc or through a specially composed panel of three senior circuit judges, hears the case and renders a "final and conclusive" decision. In all other cases where a quorum is lacking, Congress has established that if a majority of the qualified Justices determine that the "case cannot be heard and determined at the next ensuring term, the court shall enter its order affirming the judgment of the court from which it was brought for review...." Such an order has no precedential value. An Equally Divided Court A Supreme Court consisting of eight or six sitting members raises the possibility that the Court may be equally divided as to the outcome of a given ruling. In the absence of a full Court, when the quorum of Justices is evenly divided (four to four or three to three), the Supreme Court generally has taken one of two approaches. First, if the participating Justices are equally divided on the merits of a case, the Court's practice has, at times, been not to write an opinion, but to enter a judgment that tersely affirms the lower court judgment without any indication of the Court's voting alignment. In such a case, the judgment of the lower court would stand, but the Supreme Court's summary affirmance would not be accorded any value as precedent. For the Court, "no affirmative action can be had in a case where the judges are equally divided in opinion as to the judgment to be rendered or order to be made." As a consequence, as one commentator noted, "In baseball, a tie goes to the runner; in the High Court, a tie goes to the Respondent." The rule of affirmance by an equally divided court was most recently invoked in the 2010 term, when the Court split 4-4 on two cases in which Justice Kagan had recused herself. Second, in lieu of issuing a summary affirmance of the lower court opinion, the Court could instead order reargument of the case. The Court possesses inherent authority to order the reargument of a case sua sponte or on its own volition. The Court has, in the past, exercised such authority to have a case be reargued after identifying additional issues for consideration or determining that more time is needed to resolve a case. However, in a practice particularly relevant in the current circumstances, the Court has also ordered reargument in instances where the Court is equally divided and holding the case over for reargument could allow a new Justice to cast the deciding vote to create a majority opinion. For example, the abrupt resignation of Justice Abe Fortas in May of 1969 created a vacancy on the Court that was not filled until Justice Harry Blackmun took the oath of office on June 9, 1970. With several cases that were heard during the 1969 term resulting in an equally divided Court, the Court "reschedul[ed] an inordinate number of cases for reargument during the 1970 term." Similarly, upon Justice Kennedy's confirmation to the Court, filling a seat that had been vacant for more than seven months, the Court issued several orders allowing for reargument of cases that had previously been heard by an eight-member Court. Even short vacancies on the Court have resulted in reargument in closely divided cases. For example, at least one case, which was originally argued before an eight-member Court in October of 1991 after Justice Thurgood Marshall's retirement, was reargued so that newly appointed Justice Clarence Thomas could cast the decisive vote in the case. Most recently, in 2005, the Court, on its own initiative, provided for reargument in three cases that had originally been argued between the death of Chief Justice Rehnquist and the swearing-in of Justice Alito. It should be noted that it is not unprecedented for the Court to order reargument following the installment of new Justices even if there is not an equal division among the sitting members. Following the retirement of Justices Hugo Black and John Marshall Harlan II in the fall of 1971, the Court's remaining seven members heard oral argument in Roe v. Wade and Doe v. Bolton . After the confirmation of Justices Powell and William H. Rehnquist, Chief Justice Burger led an effort to have the cases reargued so that the two new Justices could participate in the decision. Justice Blackmun concurred, stating "I believe, on an issue so sensitive and so emotional as this one, the country deserves the conclusion of a nine-man, not a seven-man court." Ultimately, the Court heard reargument in both cases on October 11, 1972. The reargument resulted in a 7-2 decision in favor of abortion rights, although the votes of Justices Powell, who voted with the majority in both cases, and Rehnquist, who dissented in both cases, did not alter the outcome of the cases. In other words, in cases of special import or significance, reargument to allow a new Justice to participate in the case could be a possibility, regardless of whether there is a tie vote. Finally, it is also important to note that even if the Court chooses to issue a summary affirmance as the result of an equally divided Court, the petitioner (i.e., the party that initially asked the Court to hear the case) can request the Court to rehear the matter. Supreme Court Rule 44 permits an unsuccessful party to submit a petition for rehearing within 25 days of the entry of an adverse decision or judgment on the merits or denial of certiorari . In the context of a summary affirmance arising as a result of an equally divided Court, the petitioner, who sought to have the lower court's ruling reversed, may want to seek rehearing of the matter. Despite the existence of this option, as one commentator has noted, "the Supreme Court seldom grants a rehearing of any kind of order, judgment, or decision" upon the motion of a losing party. The infrequency with which petitions for rehearing are granted is likely due to the fact that the Court engages in a thorough consideration of each case prior to issuing a decision, making it unlikely that reargument of a case would change the outcome of even a closely divided Court. This principle generally adheres even when there is a change in composition of the Court, as rehearing will not be granted "except by a majority of the Court, at the instance of a Justice who concurred in the judgment or decision." Put another way, only if a Justice who agreed with the underlying decision now thinks rehearing is appropriate, and if a majority of the Court agrees in that decision, will rehearing be granted upon request. As a result, the Court generally will grant a petition for rehearing only in "exceptional situations" where the Court itself has "substantial doubts as to the correctness as to what it has decided, or where the unanticipated consequences of the Court's decision are clearly explained only in the rehearing petition." As such, while an unsuccessful petitioner could theoretically petition the Court for a rehearing in anticipation of a Court with a changed composition, the "more likely" vehicle for rehearing, where the Court is equally divided among its members, is for the Court to order a rehearing sua sponte . Possible 4-4 Deadlocks for the 2015 Term Given these rules and practices of the Court, the question that remains is how the Supreme Court will resolve the pending cases on its current docket absent Justice Scalia. This question is particularly appropriate given the unusual number of cases on the present docket that have been perceived to be highly controversial and likely to divide the Justices. Indeed, the Court during the 2015 term has heard or is scheduled to hear cases on public employee unions, abortion, immigration, and affirmative action, among other hot button issues. Predicting the outcome of any Supreme Court case, let alone some of the most high profile cases, is a difficult task, as the ultimate outcome of a case may depend on a number of complicated factors, not all of which are known to the public. Nonetheless, based on the current eight Justices' past voting practices and written opinions, several cases have been widely seen as having the potential to result in 4-4 splits in the absence of Justice Scalia. Table 1 provides a list of cases that could result in a 4-4 tie at the Court this year, including the outcome in the lower court, which would stand if five votes do not exist at the Supreme Court to reverse the lower court's ruling. Notably, absent from the list is Fisher v. University of Texas, a case challenging the use of racial preferences in college admissions at the University of Texas. When this case first reached the Court in 2013, Justice Kagan recused herself from the matter. Her recusal in the case currently before the Court will result in a seven-member Court deciding Fisher . While the Court's practice from Roe v. Wade and Doe v. Bolton may suggest that Fisher could be held over for reargument pending the appointment of a new Justice, the Court's willingness to opine on the underlying constitutional ruling two years ago in Fisher I with an eight-member Court may indicate that the Court could be willing to issue a ruling on the merits with a seven-member Court, as well. If the cases listed in Table 1 or others result in a 4-4 vote split, the Court will then have to decide between issuing a summary affirmance of the lower court ruling or having the case reargued when a new appointee fills Justice Scalia's seat on the Court. Conclusion Justice Scalia's death occurs in the midst of a busy term at the Supreme Court, with dozens of pending cases remaining on the High Court's docket. Given the possibility that Justice Scalia's successor may not be confirmed in the near future, many of the Court's pending cases may result in a split vote between the current Justices. If such a situation arises, in light of the statutes, rules, and practices governing the Supreme Court, it appears the Court possesses significant authority and discretion in determining whether either (1) to issue an order summarily affirming the lower court's ruling; or (2) to allow a case to be reargued so that a new Justice can eventually participate in the ruling and settle the split on the High Court. The potential of many pending split decisions on the Court underscores the sign ificance of Justice Scalia's death for the 2015 term and the important role Justice Scalia's successor will serve on the Supreme Court.

On February 13, 2016, Justice Antonin Scalia unexpectedly passed away at the age of 79, vacating a seat on the Supreme Court that he had held for nearly 30 years. Supreme Court vacancies that arise in presidential election years rarely occur, and have in the past led to a seat on the Court staying open for extended periods of time. With suggestions that Justice Scalia's successor may not be confirmed for several months, let alone before the fall election, a possibility exists that Justice Scalia's seat on the High Court may remain open for an extended period of time, including throughout the remainder of the 2015 Supreme Court term. While the Supreme Court consists of nine Justices, it does not need nine Justices to decide a case. Instead, Congress has established quorum requirements for the Court, providing that any six Justices "shall constitute a quorum." By tradition, the agreement of a majority of the quorum is necessary to act for the Court. As a consequence, with an eight-member Court, there is the possibility of split votes, where a majority cannot agree on the outcome in a given case. With several high-profile cases pending on the Court's docket, including cases on public employee unions, abortion, and immigration, it appears that the Court could become equally divided on a number of matters in the near future. In the absence of a full Court, when the quorum of Justices is evenly divided (four to four or three to three), the Supreme Court has empirically adopted one of two approaches. First, if the participating Justices are equally divided on the merits of a case, the Court's practice has, at times, been not to write an opinion, but to enter a judgment that tersely affirms the lower court judgment without any indication of the Court's voting alignment. Such an order has no precedential value. Second, in lieu of issuing a summary affirmance of the lower court opinion, the Court could instead order reargument of the case. The Court possesses inherent authority to order reargument of a case sua sponte or on its own volition, and has exercised such authority in the past when there was an open seat on the Court. In addition, an unsuccessful petitioner could petition the Court for a rehearing in anticipation of a Court with a changed composition. Nonetheless, the "more likely" vehicle for rehearing, where the Court is equally divided among its members, is for the Court to order a rehearing sua sponte prior to issuing a decision on the merits. This report provides an overview of the Supreme Court's procedural rules and requirements when the Court is staffed with less than nine members. Included in this discussion is an overview of the Court's quorum requirements, rehearing procedures, and vote count practices, with a focus on how the Court has traditionally responded to a change of composition during a term. The report concludes by highlighting over a dozen cases from the current term that could result in an evenly divided Supreme Court.

The Succession Question Transfer of supreme political power in Russia can be a dicey business. Under the tsars, succession to the throne often was accompanied by intrigue and bloodshed. This held true during the communist period as well, although it became less deadly after Stalin. In December 1991, Yeltsin effectively overthrew Gorbachev and dissolved the Soviet Union in a bloodless coup. Eight years later, a politically moribund Yeltsin resigned as President of Russia three months before the end of his term and named Putin Acting President, circumventing the normal electoral process. With this "leg-up," Putin easily won election in March 2000 and was reelected with no real opposition four years later. Putin's presidency was a period of relative political stability, but as the end of his second term drew near, the succession question reemerged as a burning issue. Putin is a very popular leader, enjoying nation-wide public approval ratings in the 70%-80% range during most of his presidency. Pro-Kremlin political parties in the Duma (the lower and by far more powerful chamber of Russia's bicameral legislature) have long held more than the two-thirds majority required to amend the constitution. The question on everyone's mind was, would Putin step down at the end of his second term? In 2007, many Russian officials and politicians publically urged Putin to stay on as president. Numerous scenarios appeared in the Russian press, suggesting that Putin might override, amend, or do an end-run around the constitution in order to retain power. On September 10, 2007, Putin made a surprise announcement dismissing Prime Minister Mikhail Fradkov—whom he had plucked from obscurity to take that post in 2005—and nominated in his place the even more obscure Victor Zubkov, who had previously headed the Financial Monitoring Service, an arm of the Finance Ministry that investigates money-laundering. Zubkov is 65 years old and has no political power base or constituency of his own—other than Putin's backing. Putin explained this move as necessary to "prepare the country" for forthcoming elections, which immediately triggered speculation that Zubkov might be Putin's choice for president in 2008, perhaps as a "place holder," a mechanism that would allow Putin to retain control and/or return to the presidency after a brief interregnum. This brought the issue of the "Putin succession," which had been heating up since 2006, to a full boil. But in Russia's election cycle, the vote for president (March 2, 2008) was preceded the parliamentary election (December 2, 2007), which was seen as a harbinger of the presidential contest. The Kremlin decided to make the 2007 parliamentary election a referendum on Putin and Putinism. And despite Putin's apparent genuine popularity, they were determined to take no chances on the outcome. In the run-up to the Duma election, the authorities used myriad official and unofficial levers of power and influence to assure an overwhelming victory for United Russia, the main Kremlin party. On October 1, 2007, Putin announced that he would run for parliament at the head of the United Russia ticket, making the outcome doubly certain. The state-controlled media heavily favored United Russia and largely ignored or disparaged the opposition. Opposition party literature was seized and their rallies often shut down or harassed. Potentially popular opposition candidates were bought off, intimidated, or barred from running on "legal technicalities." In March 2007, for example, the Supreme Court ruled that Vladimir Ryzhkov's Republican Party—one of the few remaining liberal democratic parties—must be disbanded because it violated the 2004 law requiring parties to have at least 50,000 members and 45 regional offices. Russian authorities effectively prevented the main election observing body of the Organization for Security and Cooperation in Europe (OSCE) from sending an observer team, first by limiting their number to 70 (compared to 450 OSCE observers for the previous Duma election) and then delaying issuance of visas until the last minute, thus blocking normal monitoring of the election campaign. The preordained result of the December 2, 2007 balloting for the Duma was a sweep by United Russia, which reportedly won 64.3% of the popular vote and 315 of the 450 seats—more than the two-thirds majority required to amend the constitution. A second pro-Kremlin party, A Just Russia—widely believed to have been created by Kremlin "political technologists" in 2007 to draw leftist votes away from the Communists —won 7.74 percent of the vote and 38 seats. The platforms of United Russia and A Just Russia consisted of little more than their slogan,"For Putin!" Vladimir Zhirinovsky's misnamed Liberal Democratic Party of Russia (LDPR), with 8.14% of the vote, won 40 seats. Despite Zhirinovsky's buffoonery and reputation for right-wing extremism, the LDPR is also a reliable supporter of Putin in the Duma. Thus, the Kremlin can count on the votes of 393 of the 450 Duma Deputies. The only opposition party in the Duma is the Communist Party, which, according to the official vote count, won 11.57% of the vote and 57 seats. The remaining parties failed to cross the 7% threshold required to win seats in the legislature. The traditional liberal democratic parties, Yabloko and the Union of Rightist Forces, reportedly received 1.59% and 0.96% of the vote, respectively. The official voter turnout was total 63%. (See CRS Report RS22770, Russia ' s December 2007 Legislative Election: Outcome and Implications , by [author name scrubbed].) Despite some allegations of ballot-box stuffing, voter intimidation, and other "irregularities," there is little doubt that by dint of Putin's widespread popularity, an honest vote count would still have given United Russia a resounding victory. The main problem with the election was not the vote count, but the entire process leading up to the balloting. In the words of the deputy head of the OSCE's Parliamentary Assembly, "the executive branch acted as though it practically elected the parliament itself." On December 10, barely a week after the Duma election, Putin announced his choice for president: Dmitri Medvedev. The 42-year-old Medvedev, a long-time Putin protégé, had headed the Presidential Administration before Putin made him First Deputy Prime Minister in 2005. Like Putin and many of the Kremlin inner circle, Medvedev is a native of St. Petersburg (formerly Leningrad). But unlike so many of the inner circle, he does not have a background in the security services. His academic training is as a lawyer. He is viewed by many in Russia and the West as one of the most liberal of the generally illiberal cadre surrounding Putin. One day after his anointment, Medvedev announced that, if elected, he would ask Putin to serve as prime minister. One week later, Putin formally accepted this offer. This carefully choreographed arrangement presumably was meant to assure political continuity for Putin and to dampen political in-fighting among the rival clans within the Putin camp. But it does not clearly define the forthcoming political constellation, nor does it assure political stability. Competing scenarios and rumors abound. One thing that all observers agreed on, however, was that Putin's selection of Medvedev made the later's victory in the March 2 presidential election a certainty. The Presidential Election Immediately after Putin announced his support for Medvedev as his successor, Russia's bureaucratic and political elites raced to affirm their loyalty to the chosen one. The leaders of United Russia, A Just Russia, Civic Force, and the Agrarian Party all agreed to support Medvedev. "Each of the parties, in its own way, is realizing its political program by supporting a single candidate.... [T]his shows how the political system in Russia is maturing, and we now have the chance to make consolidated decisions, despite our differences," enthused Aleksandr Babkin of A Just Russia. Pavel Astakhov, head of the For Putin! movement, called Medvedev "a multifaceted person who suits the interests of completely different political forces and segments of society." Federation Council member Yury Sharandin observed, more pragmatically, that Medvedev would win the March 2 election in the first round because "the popularity of Vladimir Putin will be transferred this time not to an entire party with an enormous number of people, but to one concrete person." Putin, apparently concerned that lack of credible opposition might lead to low voter participation, approved a law eliminating the requirement for a minimum 20% voter turnout for an election to the Duma and a 50% turnout for a presidential vote for an election to be valid. In March 2007, Putin removed Aleksandr Veshnyakov as head of the Central Election Commission (CEC). Veshnyakov, who had served on the Commission since 1994 and been its chairman since 1999, criticized legislation that expands "pretexts for [the authorities] to disqualify candidates they find inconvenient..." and warned that Russia was in danger of becoming a one-party state. The new Chairmen, Vladimir Churov, said that "the principal difference between me and...Veshnyakov is that I am less likely to comment on election legislation and more inclined to get things done." One of Medvedev's few credible rivals was Mikhail Kasyanov, Putin's relatively liberal Prime Minister from 2000-2005. In 2006, a year after his dismissal, Kasyanov declared that he would form a new political party and run for president in 2008. The Federal Registration Service soon declared that it would not register Kasyanov's Russian Popular Democratic Union party because its registration documents "did not meet technical requirements." Kasyanov's party was barred from taking part in the Duma election. Russia's election law stipulates that parties not represented in the Duma may not nominate presidential candidates. Independent candidates must in a few weeks time collect the signatures of 2,000,000 supporters to be listed on the ballot – a daunting requirement. After Kasyanov's petitions were submitted, the Central Election Commission ruled that 13% of his 2.4 million signatures were invalid. Kasyanov was barred from participating in the election. Besides the two pro-Kremlin parties that backed Mevedev, only Zhironovsly's LDPR and the Communist Party are represented in the Duma and thus had the automatic right to nominate presidential candidates. The LDPR nominated Zhironovsky and the Communist Party nominated its long-time leader, Gennady Zyuganov. One other name appeared on the ballot, Andrei Bogdanov, leader of the Democratic Party. Bogdanov, a former United Russia official, won control of the tiny Democratic Party with Kremlin backing after a leadership struggle with Kasyanov. Although the Democratic Party, usually seen as a Kremlin-backed pseudo-opposition group, won fewer than 90,000 votes nation-wide in the December 2007 Duma election, Bogdanov supporters apparently had little difficulty getting 2 million signatures and their man was certified as a candidate. This guaranteed that if Zyuganov dropped out of the race, as he had threatened, there would be at least the appearance of a contested election. Russian and foreign observers of the election campaign virtually all noted that news coverage was skewed overwhelmingly in Medvedev's favor. This was especially true of TV news, the principal source of political news for most Russians. All the nation-wide TV networks are owned or controlled by the state. The previous format of "all-Putin, all the time" was shifted to Medvedev. Not surprisingly, Medvedev refused to participate in public debates with any of his rivals. Moscow also imposed the same restrictions on the OSCE's election observers as during the Duma election, with the same result. The OSCE refused to send election observers under the conditions imposed by Moscow. Election commissions in the United States, the United Kingdom, Spain, France, and Germany all officially informed Moscow that they would not observe the presidential ballot. According to the final report of the CEC, Medvedev won 70.28% of the popular vote, slightly less than Putin's margin in 2004 (71.31%). Communist Party leader Zyuganov came in second with 17.2% of the vote. Zhirinovskiy polled 9.34% and Bogdanov garnered 1.29%. Zhirinovskiy's representative on the CEC stated that the results reflected the will of the people and Zhirinovskiy pledged to support the new president. Zyuganov claimed that election rigging had denied him an extra 5%-10% of the vote. While Russian and western observers understood that the outcome of this election was not really in doubt, there were major questions about what a Medvedev presidency might mean. Alternative Scenarios Some speculate that Putin's obedient Duma majority may amend the constitution, shifting some power from the president to the prime minister. Under the present super-presidential constitution, the prime minister serves at the pleasure of the president and may be dismissed by the president at any time. According to "unnamed Kremlin sources," the Presidential Administration was ordered to prepare a draft constitutional law that would require the president to secure approval of four-fifths of the Duma and two-thirds of the Federation Council (the upper chamber of parliament) in order to dismiss the prime minister. This is only one of many changes that would have to be made in order to shift power decisively from the president to the prime minister. It would require a major re-write of the constitution – a move that Putin has specifically said he does not contemplate. Others suggest that President Medvedev may voluntarily cede substantial power to Prime Minister Putin, allowing the mentor to continue wielding real power. Proponents of this view note that Medvedev's entire political career has been under the direct tutelage of Putin and that the younger man is a totally loyal protégé. But such a "dual power" arrangement is viewed by some observers as inherently unstable. As former Russian presidential spokesman Vyacheslav Kostikov put it, "the problem is who will be number one." Another insider wrote that "the key problem will not be relations between Putin and Medvedev per se , but how this diarchy is able to handle the Kremlin inner circle, which is split up into competing factions.... [T]he regime will have another center of influence no less legitimate than Putin, to whom it will be possible to appeal. And for the first time there will be a situation in which Putin's decision may not be the final or decisive one." Another scenario envisions Medvedev resigning after a "decent interval," necessitating a new presidential election in which Putin would be eligible to run, since he would not have served more than two consecutive terms. This hinges on Medvedev's total loyalty to Putin. But could Putin count on that with complete certainty? The age-old lesson illustrated in Tolkein's Lord of the Rings is that power is seductively delicious and difficult to relinquish. Still others suggest that because Russian political institutions, per se , are weak, Putin would be able to retain the status of de facto national leader based on his popularity, prestige, and powerful connections with the security services, whose personnel he has placed in key positions throughout the government ministries and bureaucracy, the media, and leading economic enterprises. Alternatively, Putin might plan on remaining as a powerful prime minister for a year or two while making sure that Medvedev is an able and loyal successor—and be prepared to push Medvedev aside if the younger man proved unsatisfactory. But in this view, if Medvedev proved himself to be a worthy successor in Putin's eyes, Putin would gradually relinquish command of the ship of state, leaving the helm in Medvedev's hands. Possible Implications for U.S. Interests Russia is not as central to U.S. interests or the U.S. role in the world as was the Soviet Union in the Cold War era. But developments in Russia are still quite important to the United States. Russia remains a nuclear superpower and will play a major role in determining the national security environment in Europe, the Middle East, and Asia. Russia is also a major economic power with vast oil and gas reserves. The war on terrorism, arms control, efforts to contain WMD proliferation, the future of NATO, and energy security, inter alia , may all be affected by developments in Russia. Important specific, immediate issues on the U.S.-Russian agenda include missile defense in Europe, Kosovo, and Iran's nuclear activities. Some observers believe that the identity of the individual who wields power in the Kremlin after 2008 is not particularly important, because Putin has already succeeded in reestablishing traditional Russian authoritarianism and statism, i.e.: Putinism will prevail with or without Putin. Others argue that Russia's post-Soviet political evolution is still a work in progress, that the policies and preferences of Russia's paramount leader can be decisive in setting the nations' course – and its relations with the United States – as was the case when Mikhail Gorbachev ascended to the Kremlin and adopted policies that wrought profound, albeit sometimes unintended, consequences. The question of whether Medvedev's election victory results in an actual transfer of power is in itself an important issue. If Medvedev replaces Putin as "the decider," the act of honoring the two-consecutive-term constitutional limit itself will strengthen the rule of law in Russia. If, on the other hand, it turns out that Putin succeeds himself in one way or another, that will reinforce the tradition that Russia is ruled not by laws, but by men. It may not necessarily be true that a more democratic Russia will be a more friendly and accommodating partner for the United States. But there is a widespread belief that the more Russia adopts the values of democracy and free markets, the more likely is it to co-exist harmoniously with the industrial democracies of the West – whereas authoritarianism and statism are believed more likely to lead toward militarism and neo-imperialism in what many Russians still think of as the "former Soviet space." There is a broad consensus in the West that Putin, the career KGB/FSB professional, purposefully undermined nascent democratic trends that had arisen under Gorbachev and Yeltsin, in favor of statism and centralized authoritarianism. One of the hallmarks of Putin's administration is that he surrounded himself with current and former members of the security services, the so-called siloviki . Medvedev is one of the few in Putin's inner circle who does not share that background, having initially attained prominence as an outstanding young attorney and law professor. Some Russian and western observers view Medvedev as relatively liberal, compared to most other senior Kremlin insiders. Others dispute this view, arguing that Medvedev could not have attained his current position if he were significantly out of step with Putin's authoritarian tendencies. As First Deputy Prime Minister, Medvedev was in charge of the Putin administration's four major "national projects," high-profile government initiatives aimed at improving housing, health care, agriculture, and education. In his 2008 presidential campaign, Medvedev has focused on socioeconomic issues such as these, with the positive spin that "this is what I can/will do for you." He notably does not repeat Putin's tactic in the recent Duma election campaign, of shrilly denouncing opponents as "jackals" and agents of sinister outside forces, conspiring to foist some sort of "orange revolution" on Russia. Nor has Medvedev been in the chorus of top Russian officials sharply and ostentatiously criticizing the Bush Administration, U.S. policies, NATO, and the West. It is an open question whether Medvedev, as president, would seek to, or be able to, moderate the tough anti-U.S. rhetoric and, more importantly, the policies behind that rhetoric. The answer to this question has potentially far-reaching implications for the United States.

First Deputy Prime Minister Dmitri Medvedev, President Putin's chosen successor and long-time protege, was elected President on March 2, 2008, as expected, with about 70% of the vote. There was little real opposition. Medvedev had previously announced that if elected, he would propose Putin as Prime Minister and Putin has said that he will accept this post. The Putin regime has brought TV and radio under tight state control and virtually eliminated effective political opposition, assuring this "transition." The Kremlin's Unified Russia party had previously swept the parliamentary election (December 2, 2007), winning more than two-thirds of the seats in the Duma. The Russian Constitution limits the president to no more than two consecutive four-year terms. President Putin's second term ends in May 2008. Uncertainty about the post-Putin succession had dominated and roiled Russian politics for most of 2007, until late in the year, when Putin made clear that he would relinquish the presidency and take the position of prime minister after Medvedev was elected president. Putin's genuine popularity at home, combined with the near-total control that he and his regime exercise over nearly every aspect of the political scene, guaranteed the electoral outcomes sought by the Kremlin. Major questions remain, however, about the configuration of political power after Medvedev succeeds Putin as president. What will be the balance of power between the President Medvedev and Prime Minister Putin? Will a diarchy of power be stable? Will Putin seek to regain the presidency after a Medvedev interregnum which would legalize a third (and fourth) non-consecutive term for Putin? The answers to these questions will help determine the course of Russia's political evolution – continuing and consolidating the authoritarianism that Putin has fostered, or moderating that trend. At the same time, Russia's domestic political evolution will likely have a strong influence on its relations with its neighbors, with the EU and NATO, and with the United States. Related CRS reports include CRS Report RL33407, Russian Political, Economic, and Security Issues and U.S. Interests, by [author name scrubbed]; CRS Report RS22770, Russia's December 2007 Legislative Election: Outcome and Implications, by [author name scrubbed]; and CRS Report RL32662, Democracy in Russia: Trends and Implications for U.S. Interests, by [author name scrubbed]. This report will be updated as needed.

Introduction Foreign assistance law requires Congress to authorize funding for programs before appropriated funds are spent. Through 1985, Congress regularly enacted new authorization legislation or amended the Foreign Assistance Act of 1961, the foundation of U.S. foreign aid policy, to update authorization time frames, and to incorporate newer programs and authorities. After 1986, however, Congress turned more frequently to enacting freestanding authorities that did not amend the 1961 Act, and waived the requirement to authorize funds before making them available in appropriations. The annual foreign operations appropriations bill funds foreign aid programs as they are defined and authorized in the Foreign Assistance Act of 1961, the Arms Export Control Act, and other related Acts. These annual measures, like all appropriations bills that fund executive branch programs and operations, include General Provisions to guide how funds may be spent. Over time, as enactment of foreign aid reauthorizations waned, the General Provisions of foreign operations appropriations measures increasingly have become a legislative option for Congress to assert its views on the role and use of U.S. foreign aid policy, put limits or conditions on assistance, or even authorize new programs. As a result, some contend, General Provisions have become more important. The greater likelihood—relative to authorization proposals, at least—that appropriations measures will be considered in committee, on the floor, in both chambers, and in conference also impacts the attractiveness of serving on an appropriations or authorization committee, and affects the relationship between authorizers and appropriators. This report identifies the legislative origins of General Provisions that pertain to foreign aid in current foreign operations appropriations: Department of State, Foreign Operations, and Related Programs Appropriations Act, 2010 (division F of the Consolidated Appropriations Act, 2010; P.L. 111-117 ; 123 Stat. 3034 at 3312), as continued for Fiscal Year 2011 by the Department of Defense and Full-Year Continuing Appropriations Act, 2011 ( P.L. 112-10 ; 125 Stat. 38; of which sec. 1101(a)(6) continues appropriations enacted in P.L. 111-117 , and division B, title XI, which provides further instruction for FY2011 foreign operations expenditures). How to Read the Table The left column shows the General Provision section and heading, taken from P.L. 111-117 . The right column, in most instances, has two paragraphs per section. The first paragraph identifies in which section the intent or language of the General Provision first appeared, and is taken from annotations the Congressional Research Service prepares for the House Committee on Foreign Affairs and Senate Committee on Foreign Relations for their joint committee print, Legislation on Foreign Relations . The second paragraph establishes the more detailed legislative history of each provision—where and how it first appears that first year (reported out of committee, floor sponsor, or conference committee). Where available, report numbers are included. In some years, detailed information about sponsorship is not available: there is nearly no legislative history trail for new General Provisions introduced in FY2009, for example. Very few of the General Provisions are codified as notes in the U.S. Code. Very few of the General Provisions correspond with sections in the Foreign Assistance Act of 1961. When either condition occurs, it is noted in the right column. Most of the sections have changed over the years. The legislative histories in the right column document the introduction of the concept or intent of the General Provision, not the subsequent changes to that initial idea. Thus, an idea may be introduced and the right column identifies the committee or Member who brought the idea forward, but legislative maps of subsequent alterations, additions, changes in applicability, are not tracked. On occasion, an idea initially stated in a General Provision migrates and is incorporated into the funding titles: requirements of the Chief Executive Officer of the Millennium Challenge Corporation, for example, were first stated in General Provisions but in FY2010 appropriations those requirements were folded into the title III paragraph pertaining to that entity. The goal is solely to identify the emergence of the idea. Frequently, once enacted, a General Provision is continued annually in subsequent foreign operations appropriations measures. If some portion of a section is not carried forward annually, it is noted in the right column. The short titles or popular names of annual foreign operations appropriations have changed over time. In keeping with current jargon, the table refers to each annual measure as a "Foreign Operations Appropriations" with the fiscal year to which it applies. An appendix follows the table, which provides true short titles and popular names along with Public Law numbers. Appendix. Short Titles and Popular Names of Laws Cited in the Table (in chronological order) Mutual Security Appropriations Act, 1958 (P.L. 85-853; 72 Stat. 1100) Foreign Assistance and Related Agencies Appropriations Act, 1967 (P.L. 89-691; 80 Stat. 1018) Foreign Assistance and Related Programs Appropriation Act, 1974 (P.L. 93-240; 87 Stat. 1048) Foreign Assistance and Related Programs Appropriations Act, 1976 (P.L. 94-11; 89 Stat. 17) Foreign Assistance and Related Programs Appropriations Act, 1976 [transitional quarter] (P.L. 94-330; 90 Stat. 771) Foreign Assistance and Related Programs Appropriations Act, 1977 (P.L. 94-441; 90 Stat. 1465) Foreign Assistance and Related Programs Appropriations Act, 1978 (P.L. 95-148; 91 Stat. 1230) Foreign Assistance and Related Programs Appropriations Act, 1979 (P.L. 95-481; 92 Stat. 1591) Continuing Appropriations, 1980 (P.L. 96-86; 93 Stat. 656) Continuing Appropriations, 1981 (P.L. 96-536; 94 Stat. 3166) Foreign Assistance and Related Programs Appropriations Act of 1982 (P.L. 97-121; 95 Stat. 1647) Urgent Supplemental Appropriations Act of 1982 (P.L. 97-216; 96 Stat. 180) Further Continuing Appropriations Act, 1983 (P.L. 97-377; 96 Stat. 1830) Continuing Resolution, 1984 (P.L. 98-151; 97 Stat. 964) Foreign Assistance and Related Programs Appropriations Act, 1985 (in Continuing Appropriations Act, 1985) (P.L. 98-473; 98 Stat. 1837 at 1884) Foreign Assistance and Related Programs Appropriations Act, 1986 (in Continuing Appropriations Act, 1986) (P.L. 99-190; 99 Stat. 1185 at 1291) Foreign Assistance and Related Programs Appropriations Act, 1987 (in Continuing Appropriations, 1987) (P.L. 99-591; 100 Stat. 3341 at 3341-214) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1988 (sec. 101(e)) in Continuing Appropriations, 1988) (P.L. 100-202; 101 Stat. 1329 at 1329-131) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1989 (P.L. 100-461; 102 Stat. 2268) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1990 (P.L. 101-167; 103 Stat. 1195 ) Foreign Operations, Export Financing, and Related Programs Appropriations Act 1991 (P.L. 101-513; 104 Stat. 1979) Continuing Appropriations, 1992 (P.L. 102-145; 105 Stat. 968) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1993 (P.L. 102-391; 106 Stat. 1633) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1994 (P.L. 103-87; 107 Stat. 931) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1995 (P.L. 103-306; 108 Stat. 1608) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1996 (P.L. 104-107; 110 Stat. 704) Foreign Operations, Export Financing, and Related Programs Supplemental Appropriations Act, 1997 (title I, sec. 101(c)) in Omnibus Consolidated Appropriations Act, 1997) (P.L. 104-208; 110 Stat. 3009 at 3009-121) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1998 (P.L. 105-118; 111 Stat. 2386) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1999 (in Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999) (P.L. 105-277; 112 Stat. 2681 at 2681-150) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2000 (H.R. 3422, enacted by reference in Consolidated Appropriations Act, 2000) (P.L. 106-113; 113 Stat. 1501) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2001 (P.L. 106-429) Kenneth M. Ludden Foreign Operations, Export Financing and Related Programs Appropriations Act, 2002 (P.L. 107-115; 115 Stat. 2118) Foreign Operations, Export Financing and Related Programs Appropriations Act, 2003 (division E in Consolidated Appropriations Act, 2003) (P.L. 108-7; 117 Stat. 11 at 159) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2004 (division D in Consolidated Appropriations Act, 2004) (P.L. 108-199; 118 Stat. 3 at 143) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2005 (division D in Consolidated Appropriations Act, 2005) (P.L. 108-447; 118 Stat. 2809 at 2968) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2006 (P.L. 109-102; 119 Stat. 2172) 2007: none (2006 continues) Foreign Operations, Export Financing, and Related Programs Appropriations Act, 2008 (division J in Consolidated Appropriations Act, 2008) (P.L. 110-161; 121 Stat. 1844 at 2277) Department of State, Foreign Operations, and Related Programs Appropriations Act, 2009 (division J in Omnibus Appropriations Act, 2009) (P.L. 111-8; 123 Stat. 524 at 831) Department of State, Foreign Operations, and Related Programs Appropriations Act, 2010 (division F in Consolidated Appropriations Act, 2010) (P.L. 111-117; 123 Stat. 3034 at 3312)

This report identifies the legislative origins of General Provisions that pertain to foreign aid in the current Department of State, Foreign Operations, and Related Programs Appropriations Act, 2010 (division F of the Consolidated Appropriations Act, 2010; P.L. 111-117; 123 Stat. 3034 at 3312), as continued for Fiscal Year 2011 by the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10; 125 Stat. 38; of which sec. 1101(a)(6) continues appropriations enacted in P.L. 111-117, and division B, title XI, which provides further instruction for FY2011 foreign operations expenditures). Foreign assistance law requires Congress to authorize funding for programs before appropriated funds are spent. Through 1985, Congress regularly enacted new authorization legislation or amended the Foreign Assistance Act of 1961, the foundation of U.S. foreign aid policy, to update authorization time frames, and to incorporate newer programs and authorities. After 1986, however, Congress turned more frequently to enacting freestanding authorities that did not amend the 1961 Act, or included language in annual appropriations measures to waive the requirement to keep authorizations current. Over time, as enactment of foreign aid reauthorizations waned, the General Provisions of foreign operations appropriations measures increasingly became an important legislative place for Congress to assert its views on the role and use of U.S. foreign aid policy, put limits or conditions on assistance, or even authorize new programs.

Background Within the Department of Homeland Security (DHS), aerial assets are operated by the U.S. Customs and Border Protection's (CBP's) Office of Air & Marine (A&M). CBP utilizes advanced technology to augment its U.S. Border Patrol (USBP) agents' ability to patrol the border. The technologies used include, but are not limited to, sensors, light towers, mobile night vision scopes, remote video surveillance systems, directional listening devices, various database systems, and unmanned aerial vehicles (UAVs). These so-called "force multipliers" allow the USBP to deploy fewer agents in a specific area while maintaining the ability to detect and counter intrusions and are increasingly becoming a part of the USBP's day-to-day operations. Increasingly, DHS has explored the use of UAVs by A&M in support of USBP's mission to augment USBP agents' ability to patrol the border. There are two different types of UAVs: drones and remotely piloted vehicles (RPVs). Both drones and RPVs are pilotless, but drones are programmed for autonomous flight. RPVs are actively flown—remotely—by a ground control operator. UAVs are defined as a powered aerial vehicle that does not carry a human operator, uses aerodynamic forces to provide lift, can fly autonomously or be piloted remotely, can be expendable or recoverable, and can carry lethal or nonlethal payloads. Both types of UAVs have played key roles in recent conflicts. The UAVs utilized by CBP are RPVs, and the current fleet consists of six low-to-medium altitude Predator B UAVs. As of late June 2010, A&M was operating five Predator B UAVs: four from the UAS Operations Center in Sierra Vista, AZ, and one from the UAS Operations Center in Grand Forks, ND. One additional UAV was modified with structural, avionics, and communications enhancements that are optimized for maritime operations as part of a congressionally mandated maritime modification program (discussed in the section below). This program also includes procuring a specifically configured maritime ground control station aimed at exploiting the new maritime surveillance hardware and software. Once operational testing and evaluation are completed, CBP plans to base the modified UAV—known as "Guardian"—at the Corpus Christi Naval Air Station for flights along the Texas border and in the Gulf region. The recent UAV modification is part of an ongoing push by some policymakers and CBP to both expand CBP's UAV resources and open additional domestic airspace for UAV operations along the border. On June 23, 2010, the Federal Aviation Administration (FAA) granted a certificate of authorization requested by CBP, clearing the UAV flights along the Texas border and Gulf region. Other requests have reportedly been delayed due to safety concerns, some of which stem from previous incidents. The National Transportation Safety Board held a forum in 2007 on safety concerns associated with pilotless aircraft after a Predator crashed in Arizona the previous year. The board concluded the ground operator remotely controlling the plane had inadvertently cut off the plane's fuel. Additionally, the FAA and CBP grounded flights of UAVs for six days in June 2010 following a communications failure with a UAV flying over Texas. In response to this incident CBP, with the FAA's cooperation, conducted a safety review and provided UAV operators with additional training. Despite safety concerns raised by such incidents, some policymakers continue to call for the increased domestic use of UAVs. Congressional Mandates for the Use of UAVs Congress has directed DHS to study the feasibility of using UAVs and to implement the technology to surveil the border on numerous occasions. In the 108 th Congress, the Intelligence Reform and Terrorism Prevention Act ( P.L. 108-458 ) included provisions calling for a pilot program to study the use of these technologies, including UAVs, along the northern border. The law also required DHS to present a plan within six months of enactment to comprehensively monitor the southwest border with UAVs, and to implement the plan as a pilot program as soon as funds are appropriated for that purpose. The 2003 DOD Authorization Act ( P.L. 108-136 ) required the President to issue a report "on the use of unmanned aerial vehicles for support of homeland security missions." In the 109 th Congress, the conference report to the FY2007 DHS Appropriations Act ( P.L. 109-295 ) urged DHS to work with the Federal Aviation Administration (FAA) to implement a pilot program for the use of UAVs to surveil the northern border. The FY2006 DHS Appropriations Act ( P.L. 108-90 ) provided $35.2 million to establish a Northern Border air wing and tasked the DHS Under Secretary of Border and Transportation Security to devise a report outlining operational plans by which the Air and Marine Operations Center (AMOC) would eliminate surveillance gaps affecting the northern border and western United States. The act also provided $10 million for the use of UAVs. P.L. 108-334 , the FY2006 Homeland Security Appropriations Act, provided another $10 million for UAVs in border security. P.L. 109-295 provided $20 million in FY2007 for DHS's use of UAVs. P.L. 110-161 provided $14.7 million in FY2008 for the operation and maintenance of UAVs. In FY2009, Congress did not specify the amount of funding A&M should put toward UAVs. The Supplemental Appropriations Bill of FY2010 ( H.R. 4899 ) would include $32 million for the acquisition of two additional UAVs by A&M. In response to these congressional mandates, DHS has tested and used UAVs to surveil the U.S.-Mexican border since June 2004 in certain border sectors. The UAV demonstrations conducted by various commercial companies at Fort Huachuca and Gila Bend, AZ, on behalf of CBP have prompted various questions regarding their potential use within the United States that will be addressed subsequently. The FY2008 Consolidated Appropriations Act ( P.L. 110-161 ) directed DHS to explore the use of UAVs in the marine environment in addition to the border, and appropriated $15 million for DHS's UAV program, resulting in the modified "Guardian" Predator B UAV. Additionally, the DHS conference report to the FY2008 Act directed DHS to work with other federal agencies, including the FAA, to "evaluate the appropriateness of an FAA exemption for small scale" UAV technology. Benefits and Limitations of UAVs Benefits One potential benefit of UAVs is that they could fill a gap in current border surveillance by improving coverage along remote sections of the U.S. borders. Electro-Optical (EO) sensors (cameras) can identify an object the size of a milk carton from an altitude of 60,000 feet. UAVs also can provide precise and real-time imagery to a ground control operator, who would then disseminate that information so that informed decisions regarding the deployment of border patrol agents can be made quickly. Additionally, the Predator B used along the southern border can fly for more than 30 hours without having to refuel, compared with a helicopter's average flight time of just over 2 hours. The ability of UAVs to loiter for prolonged periods of time has important operational advantages over manned aircraft. The longer flight times of UAVs means that sustained coverage over a previously exposed area may improve border security. The range of UAVs is a significant asset when compared to border agents on patrol or stationary surveillance equipment. If an illegal border entrant attempts to transit through dense woods or mountainous terrain, UAVs would have a greater chance of tracking the violator with thermal detection sensors than the stationary video equipment which is often used on the borders. It is important to note, however, that rough terrain and dense foliage can degrade the images produced by a UAV's sensory equipment and thus limit their effectiveness at the borders. Nevertheless, the extended range and endurance of UAVs may lessen the burdens on human resources at the borders. Also, UAV accidents do not risk the lives of pilots, as do the helicopters that currently patrol U.S. borders. Limitations Despite potential benefits of using UAVs for homeland security, various problems encountered in the past may hinder UAV implementation on the border. According to a 2003 report, there have been concerns regarding the high accident rate of UAVs, which can be multiple times higher than that of manned aircraft. Because UAV technology is still evolving, there is less redundancy built into the operating system of UAVs than of manned aircraft and until redundant systems are perfected mishap rates are expected to remain high. Additionally, if control systems fail in a manned aircraft, a well-trained pilot is better positioned to find the source of the problem because of his/her physical proximity. If a UAV encountered a similar system failure, or if a UAV landing was attempted during difficult weather conditions, the ground control pilot would be at a disadvantage because he or she is removed from the event. Unlike a manned pilot, the remote pilot would not be able to assess important sensory information such as wind speed. Inclement weather conditions can also impinge on a UAV's surveillance capability, especially UAVs equipped with only an EO camera and Forward Looking Infrared Radar (FLIR), because cloudy conditions and high humidity climates can distort the imagery produced by EO and FLIR equipment. Although the Predator B is operating in the low-humidity environment of the Southwest, the effects of extreme climatic or atmospheric conditions on its sensors reportedly can be mitigated if DHS decides to outfit the Predator B with a synthetic aperture radar (SAR) system and a moving target indicator (MTI) radar. Adding SAR and MTI to the Predator B's platform could significantly enhance its operational capability for border missions. However, adding SAR and MTI to the UAV platform would increase the costs associated with using UAVs on the border. According to the CBP Inspector General, the costs of operating a UAV are more than double the costs of operating a manned aircraft. This is because UAVs require a significant amount of logistical support and specialized operator and maintenance training. Operating one UAV requires a crew of up to 20 support personnel. Additionally, the use of UAVs has resulted in fewer alien apprehensions per flight hour than the use of manned aircraft. The high comparative costs of operating a UAV may be offset somewhat by their comparatively lower unit costs. The unit cost of UAVs varies widely, from $350,000 for the Shadow UAV to $4.5 million for the Predator. In contrast, the unit cost for manned aircraft used along the border varies from $8.6 million for the CBP Blackhawk helicopters to $36 million for Immigration and Custom Enforcement's P-3 airplanes. However, the benefit of the Blackhawk's relative low unit cost is offset by its lack of endurance, given its maximum flight time of 2 hours and 18 minutes. Other Concerns Lastly, how UAVs could be integrated into civilian airspace within the United States is a fundamental question being addressed by the FAA, DHS, and the Department of Defense (DOD). Integrating UAVs into civilian airspace so that they could operate safely would require not only the creation of regulatory guidelines by the FAA but also technical developments. The FAA requires that all aircraft operating in U.S. airspace have the ability to detect and avoid other aircraft. For UAVs, this has meant that an operator at the Air and Marine Operations Center (AMOC) must be dedicated to each UAV that is flying. Additionally, the FAA has required that UAV operators be licensed pilots. The FAA currently is working on guidelines for integrating UAVs into the national air space (NAS) and has deployed a representative to AMOC to liaise with DHS on a variety of issues, including the use of UAVs. Although there are no guidelines or regulations for incorporating UAVs into the NAS, the FAA has worked closely with government users of UAV technology in developing a certificate of authority (COA) so NAS can be blocked off for exploratory development or operational testing. A primary concern of the FAA is whether UAVs can operate in already crowded airspace. Before UAVs can be introduced into national airspace, the FAA, DHS, and other relevant users will need to address collision-avoidance, communication, and weather avoidance issues. Issues for Congress While Congress has demonstrated consistent support for the concept of using UAVs in border security, many questions remain regarding their practical employment. Costs vs. Benefits As noted, the cost comparison between UAVs and manned aircraft is complicated. UAVs are less expensive to procure than manned aircraft but may cost more to operate. Thus, the life cycle cost of UAVs could actually be greater than the life cycle cost of manned aircraft. The disparity in operating the two types of aircraft may be offset by the fact that UAVs can remain in the air more than 10 times longer than the helicopters currently being used by A&M to support the USBP. Further, UAV command and control systems are being developed that can control multiple UAVs simultaneously. When fielded, these new capabilities may change the cost comparison to favor UAVs over manned aircraft. UAV Effectiveness Questions as to the effectiveness of UAVs persist. Although "Homeland Security officials praised the (UAVs) as a safe and important tool that … has contributed to the seizing of more than 22,000 pounds of marijuana and the apprehension of 5,000 illegal immigrants," others disagree. "Unmanned aircraft serve a very useful role in military combat situations, but are not economical or efficient in civilian law enforcement applications," said T. J. Bonner, president of the Border Patrol union. "There are a number of other technologies that are capable of providing a greater level of usefulness at a far lower cost." The DHS Inspector General noted that UAVs were less effective, in their limited tests, than manned aircraft in supporting the apprehension of unauthorized aliens. In addition, the UAVs were used to assist in the apprehensions of aliens who had already been detected by other means. However, the ability of UAVs to maintain position for over 20 hours represents a significant advantage over manned aircraft; in the future, they may be used to actually detect unauthorized entries as opposed to merely supporting apprehensions of aliens already detected. An issue for Congress could entail whether UAVs are an effective tool for securing the border. Lack of Information Testing of UAVs along the border has been limited. A robust program to test multiple UAVs on the borders might ascertain where, how, and whether UAVs should be deployed. Larger scale testing would provide an opportunity to evaluate whether the limitations of UAVs would hinder their utility on the border. In the past, multiple UAVs piloted in close proximity have experienced interference and loss of control between the UAV and the remote pilot. In many cases, interference led to accidents. A possible issue for Congress could include whether testing should be expanded before any decisions are made regarding the wide-scale use of UAVs along the border. Coordination with USBP Agents While UAVs may, in the future, be used to detect unauthorized entries, the fact remains that USBP agents must be deployed to apprehend any aliens identified. A possible issue for Congress could entail whether there are enough border patrol resources to investigate all UAV identified targets. Safety Concerns The technical capabilities of the UAVs have been tested in a military context, but safety and technical issues need to be addressed if the program is to be expanded domestically. Chief among these issues is the FAA's concerns about the NAS and whether UAVs can be safely incorporated into the nation's crowded skies. It has been noted that UAVs suffer accident rates multiple times higher than manned aircraft. However, in an effort to support the wars in Afghanistan and Iraq, DOD fielded UAVs such as Predator and Global Hawk before their development programs were complete. Thus, the UAV accident rate might be lower if these systems had been allowed to mature under the full development program. Implementation Schedule Currently, there is not a timeline for the regular use of UAVs in U.S. airspace—either along the entire U.S. border by CBP or in the interior by other agencies. However, other countries, such as Japan and South Korea have, for many years, used UAVs in a variety of civil roles. Israel has certified UAVs for civil use, and European air traffic control authorities plan to have UAVs integrated into civil airspace by 2015. A possible issue for Congress could involve whether U.S. aviation authorities should pursue a more aggressive implementation plan for the use of UAVs.

Congress has expressed a great deal of interest in using Unmanned Aerial Vehicles (UAVs) to surveil the United States' international land border. U.S. Customs and Border Protection (CBP) utilizes advanced technology to augment its USBP agents' ability to patrol the border, including a fleet of six UAVs. This report examines the strengths and limitations of deploying UAVs along the borders and related issues for Congress. UAVs come with several costs and benefits. One potential benefit of UAVs is that they could fill a gap in current border surveillance by improving coverage along remote sections of the U.S. borders. Moreover, the range of UAVs is a significant asset when compared to border agents on patrol or stationary surveillance equipment. Yet, despite potential benefits of using UAVs for homeland security, various problems encountered in the past may hinder UAV implementation on the border. There are concerns regarding the high accident rates of UAVs, which have historically been multiple times higher than that of manned aircraft. Inclement weather conditions can also impinge on a UAV's surveillance capability. Also, according to the CBP Inspector General, the costs of operating a UAV are more than double the costs of operating a manned aircraft. Recent attention has focused on the expanding area of operations for CBP-operated UAVs. On June 23, 2010, the Federal Aviation Administration (FAA) granted a certificate of authorization requested by CBP, clearing the UAV flights along the Texas border and Gulf region. Other requests have reportedly been delayed due to safety concerns, some of which stem from previous incidents. Despite safety concerns, some policymakers continue to call for the increased domestic use of UAVs. The Supplemental Appropriations Bill of FY2010 (H.R. 4899) would include $32 million for the acquisition of two additional UAVs by CBP. This report will be updated as events warrant.

Background on Congressional Pensions The Civil Service Retirement Act of 1920 (P.L. 66-215) established a pension system for federal employees in the executive branch of government. Coverage under the Civil Service Retirement System (CSRS) was extended to Congress in January 1942 by P.L. 77-411. That law was repealed just two months later in response to adverse public opinion. In 1946, P.L. 79-601 again extended CSRS coverage to Congress, at the option of Members, with higher contributions and greater benefits than those applicable to regular federal employees. In its report on that legislation, the Special Committee on the Organization of Congress stated that a retirement plan for Congress would contribute to independence of thought and action, [be] an inducement for retirement for those of retiring age or with other infirmities, [and] bring into the legislative service a larger number of younger Members with fresh energy and new viewpoints concerning the economic, social, and political problems of the Nation. The Social Security Amendments of 1983 ( P.L. 98-21 ) required all federal employees hired in 1984 or later to participate in Social Security. These amendments also required all Members of Congress to participate in Social Security as of January 1, 1984, regardless of when they first entered Congress. Requiring federal workers to participate in both CSRS and Social Security would have duplicated some benefits and would have resulted in employee payroll deductions for the two programs that would exceed 13% of pay. After mandating Social Security coverage of new federal employees beginning in 1984, Congress directed the development of a new retirement plan for federal workers with Social Security coverage as its foundation. The result of this effort was the Federal Employees' Retirement System Act of 1986 ( P.L. 99-335 ). The Federal Employees' Retirement System (FERS) went into effect in 1987, and employees first hired in 1984 or later were automatically enrolled in this plan. Employees who had been in the federal government before 1984 were given the option to remain in CSRS—without Social Security coverage—or to switch to FERS. The options for Members of Congress differed from those available to other federal employees because the 1983 amendments required all Members of Congress to participate in Social Security. Members first elected in 1984 or later were given the option to enroll in FERS as well as being covered by Social Security, or to be covered only by Social Security. Members who had been in Congress before 1984 could elect to stay in CSRS in addition to being covered by Social Security; to elect coverage under an "offset plan" that integrates CSRS and Social Security; to elect coverage under FERS in addition to being covered by Social Security; or to be covered only by Social Security. Because of the uncertain tenure of congressional service, FERS was originally designed, as CSRS had been, to provide a larger benefit for each year of service to Members of Congress and congressional staff than to most other federal employees. Prior to P.L. 112-96 , all Members of Congress also became eligible for retirement annuities at an earlier age and with fewer years of service than most other federal employees. However, all Members of Congress and congressional staff also paid a higher percentage of salary for their retirement benefits than do most other federal employees before P.L. 112-96 was enacted. The Middle Class Tax Relief and Job Creation Act of 2012 ( P.L. 112-96 ) made two significant changes to the retirement benefits of Members of Congress who are first covered by FERS after December 31, 2012. First, P.L. 112-96 decreased the FERS benefit accrual rate (used in the FERS pension calculation) for Members first covered by FERS (or reelected with less than five years of FERS service) after December 31, 2012, to be the same as regular FERS employees. Therefore, the larger benefit per year of service is no longer available to Members (or congressional employees) first covered by FERS after December 31, 2012. Second, P.L. 112-96 also increased the FERS employee contributions by 1.8 percentage points for Members of Congress first covered by FERS (or reelected with less than five years of FERS service) after December 31, 2012. Therefore, Members newly covered by FERS in 2013 are required to contribute 3.1% of pay to FERS. Subsequent to P.L. 112-96 , the Bipartisan Budget Act of 2013 ( P.L. 113-67 ) further increased the FERS employee contributions by an additional 1.3 percentage points for all individuals, including Members of Congress, first covered by FERS (or rehired/reelected with less than five years of FERS service) after December 31, 2013. Therefore, under P.L. 113-67 , Members of Congress and other federal employees first covered by FERS beginning in 2014 are required to contribute 4.4% of pay to FERS. Thus, for individuals first covered by FERS after December 31, 2012, there is no longer a larger employee contribution under FERS required for Members and congressional employees in comparison with regular FERS employees; all of these groups contribute 3.1% of pay toward their FERS annuity if first covered in 2013 or 4.4% of pay if first covered by FERS after 2013. Members of Congress first elected after December 31, 2012, however, remain eligible for retirement annuities under FERS at earlier ages and with fewer years of service than most other federal employees. There were 611 retired Members of Congress receiving federal pensions based fully or in part on their congressional service as of October 1, 2016. Of this number, 335 had retired under CSRS and 276 had retired under FERS. Members who had retired under CSRS had completed, on average, 23.5 years of civilian federal service. Their average annual CSRS annuity in 2016 was $74,028. Those who had retired under FERS had completed, on average, 15.8 years of civilian federal service. Their average retirement annuity in 2016 (not including Social Security) was $41,076. The average age of retired Members of Congress receiving retirement annuities in 2016 was 76 for those who had retired under CSRS and 73 for those who had retired under FERS. Retirement Plans Available to Members of Congress Members First Elected Before 1984 Members of Congress who were first elected before 1984 may be covered under one of four retirement plans: Dual Coverage. This is full coverage by both CSRS and Social Security. CSRS Offset. This is coverage by CSRS and Social Security, but with CSRS contributions and benefits reduced ("offset") by the amount of Social Security contributions and benefits. FERS. This is composed of the FERS basic annuity, Social Security, and the Thrift Savings Plan (TSP). Social Security Only. This occurs if the Member declines other coverage. Members and other federal employees who were covered under CSRS had the opportunity to switch to FERS during two six-month "open seasons" in 1987 and 1998. In 1987, less than 5% of eligible federal employees switched from CSRS to FERS, and in 1998 less than 1% of eligible employees switched. Members First Elected Since 1984 Members of Congress who were first elected in 1984 or later are covered automatically by the Federal Employees' Retirement System. Prior to the Legislative Branch Appropriations Act, 2004 ( P.L. 108-83 ), all Members could decline this coverage. Effective with passage of P.L. 108-83 , however, Representatives entering office on or after September 30, 2003, may not elect to be excluded from such coverage. All Senators, regardless of date, and those Representatives serving as Members prior to September 30, 2003, continue to be able to decline this coverage. FERS is composed of three elements: 1. Social Security; 2. the FERS basic annuity , a monthly pension based on years of service and the average of the three highest consecutive years of basic pay; and 3. the Thrift Savings Plan , into which participants can deposit up to a maximum of $18,500 in 2018 (participants who are at least age 50 in 2018 can make an additional "catch-up" contribution of up to $6,000). Their employing agency matches employee contributions up to 5% of pay. Members who enter Congress with at least five years of previous federal employment covered by CSRS can choose to participate in the CSRS Offset Plan rather than FERS. Age and Length-of-Service Requirements Members become vested in (legally entitled to) a pension benefit under CSRS or FERS after five years of service. The age and service requirements for retirement eligibility are determined by the plan under which a Member is covered at the time of retirement, regardless of whether he or she has previous service covered under a different plan. Depending on a Member's age and years of service, a pension can be taken immediately upon retirement or only on a deferred basis. Likewise, the Member's age and years of service, as well as the starting date of the annuity, will determine whether he or she is eligible for a full pension or a reduced pension. Retirement Under CSRS Four retirement scenarios are possible for Members covered by CSRS or the CSRS Offset Plan. Retirement with an immediate, full pension is available to Members aged 60 or older with 10 years of service in Congress, or aged 62 with 5 years of civilian federal service, including service in Congress. Retirement with an immediate, reduced pension is available to Members aged 55 to 59 with at least 30 years of service. It is also allowed if the Member separates for a reason other than resignation or expulsion after having completed 25 years of service, or after reaching the age of 50 and with 20 years of service, or after having served in nine Congresses. Retirement with a deferred, full pension is available if the Member leaves Congress before reaching the minimum age required to receive an immediate, unreduced pension and delays receipt until reaching the age at which full benefits are paid. A full pension can be taken at the age of 62 if the Member had 5-9 years of federal service, or at the age of 60 if the Member had at least 10 years of service in Congress. At the time of separation, the Member must leave all contributions in the plan to be eligible for the deferred pension. Retirement with a deferred, reduced pension is available to a Member at the age of 50 if he or she retired before that age and had at least 20 years of federal service, including at least 10 years as a Member of Congress. Retirement Under FERS There are four possible retirement scenarios for Members who are covered by FERS. Retirement with an immediate, full pension is available to Members aged 62 or older with at least 5 years of federal service; aged 50 or older with at least 20 years of service; and at any age to Members with at least 25 years of service. Retirement with an immediate, reduced pension is available at the age of 55 to Members born before 1948 with at least 10 years of service. The minimum age will increase to 56 for Members born from 1953 through 1964 and to 57 for those born in 1970 or later. Retirement with a deferred, full pension is available at the age of 62 to former Members of Congress with at least five years of federal service. Retirement with a deferred, reduced pension is available at the minimum retirement age of 55 to 57 (depending on year of birth) to a former Member who has completed at least 10 years of federal service. The pension annuity will be permanently reduced if it begins before the age of 62. Coordination of FERS Benefits with Social Security The FERS basic annuity was designed to supplement Social Security retirement benefits. FERS retirees under age 62 who retire with an unreduced pension are eligible for a temporary supplement to their FERS pension to fill in until Social Security eligibility is reached at the age of 62. The supplement is an amount estimated to equal the Social Security benefits accrued from federal service, and is paid from the time of retirement until the age of 62. The FERS supplement ends at the age of 62 regardless of whether the individual applies for Social Security at that time. Like Social Security benefits paid before the full retirement age (66 years for individuals born between 1943 and 1954), the supplement is reduced if the retiree has earnings above a specified annual limit. This "FERS supplement" is payable to Members who retire at the ages of 55 to 57 (depending on year of birth) or older with at least 20 years of service. A former Member with at least 20 years of FERS service also may begin to draw the supplement upon reaching the age of 55 to 57. Social Security Retirement Benefits17 Since January 1, 1984, all Members of Congress have been required to pay Social Security taxes. The laws governing payment of Social Security taxes and eligibility for Social Security benefits apply to Members of Congress in the same way they apply to any other covered worker. Retirement with full benefits. The "full retirement age" under Social Security is 66 years for those individuals born between 1943 and 1954. Forty quarters of covered employment are required to be eligible for retired worker benefits. Under current law, the age for full benefits is gradually increasing, beginning with people born in 1937, until it reaches the age of 67 for those born in 1960 or later. Retirement with reduced benefits. The earliest that retired worker benefits can be taken under Social Security is the age of 62. Benefits taken at 62 are permanently reduced, based on the number of months between the person's age at retirement and the full retirement age. A worker retiring at the age of 62 in 2015 would receive a benefit equal to 75% of the benefit that would be payable if the worker were retiring at the Social Security full retirement age. When the full retirement age reaches the age of 67 in 2022 and later, the monthly benefit paid at 62 will be 70% of the amount that would be paid if the beneficiary were aged 67. Social Security Earnings Limit19 Social Security benefits are reduced for beneficiaries under the full retirement age (age 66 for individuals born between 1943 and 1954) who have earnings from paid employment that exceed thresholds that are defined in statute. In 2018, Social Security beneficiaries under the full retirement age of 66 are subject to a reduction in benefits if their annual earnings exceed $17,040 ($1,420 per month) for any year prior to the year in which they attain full retirement age. These beneficiaries lose $1 in benefits for every $2 in earnings above the threshold. For any months in the same year that Social Security beneficiaries attain full retirement age, the reduction in benefits is lower and the annual exempt earnings amount is greater than described above. That is, for any months in the year that a beneficiary meets the full retirement age for Social Security (age 66 for individuals born between 1943 and 1954), the annual earnings limit in 2018 is $45,360 ($3,780 per month). Individuals lose $1 in benefits for every $3 in earnings above the threshold for any of these months. The earnings thresholds described above are adjusted annually for average wage growth in the U.S. economy. Retirees who have passed the full retirement age receive full benefits regardless of earnings. The Thrift Savings Plan: An Integral Component of FERS The TSP is a defined contribution retirement plan similar to those authorized under Section 401(k) of the tax code for employers in the private sector. For all federal employees enrolled in FERS, their employing agency contributes an amount equal to 1% of their base pay to the TSP, whether or not the employee chooses to contribute anything to the plan. FERS employee contributions of up to 5% of pay are matched by the employing agency. Employees covered by CSRS can participate in the TSP, but they receive no employer matching contributions. In 2018, employees enrolled in TSP can make voluntary contributions of up to $18,500. Employees aged 50 or older can contribute an additional $6,000 in 2018 (for a total contribution limit of $24,500). TSP employee contributions may be made on a pretax basis, in which case neither the contributions nor investment earnings that accrue to the plan are taxed until the money is withdrawn. Alternatively, P.L. 111-31 authorized a qualified Roth contribution option to the TSP. Under a Roth contribution option, employee salary deferrals into a retirement plan are made with after-tax income. Qualified distributions from the Roth TSP plan 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. Required Contributions to Retirement Programs CSRS Regular federal employees covered by CSRS contribute 7.0% of pay to the Civil Service Retirement System. Their employing agencies contribute a further 7.0% of payroll to the CSRS on behalf of these workers. Members of Congress who are covered by CSRS are required to contribute 8.0% of salary to the plan, and the U.S. Congress makes an employer contribution of 8.0% of payroll on their behalf. CSRS Offset Members of Congress covered by the CSRS Offset Plan contribute 1.8% of pay up to the Social Security taxable wage base ($128,400 in 2018), and 8.0% of pay above this amount, to the Civil Service Retirement System. They also contribute 6.2% of pay up to the Social Security taxable wage base to the Social Security trust fund. FERS: Covered Prior to December 31, 2012 Currently, regular federal employees who were covered by FERS prior to December 31, 2012, contribute 0.8% of pay to FERS and their employing agencies contribute an amount equal to 13.7% of pay. Currently, Members of Congress and congressional staff who were covered by FERS prior to December 31, 2012, pay 1.3% of salary for FERS coverage, and Congress pays 20.8% of pay for Members of Congress and 19.1% of pay for congressional employees who are enrolled in FERS. Members and employees enrolled in FERS also contribute 6.2% of pay up to the Social Security taxable wage base to the Social Security trust fund. Their employing agencies also contribute an additional 6.2% on the same wage base to the Social Security trust fund. FERS: First Covered January 1, 2013, Through December 31, 2013 Federal employees hired (or rehired with less than five years of FERS service) after December 31, 2012, but before January 1, 2014, are subject to increased contributions in accordance with P.L. 112-96 (the Middle Class Tax Relief and Job Creation Act of 2012). Currently, regular FERS employees hired in calendar year 2013 currently contribute 3.1% of pay to their FERS annuity and their employing agencies will contribute 11.9% of pay. Members of Congress first elected in 2013 and congressional employees first hired in 2013 also contribute 3.1% of pay. Currently, Congress contributes 11.9% of payroll for these Members and congressional employees first elected or hired in 2013 who are enrolled in FERS. Members and employees enrolled in FERS also contribute 6.2% of pay up to the Social Security taxable wage base to the Social Security trust fund. Their employing agencies contribute an additional 6.2% on the same wage base to the Social Security trust fund. FERS: First Covered After December 31, 2013 Under P.L. 113-67 , the Bipartisan Budget Act of 2013, federal employees hired (or rehired with less than five years of FERS service) after December 31, 2013, are subject to further increased FERS contributions. Regular FERS employees first hired after 2013 contribute 4.4% of pay to their FERS annuity. Members of Congress first covered by FERS after 2013 and congressional employees first hired after 2013 also contribute 4.4% of pay. Currently, employing agencies contribute 12.0% of pay for regular FERS employees, Members of Congress, and congressional employees. Members and employees enrolled in FERS also contribute 6.2% of pay up to the Social Security taxable wage base to the Social Security trust fund. Their employing agencies also contribute an additional 6.2% on the same wage base to the Social Security trust fund. Temporary Increase in Employee Contributions to CSRS and FERS Under the terms of the Balanced Budget Act of 1997 ( P.L. 105-33 ), employee contributions under CSRS and FERS rose by 0.25 percentage points in January 1999 and by a further 0.15 percentage points on January 1, 2000. Employee contribution rates were scheduled to increase by another 0.10 percentage points on January 1, 2001. Employee contributions were then to revert to the 1998 levels after December 31, 2002. Pension benefits accrued by federal workers would not have increased as a result of the temporarily higher employee contributions to CSRS and FERS mandated by the Balanced Budget Act. The higher contribution rates mandated by the Balanced Budget Act were repealed for all federal employees except Members of Congress by P.L. 106-346 , the FY2001 Department of Transportation and Related Agencies Appropriations Act. Contribution rates for Members reverted to 8.0% under CSRS and 1.3% under FERS on January 1, 2003. Social Security Payroll Taxes All Members of Congress pay Social Security payroll taxes, regardless of their other retirement plan coverage. The Social Security tax rate of 6.2% applies to gross wages up to $128,400 in 2018, which is the Social Security taxable wage base . The Social Security taxable wage base is adjusted each year for wage growth in the economy. Members of Congress, like all other workers covered by Social Security, pay Medicare Hospital Insurance taxes on all earnings at a rate of 1.45% of pay. Total Payroll Deductions Total payroll deductions for federal retirement programs depend on the combination of programs by which a Member is covered. The required payments are exclusive of any voluntary investments in the TSP. The following are the current required contributions. Dual Coverage Members with full CSRS coverage plus Social Security contribute 14.2% of the first $128,400 of salary in 2018. They also pay 8.0% to CSRS on salary above that amount (i.e., above $128,400 in 2018). CSRS Offset Members in the CSRS Offset Plan pay 6.2% to Social Security and 1.8% to CSRS on the first $128,400 of salary in 2018; they pay 8.0% to CSRS on salary above $128,400 in 2018. FERS Members first covered by FERS before 2013 pay 1.3% to FERS on total salary and 6.2% to Social Security on the Social Security taxable wage base (first $128,400 of salary in 2018). Members first covered by FERS in calendar year 2013 pay 3.1% to FERS on total salary and 6.2% to Social Security on the Social Security taxable wage base. Members first covered by FERS after 2013 contribute 4.4% of total salary to FERS and 6.2% to Social Security on Social Security taxable wage base. Social Security All Members pay 6.2% of their first $128,400 in salary to Social Security in 2018. The Social Security taxable wage base is indexed to national average wage growth and is adjusted annually. Pension Plan Benefit Formulas Pension benefits under both CSRS and FERS are computed according to (1) the retiree's average annual salary for the three consecutive years of highest pay (known as "high-3" average salary); (2) the number of years of service completed under the pension plan; and (3) the "accrual rate" at which benefits accumulate for each year of service. The pension is the product of these factors, expressed as follows: Pension Benefits Under CSRS The accrual rate for each year of congressional service covered by CSRS is 2.5%. Therefore, the CSRS pension equals For example, after 30 years of congressional service and a high-3 average salary of $174,000, the initial annual CSRS pension for a Member who retired in December 2014 at the end of the 113 th Congress at the age of 60 or later would be $174,000 × 30 × .025 = $130,500 Federal law limits the maximum CSRS pension that may be paid at the start of retirement to 80% of the Member's final annual salary. (See 5 U.S.C. §8339(f).) To receive an initial pension equal to 80% of final salary, a Member must complete 32 years of congressional service covered by CSRS (32 × .025 = .80). The smallest starting pension under CSRS is 12.5% of high-3 salary for a Member with five years of service. (Pensions based on less than 10 years of service cannot begin before the age of 62.) Most Members who entered Congress before 1984 and who chose to stay in the CSRS elected the "CSRS offset" plan. When a Member who has retired under the offset plan first becomes eligible for Social Security (usually age 62 or older), the CSRS pension is reduced by the amount of Social Security benefits that he or she is entitled to as a result of congressional service. This offset is applied even if the Member does not apply for a Social Security retirement benefit. In the example above, the offset would be approximately $25,900 annually. Pension Benefits Under FERS For Members of Congress covered by FERS prior to December 31, 2012, the accrual rate for congressional service covered by FERS is 1.7% for the first 20 years and 1.0% for each year beyond the 20 th . The basic retirement annuity under FERS for Members first elected prior to 2012 is equal to Members who began congressional service before 1984 and who elected to join FERS will receive credit under FERS from January 1, 1984, forward. Thus, at the close of the 114 th Congress in December 2016, a participant could have a maximum of 32 years of service under FERS. Assuming that a Member retired at the end of 2016 with 20 years of congressional service under FERS, and a high-3 average salary of $174,000, the resulting annual FERS pension would be [$174,000 × .017 × 20] = $59,160 For Members of Congress covered by FERS after December 31, 2012, the accrual rate for congressional service covered by FERS is 1.0% per year of service, or, if the Member has at least 20 years of service and serves until at least the age of 62, the benefit accrual rate is 1.1% per year of service. This is the same accrual rate that applies to regular FERS employees. There is no maximum pension under FERS. (It would take 66 years of service under FERS to reach the 80% maximum permissible under CSRS.) The smallest unreduced FERS pension for Members first covered by FERS prior to 2013 is 8.5% of high-3 salary with five years of service (.017 × 5 years), which is payable no earlier than the age of 62. A Member covered by FERS prior to 2013 with 10 years of service who takes a pension at the earliest allowable age of 55 would receive a reduced pension equal to 11% of high-3 salary (.017 × 10 years, reduced by .05 times the seven-year difference between the individual's age at retirement and the age of 62). Pensions for Members with Service Under Both CSRS and FERS Members who were participating in CSRS when the FERS plan went into effect could elect to leave CSRS and join FERS during a six-month "open season" in 1987. Members who switched to FERS are entitled to a CSRS pension for the years before 1984, provided that they had completed at least five years of service under CSRS by December 31, 1983. Their service from January 1, 1984, onward is covered under FERS. When these Members retire, their pension is computed using the CSRS formula for the CSRS-covered years and the FERS formula for the years covered by FERS. The same high-3 salary, which is generally the salary earned in the three years immediately preceding retirement, is used in both formulas. The two pension amounts (CSRS and FERS) are then added together. For Members who switched from CSRS to FERS, FERS rules govern the age and years of service for retirement eligibility. For example, the pension for a Representative or Senator who retired in December 2014 at the end of the 113 th Congress with a total of 32 years of service (5 years covered under CSRS and 27 years covered under FERS) and a high-3 salary of $174,000 would be: Retirement Benefits Under the CSRS Offset Plan Members who were participating in CSRS before January 1, 1984, and who chose not to switch to FERS could elect either to have full coverage under both CSRS and Social Security or to stay in CSRS and have their CSRS contributions and benefits reduced ("offset") by the amount of Social Security taxes paid and Social Security benefits received. New Members who enter Congress with at least five years of previous civilian federal employment that was covered under CSRS also may join the CSRS Offset Plan. Under this plan, a Member pays 6.2% of salary up to the Social Security taxable maximum to Social Security and 1.8% of salary up to this earnings level to CSRS. When annual earnings reach the maximum amount taxable under Social Security, the Member pays 8.0% of salary for the rest of the year to CSRS. During retirement, the individual's CSRS pension is reduced by the amount of the Social Security benefit that is attributable to his or her federal service. The reduction in the CSRS annuity begins at the age of 62, whether or not the retiree elects to receive Social Security at that time. As an example of the CSRS Offset Plan, assume that a Representative or Senator retired at the end of the 113 th Congress with 31 years of congressional service. According to the CSRS benefit formula, this Member's initial retirement annuity would be $134,850. However, if he or she were aged 62 or older, this amount would be reduced by an amount equal to the Social Security benefits earned from congressional service from January 1, 1984, through December 31, 2014. For an individual retiring in December 2014 at the age of 65 with 31 years of congressional service covered by Social Security, the annual reduction would be approximately $25,900. Replacement Rates The adequacy of pension plans is often evaluated by comparing the benefits paid at the time of retirement with pre-retirement earnings. The initial annual pension is computed as a percentage of final annual pay to derive the "earnings replacement rate." This is the proportion of pre-retirement earnings replaced by the pension. In both CSRS and FERS, pensions are based on the average of the highest three consecutive years of earnings, which are usually the final three years before retirement. Table 1 shows the percentage of high-3 average pay replaced by a congressional pension for a Member retiring with an immediate pension under CSRS or FERS at specified ages and years of service. (FERS benefits apply only to service after 1983. Therefore, 2014 is the first year after which a Member or other federal employee could potentially have completed 30 years of FERS service. Additionally, FERS benefits were designed to complement Social Security benefits; therefore, FERS annuities necessarily have lower replacement rates than CSRS annuities.) Cost-of-Living Adjustments CSRS annuities are adjusted for inflation once each year on the same schedule and by the same percentage as Social Security benefits. These "cost-of-living adjustments," or COLAs, are based on the rate of increase in the Consumer Price Index for Urban Wage Earners (CPI-W). CSRS annuities and Social Security benefits are increased each January by the annual percentage change in the CPI-W. As a cost-control measure, Congress has mandated that FERS annuities will increase by less than the percentage change in the CPI-W whenever the annual rate of increase in that index exceeds 2.0%. If the CPI-W rises by 2% or less, FERS annuities are increased by the same percentage as the increase in the CPI. If the CPI rises by 2.1% to 3%, FERS annuities are increased by 2%. If the CPI rises by more than 3%, FERS annuities are increased by one percentage point less than the rate of increase in the CPI. Initial CSRS annuities may not exceed 80% of a Member's final pay. Over time, however, if congressional pay were to remain unchanged, a retired Member's CSRS pension could exceed the nominal amount of his or her final pay. Nevertheless, because COLAs merely prevent the purchasing power of an annuity from being eroded by inflation, the real value of a CSRS pension does not increase or decrease during retirement, provided that the price index on which the COLA is based is an accurate measure of the rate of inflation. The Thrift Savings Plan The Thrift Savings Plan (TSP) is a retirement savings and investment program through which federal employees can save money to supplement their pension income. The TSP is open to participants in both CSRS and FERS, but in consideration of the smaller pensions paid by FERS, Congress has authorized more generous incentives for workers covered by FERS to save for retirement through the TSP. In 2018, FERS participants may invest up to $18,500 in the TSP. Participants who are at least age 50 in 2018 can make an additional "catch-up" contribution of up to $6,000. The maximum annual contribution is indexed to inflation. Individuals enrolled in FERS who invest in the TSP also receive a matching contribution from their employing agency on the first 5% of pay that they invest in the plan. CSRS participants also may invest up to the annual statutory maximum in the TSP, but they receive no employer matching contributions. The government automatically deposits into the TSP an amount equal to 1.0% of basic pay on behalf of an employee enrolled in FERS, regardless of whether the individual voluntarily invests additional sums. Members of Congress and congressional staff become vested in this 1.0% "agency automatic contribution," plus any investment earnings on it after completing two years of service. All participants in FERS are immediately vested in their own contributions and in government matching contributions to the TSP, as well as any investment earnings on these contributions. Unless an individual chooses the Roth TSP option, contributions to the TSP are made on a pretax basis; contributions and investment earnings are not taxed until money is withdrawn from the plan. Under the Roth TSP option, however, employee contributions are made with after-tax income and qualified distributions from the plan are then tax-free. Withdrawals from the TSP are subject to the federal income tax—except for qualified distributions from the Roth TSP option—and withdrawals before the age of 59½ may be subject to a 10% tax penalty. There is no penalty if the individual is aged 55 or older and is eligible for an immediate pension from CSRS or FERS; if the withdrawals are in the form of a life annuity; or if the withdrawals are taken in a series of "substantially equal periodic payments" on the basis of the individual's remaining life expectancy. Employees who leave federal employment can continue to defer taxes on their TSP account balances either by leaving the money in the TSP or by transferring all or part of these funds to an Individual Retirement Account (IRA) or other eligible retirement arrangement, such as a 401(k) plan. At retirement, participants may withdraw money from their TSP accounts in any of four ways. They can receive the account balance in a single payment. receive a series of monthly payments. (Payments may be for a fixed number of months or a fixed dollar amount. Monthly payments also can be based on an IRS life expectancy table.) purchase a life annuity. elect a partial distribution as a lump sum and take the remainder as either a series of equal payments or as an annuity. Participants who have separated from federal service must make an election for withdrawing funds from the TSP no later than February 1 of the year following the year in which the later of two events occurs: (1) the individual turns 65, (2) the individual reaches the 10 th anniversary of the first contribution to his or her account. Separated employees must begin withdrawals no later than April of the year after they reach the age of 70½, at which time the TSP will begin to distribute funds to the participant automatically if he or she has not yet made a withdrawal election. Until an employee separates from the federal government, he or she can continue to contribute to the TSP, regardless of age. Mandatory Coverage Under FERS Until the Legislative Branch Appropriations Act, 2004 ( P.L. 108-83 ), all Members could opt to decline coverage under FERS. Section 104 of P.L. 108-83 , however, amended the provisions of law applicable to coverage of Members of the U.S. House of Representatives under FERS. Effective with passage of P.L. 108-83 , Representatives (including a Delegate or Resident Commissioner to Congress) entering office on or after September 30, 2003, may not elect to be excluded from such coverage. The changes under P.L. 108-83 did not affect Senators. Therefore, all Senators and those Representatives serving as Members prior to September 30, 2003, continue to be able to decline FERS coverage. Retirement Benefits for Members with Limited Service The vesting requirement to become entitled to a pension benefit under CSRS or FERS is five years. Members who do not meet this five-year requirement—for instance, one-term Members in the U.S. House of Representatives—are not entitled to an annuity under CSRS or FERS. It may be the case, however, that an individual with less than five years of service as a Member may meet this vesting requirement as a result of combining previous federal service or additional federal service subsequent to service as a Member. To qualify for a retired worker Social Security benefit, an individual must accumulate at least 40 quarters of covered employment, or 10 years of Social Security-covered employment (among other requirements). These Social Security benefits are based on the average of a worker's highest 35 years of earnings. A Member of Congress with limited service may qualify for Social Security benefits based on a lifetime earnings and employment history that includes more than congressional service. Finally, Members of Congress who participate in FERS—even Members with limited service—are immediately vested in their own contributions and in any government matching contributions to their TSP accounts, as well as any investment earnings on these contributions. In addition, Members of Congress and congressional staff become vested in the 1.0% "agency automatic contribution" to their TSP accounts under FERS, plus any investment earnings on it, after completing two years of service. Forfeiture of Annuity37 Section 8312 of Title 5 provides that a federal employee, including a Member of Congress, may not receive a retirement annuity for any period of federal service if that individual is convicted of certain offenses that were committed during the period of service when the annuity was earned. In general, the crimes that would lead to forfeiture of a federal retirement annuity under this provision of law are limited to acts of treason or espionage. Section 401 of the Honest Leadership and Open Government Act of 2007 ( P.L. 110-81 , September 14, 2007) amended 5 U.S.C. Section 8332 to exclude from creditable service toward a retirement annuity any service as a Member of Congress of an individual convicted of a felony involving 1. bribery of public officials and witnesses; 2. acting as an agent of a foreign principal while a federal public official; 3. fraud by wire, radio, or television, including as part of a scheme to deprive citizens of honest services; 4. prohibited foreign trade practices by domestic concerns; 5. engaging in monetary transactions in property derived from specified unlawful activity; 6. tampering with a witness, victim, or an informant; 7. racketeer influenced and corrupt organizations; 8. conspiracy to commit an offense or to defraud the United States; 9. perjury; or 10. subornation of perjury. The law directs the Office of Personnel Management to issue regulations to specify the circumstances under which the spouse or children of such individual may be eligible for benefit payments under CSRS or FERS, taking into consideration (1) the financial needs of the spouse or children; (2) whether the spouse or children participated in a specified offense of which such individual was convicted; and (3) what measures, if any, may be necessary to ensure that the convicted individual does not benefit from any such payment. Section 15(a) of the STOCK Act ( P.L. 112-105 , April 4, 2012) further amended 5 U.S.C. Section 8332 so that a Member of Congress would lose the credit for service as a Member for the purposes of a retirement annuity if convicted of one of the numerous corruption offenses not only during time served as a Member of Congress, but also if convicted of any of such offenses while the President, the Vice President, or as an elected official of a state or local government. In addition, Section 15(b) of the STOCK Act also adds other federal criminal laws relating generally to public corruption or elections, for which a final felony conviction would result in losing creditable service as a Member of Congress for federal pension purposes, including, among other offenses, 1. criminal offenses include conflicts of interest; 2. conspiracy to make false claims; 3. making false claims to the government; 4. vote buying; 5. illegal solicitation of political contributions from federal employees; 6. soliciting political contributions in a federal building or office; 7. theft, conversion, or embezzlement of government funds or property; 8. false statements to the government; 9. obstruction of proceedings before government agencies; or 10. attempt to evade or defeat paying taxes.

Prior to 1984, neither federal civil service employees nor Members of Congress paid Social Security taxes, nor were they eligible for Social Security benefits. Members of Congress and other federal employees were instead covered by a separate pension plan called the Civil Service Retirement System (CSRS). The 1983 amendments to the Social Security Act (P.L. 98-21) required federal employees first hired after 1983 to participate in Social Security. These amendments also required all Members of Congress to participate in Social Security as of January 1, 1984, regardless of when they first entered Congress. Because CSRS was not designed to coordinate with Social Security, Congress directed the development of a new retirement plan for federal workers. The result was the Federal Employees' Retirement System Act of 1986 (P.L. 99-335). Members of Congress first elected in 1984 or later are covered automatically under the Federal Employees' Retirement System (FERS). All Senators and those Representatives serving as Members prior to September 30, 2003, may decline this coverage. Representatives entering office on or after September 30, 2003, cannot elect to be excluded from such coverage. Members who were already in Congress when Social Security coverage went into effect could either remain in CSRS or change their coverage to FERS. Members are now covered under one of four different retirement arrangements: CSRS and Social Security; The "CSRS Offset" plan, which includes both CSRS and Social Security, but with CSRS contributions and benefits reduced by Social Security contributions and benefits; FERS; or Social Security alone. Congressional pensions, like those of other federal employees, are financed through a combination of employee and employer contributions. All Members pay Social Security payroll taxes equal to 6.2% of the Social Security taxable wage base ($128,400 in 2018). Members first covered by FERS prior to 2013 also pay 1.3% of full salary to the Civil Service Retirement and Disability Fund (CSRDF). Members of Congress first covered by FERS in 2013 contribute 3.1% of pay to the CSRDF. Members of Congress first covered by FERS after 2013 contribute 4.4% of pay to the CSRDF. Members covered by CSRS Offset pay 1.8% of the first $128,400 of salary in 2018, and 8.0% of salary above this amount, into the CSRDF. Under both CSRS and FERS, Members of Congress are eligible for a pension at the age of 62 if they have completed at least five years of service. Members are eligible for a pension at age 50 if they have completed 20 years of service, or at any age after completing 25 years of service. The amount of the pension depends on years of service and the average of the highest three years of salary. By law, the starting amount of a Member's retirement annuity may not exceed 80% of his or her final salary. There were 611 retired Members of Congress receiving federal pensions based fully or in part on their congressional service as of October 1, 2016. Of this number, 335 had retired under CSRS and were receiving an average annual pension of $74,028. A total of 276 Members had retired with service under FERS and were receiving an average annual pension of $41,076 in 2016.

Introduction Rising food prices are having impacts across the world, but especially among poor people in the low-income developing countries. According to the United Nations Food and Agriculture Organization (FAO), its index of food prices in March 2008 was 80 points higher than in March 2007, a rise of 57%. In 2007, the index rose by 36% over its 2006 level. The International Food Policy Research Institute (IFPRI) reports that since 2000, a year of low food prices, the wheat price in international markets has more than tripled, corn prices have doubled, and the price of rice rose to unprecedented levels in March 2008. Such unprecedented increases in food prices have raised concerns about the ability of poor people to meet their food and nutrition needs and in a number of countries have lead to civil unrest. Food price escalation affects the cost of living for everyone, but the poor are most severely impacted because the share of spending for food in their total expenditure is higher than for better off populations. According to FAO, food represents about 10%-20% of consumer spending in industrialized nations, but from 60%-80% in poor developing countries. Low-income consumers in both rural and urban areas in poor countries have been adversely affected by the rise in food prices. High food prices have resulted in social unrest and food riots in Egypt, Cameroon, Cote d'Ivoire, Senegal, Burkina Faso, Ethiopia, Indonesia, Madagascar, the Philippines, and elsewhere. In Haiti, several deaths resulted from violent protests of price increases for staple foods. Popular discontent about food price inflation lead to the fall of the Haitian government. Most recently, violence marked protests of high food prices in Somalia. In Pakistan and Thailand, governments have deployed troops to prevent the seizure of food from farmers' fields and from warehouses. More than 33 countries, most of which are in Sub-Saharan Africa, are adversely affected by food prices increases. The World Bank has estimated that more than 100 million people are being pushed into poverty as a result of the escalation of food prices. Market analysts predict that global grain and oilseed supplies will rebound in 2008 because of current high market prices. However, most analysts, including the United Nations Food and Agriculture Organization (FAO), also anticipate that food prices will remain at significantly higher levels than previously. An immediate consequence of soaring food prices is a shortfall in funding for international emergency food aid. The escalation in food prices, and its long term effects, has also lead to suggestions that a higher priority and more resources be devoted to enhancing food security and agricultural productivity in developing countries. Why Are Food Prices Increasing? A number of interrelated factors have been identified as causes of escalating prices for food. Droughts in Australia and Eastern Europe and poor weather in Canada, Western Europe, and Ukraine have reduced available supplies. As a result of adverse weather conditions, global stocks of corn, wheat, and soybeans are at historically low levels. Some suggest that the apparent increases in harsh and frequent climatic shocks are due to climate change. It is, however, an open question as to whether the abnormal growing conditions of 2007 were a one-time event or part of a more systemic change in climate. Countries around the world, but especially Asian rice-producing countries, have introduced export restrictions. In response to high prices for food grains, some countries have introduced grain export restrictions to augment domestic supplies and hopefully contain the effects of high prices on their own consumers. Such export restrictions are intended to augment domestic supplies and hopefully contain the effects of high prices on consumers. However, such measures exacerbate the food supply situation in importing countries. Rising oil and energy prices have affected all levels of the food production and marketing chain, from fertilizer costs to harvesting, transporting, and processing food. These rising fuel costs are reflected in higher food prices. The costs for transporting food aid from the United States to beneficiaries in developing countries are already high. In FY2007, for example, of every dollar provided for U.S. food aid, about 56 cents represented the cost of transporting commodities. Rising fuel rices could make shipping food even more expensive in 2008. Higher incomes in emerging markets like China and India have resulted in strong demand for food commodities, meat, and processed foods and higher prices in world markets. The increased demand for food and energy in emerging markets is considered by many to be a structural change that will affect the supply and demand for food and feed well into the future. Increased demand for biofuels has reduced the availability of agricultural products for food or feed use. Some think that the competition between crops for food and crops for fuel will affect food supply and prices for years into the future. The food price impact of biofuels demand has caused some policy makers to suggest that biofuel subsidies and mandates be reconsidered. Others have suggested that there is not a conflict between meeting food and fuel demands for agricultural products. How Countries Have Responded Countries affected by the rising prices have responded in various ways. As noted above, some food exporting countries have restricted exports. While such moves can increase the availability of domestic supplies in the short run, it can lower domestic farmers' incentives to produce, and reduce the availability of supplies to importing countries. A number of food importing countries have reduced or eliminated import duties so as to reduce the cost of food. Some have introduced price controls, while at the same time augmenting input subsidies for farmers to induce them to increase production. A few other countries have addressed mounting food prices by expanding existing social safety net programs that provide food or cash to poor people; however, most low-income countries lack the administrative capacity and financial resources to implement such programs. The UN Food and Agriculture Organization (FAO) is monitoring the steps that governments of developing countries are taking to mitigate the effects of global price increases. Asia In Asia, home to some of the world's largest rice producing and exporting countries, governments have announced ceilings and in some cases bans on rice exports. For example, India has banned the export of non-basmati rice and set a minimum export price for basmati rice at $1200 /metric ton (MT). Viet Nam has banned rice exports until June of 2008. Cambodia has announced a short-term ban on rice exports and has released rice stocks to curb rising domestic prices. China has banned some grain exports and, to increase domestic supply, has raised minimum purchase prices of wheat and rice and increased agricultural subsidies. The Philippines, Bangladesh and Thailand are selling rice stocks at subsidized prices; Thailand plans to release 650,000 metric tons of rice to be sold at subsidized prices. Africa In North Africa, Egypt, has banned rice exports and the government there has ordered the army to bake bread to increase the supply of subsidized bread. In West Africa, Senegal, which imports about half of its grain consumption, is subsidizing the purchase of wheat flour by 40%. In addition, it has waived tariffs and imposed price controls. Liberia has suspended import duties on imported rice. Cote d'Ivoire has suspended import duties on essential foodstuffs, following protests of price increases for cooking oil and milk. In East Africa, Zambia, despite available export surpluses of corn, has continued an export ban in place for much of the previous marketing year. Zambia also is implementing a large input subsidy program to foster grain production this year. In Malawi, the government is continuing its program of subsidies for fertilizers and quality seeds. Zimbabwe continues import controls for corn, wheat and sorghum, which are sold at subsidized prices. The government of South Africa, which has an extensive social safety net program, has announced an increase in disability and old age payments, and increased social grants (cash grants) to poor families. Ethiopia, which also has a social safety net program, has announced wheat subsidies of $38 million, and fuel subsidies of $366 million. Ethiopia is increasing the wheat ration it distributes to 800,000 low-income urban residents. Ethiopia also has increased the cash wage rate of a large cash-for-work program by 33%. Ethiopia's government has also announced it will increase imports of sugar, wheat, and cooking oil. Tanzania has authorized duty-free imports of 300,00 metric tons of corn, and banned exports of agricultural commodities. Latin America and the Caribbean Mexico has removed quotas and tariffs for food imports, and has negotiated agreements with traders to increase corn imports and reduce retail food prices. Mexico has announced a number of food production support measures and announced that it will reduce fertilizer prices by a third. El Salvador, Guatemala, Nicaragua, and Honduras have jointly agreed to cancel the import duty on wheat flour for all of 2008. Argentina has imposed taxes on grain and oilseed exports in order to increase domestic supplies and, to partially offset the negative effect of these taxes on farmers incomes, is considering a 20% reduction in the price of fertilizers. Brazil has removed import tariffs on 1 million MTs of non-Mercosur wheat until June 30. Peru has revoked its tariff on grain imports and has announced a program to distribute food to the poorest members of its population. Ecuador has increased the subsidy on wheat flour. Bolivia has authorized tariff-free imports of rice, wheat, and wheat products, corn soybean oil and meat until the end of May. At the same time, Bolivia has banned exports of grains and meat products. Food Aid Funding Shortfalls One immediate consequence of the rise in global food prices is the emergence of a shortfall in funding for international food aid. Both the United Nations' World Food Program (WFP) and the U.S. Agency for International Development (USAID) are experiencing food aid funding shortfalls as a result of high food and fuel prices. The World Food Program (WFP) On March 20, 2008, the United Nations World Food Program made an urgent appeal to the United States and other food aid donors for an additional $500 million to address a funding gap for food aid caused by rising food and fuel prices. The WFP, the United Nations agency that is charged with meeting hunger needs of vulnerable people throughout the world, subsequently announced that its funding shortfall had increased to $755 million for 2008. Without the additional funds WFP would have to scale back on feeding operations in 2008 that would provide assistance to 73 million people in 80 countries. WFP is the world's largest food aid provider. In 2007, the WFP provided $2.7 billion of food aid to an estimated 70 million people in 80 countries. The United States contributed 44% of this amount or $1.2 billion in 2007. This percentage has been the United States' average annual contribution to the WFP since 1999. Other major donors to the WFP in 2007 included the European Union (the EU Commission and individual EU member countries), $586 million; Canada, $161 million; and Japan, $118 million. The United States provides almost all of its food aid to the WFP in the form of commodities; other donors provide primarily cash which WFP uses to purchase and ship food commodities. In order to maximize the commodity value of its cash resources and to mitigate the increased commodity and transports costs it faces, the WFP says it is making 80% of its food purchases—an estimated $612 million—in local and regional markets in developing countries. In 2007, the WFP Executive Director Josette Sheeran reported that WFP increased its local purchases by 30%, resulting, she indicated, in savings on food and transport costs and in helping local farmers from whom the food was purchased break the "cycle of hunger at its root." U.S. Agency for International Development USAID also has indicated that rising food and fuel prices could result in a significant scaling back of emergency international food aid in FY2008. According to press reports in March 2008, USAID expects that in FY2008 it would need as much as $200 million in additional funding to meet emergency food aid needs. USAID provides U.S. agricultural commodities for both emergency relief and for use in development programs under the authority of P.L. 480 Title II. In FY2007, the P.L. 480 Title II emergency program provided 1.5 million metric tons of emergency food aid at a cost of $1.4 billion (80% of total Title II) to meet emergency needs in 30 countries. Approximately 594,840 metric tons of food aid valued at $348 million (20% of total Title II) was used to support non-emergency development projects in FY2007. Non-emergency or development food aid has been declining in recent years as the need for emergency food aid has increased. The congressional appropriation for Title II food aid was $1.2 billion in FY2007. In addition, Congress provided emergency supplemental funding in FY2007 for Title II of $460 million. For FY2008, the President requested and Congress appropriated $1.2 billion for P.L. 480 Title II food aid for both emergency and non-emergency food aid. For FY2009, the President's budget also requested $1.2 billion for P.L. 480 Title II commodity donations. The Administration also again requested $350 million for FY2008 supplemental appropriations for Title II. The U.S. Response to Food Aid Funding Shortfalls The United States responded initially to the WFP's appeal for food aid and its own food aid funding shortfall by announcing a release of $200 million from the Bill Emerson Humanitarian Trust (BEHT), a reserve of commodities and cash that can be used to meet unanticipated emergency food aid needs. Congress also is considering an FY2008 emergency supplemental appropriation for food aid requested by the Administration. Some portion of the Emerson Trust release and some of an emergency supplemental would be allocated to meeting WFP and USAID food aid funding shortfalls. The President announced on May 1, 2009 a request for Congress to appropriate an additional $770 million in FY2009 to deal with the international food situation. Both FY2008 and FY2009 supplemental requests are part of war funding supplementals. Release from the Emerson Trust On April 14, 2008, the White House announced that the President had directed the Secretary of Agriculture to draw down on the Bill Emerson Humanitarian Trust (BEHT) to meet emergency food needs abroad. This action would make an estimated $200 million (commodity value and transport costs) in emergency food aid available through the U.S. Agency for International Development, to the World Food program and private voluntary organizations. The additional food aid, according to the White House press briefing, would be used to address the impact of rising commodity prices on U.S. emergency food aid programs, and be used to meet unanticipated food aid needs in Africa and elsewhere. The Emerson Trust is a reserve of commodities and cash that can be used to meet unanticipated humanitarian food needs in developing countries or when domestic supplies are short. It is authorized under the Bill Emerson Humanitarian Trust Act of 1998 ( P.L. 105-385 ). Up to four million metric tons of grains can be held in the Trust in any combination of wheat, rice, corn, or sorghum, but wheat is the only commodity ever held. With record prices for corn, rice, and sorghum, it seems unlikely that, in the near term, other commodities would be purchased to bring the Trust anywhere near its authorized maximum volume of grains. Funds regularly appropriated for P.L. 480 can be used to replenish the Trust, but the P.L. 480 funds that can be used for this purpose are limited to $20 million per fiscal year, about 70,000 MT at today's prices. Emergency supplemental appropriations on occasion have been devoted to replenishing the BEHT. The authorizing statute, however, does not require the replenishment of the Trust. Before the recent release, the Trust held 915,000 metric tons of wheat and $117 million. Following the announcement of the release, U.S. Department of Agriculture Kansas City Commodity Operations Office sold 260,371 MT of wheat stocks. The proceeds of the sale—$80 million—will be placed in the Trust and made available to purchase commodities under P.L. 480 Title II. Both House and Senate versions of a new farm bill address the reauthorization of the Emerson Trust. The House version of the farm bill extends the authorization for the Trust until 2012. The Senate version of the farm bill reauthorizes the Trust to 2012, but also makes changes in the Trust that would enable it to accumulate and use cash reserves. The Administration made no suggestions for replenishing the Trust or enhancing its ability to respond to emergencies in its farm bill proposals. FY2008 Emergency Supplemental Appropriations Congress is considering the President's request for a $350 million supplemental appropriation for P.L. 480 Title II food aid. In six out of ten years since 1999, the Administration has requested and Congress has passed emergency supplemental appropriations for P.L. 480 Title II food aid. For the most part these funds have been allocated to emergency food needs. However, supplemental funds also have been allocated to non-emergency development food aid and to replenishing the Emerson Trust (see below). The major issues with respect to an FY2008 emergency supplemental for P.L. 480 Title II food aid would be its size and the ways in which it could be allocated between emergency and non-emergency programs, and the Emerson Trust. The allocation of a supplemental appropriation between the WFP and U.S. non-governmental organizations who implement food aid programs would also be a consideration. Some private voluntary organizations (PVOs) that implement food aid programs have called for a larger supplemental than proposed by the Administration. Catholic Relief Services, for example, has indicated that it believes a supplemental of at least $600 million is needed. Senators Casey and Durbin have proposed adding $200 million to the FY2008 supplemental for emergency food aid. The Congressional Black Caucus has urged that Haiti get priority consideration in U.S. food aid programming. An amendment to the FY2008 supplemental appropriations bill in the House would add $500 million to the President's request for additional funding for P.L. 480 Title II. The Senate Appropriations Committee Chairman's mark also calls for an additional $ 500 million in P.L. 480 food aid. The President's FY2009 Food Aid Request On May 1, 2008, the President requested that Congress appropriate $770 million to meet food needs due to rising food prices in developing countries. This funding would be part of a FY2009 bridge supplemental appropriation to fund wars in Iraq and Afghanistan. The requested amount would be allocated to emergency food aid, $395 million; international disaster and famine assistance, $225 million; and agricultural development assistance, $150 million. The additional emergency food aid would be allocated to P.L. 480 Title II donations. The additional funds for disaster assistance would be allocated to the International Disaster and Famine Assistance (IDFA) account and used to purchase food locally in developing countries, to provide vouchers, and to purchase seeds and other supplies. No detail was suggested with respect to how the additional $150 million for agricultural development assistance would be allocated. Some Members of Congress have been critical of the President's proposal. They have suggested that additional funds for food aid and disaster assistance may be needed prior to FY2009. The effort by the House and Senate Appropriations Committees to increase the amount of FY2008 supplemental funding for P.L. 480 by $500 million—instead of waiting for a FY2009 supplemental—may be a reflection of this concern. Additional U.S. Food Aid Policy Options Some policy options under consideration in the debate over the reauthorization of food aid programs in the farm bill, now under consideration in Congress, could affect the way in which the United States provides emergency food aid. These include providing legislative authority to purchase non-U.S. commodities for emergency food aid in countries or regions close to where food emergencies are occurring and earmarking a portion of food aid for development rather than emergency uses. Allocating Some Title II Funds to Local or Regional Purchase High transportation costs and lengthy delays before U.S. commodities arrive at their destinations in emergency situations prompted the Administration, in its 2007 farm bill proposals, to recommend that the Administrator of USAID be given the authority to use up to 25% of the funds available for P.L. 480 Title II to purchase commodities in locations closer to where they are needed. The rationale for this proposed new authority is that it would increase the timeliness and effectiveness of the U.S. response to food aid emergencies by eliminating the need to transport commodities by ocean carriers. According to the Administration's proposal, savings achieved in transportation and distribution costs would be available for additional commodity purchases, thus increasing the overall level of the U.S. response to emergencies. In addition, local or regional purchases would also shorten the time it takes to get food supplies to where they are needed, provide for flexibility in the choice of commodity, and contribute to local economic development. Proponents of local or regional purchase argue that it also would be less likely to disrupt receiving country markets. The Administration indicated that most of U.S. emergency food aid would continue to be provided by U.S. commodities. The House-passed farm bill ( H.R. 2419 ) did not endorse the Administration's proposal, but the bill did stipulate that $40 million of the funds appropriated for USAID's International Disaster and Famine Assistance (IDFA) program be allocated to famine prevention and relief. IDFA funds can be used to purchase commodities locally or regionally, but most IDFA funds are used to purchase non-food relief supplies, e.g., medicines, tents, blankets, cooking utensils, sanitary facilities, and the like. In contrast to the House version of the farm bill, the Senate version establishes a pilot program, authorized at $25 million annually, to explore how local or regional procurement of food in emergency situations might be used. Its 2007 farm bill food aid recommendation was not the first time that the Administration proposed allocating funds for local or regional purchase. The President's FY2003 budget request contained a proposal to shift $300 million from P.L. 480 Title II to IDFA to purchase food for emergency relief in markets closer to their final destinations rather than in the United States as required under P.L. 480. The proposal, however, proved controversial with farm groups, agribusinesses, and the maritime industry that supply and ship commodities for Title II, and with many private voluntary organizations (PVOs) that rely on food aid to carry out development projects in poor countries. A major concern of the PVOs is that allocating Title II funds to local/regional purchase would undercut political support for the food aid program and reduce the volume of commodities available for both emergencies and development projects. The conference report ( H.Rept. 109-255 ) accompanying the FY2006 agriculture appropriations act ( P.L. 109-97 ) addressed the issue of converting a portion of P.L. 480 commodity food aid into cash by stating: "The conferees ... admonish the Executive Branch to refrain from proposals which place at risk a carefully balanced coalition of interests which have served the interests of international food assistance programs well for more than fifty years." The President's FY2007 and FY2008 budget requests also contained proposed appropriations language to allow the Administrator of USAID to use up to 25% of P.L. 480 Title II funds for local or regional purchases of commodities in food crises. The Senate report ( S.Rept. 109-266 ) accompanying the FY2007 agriculture appropriations bill explicitly rejected this proposal, stating that "the Committee does not agree with the Administration's proposal to shift up to 25% of the Public Law 480 Title II program level to USAID to be used for direct cash purchases of commodities and other purposes." Proponents admit that there would be some risks if local markets are unable to absorb large increases in food demand that local purchases could represent. The quality of local food products and ability to transport food locally are also potential problems. One study of the World Food Program's experience with local and regional purchases found that such risks are manageable, however, and could be avoided. Another study of global food aid transactions found that local food aid procurement was 66% less expensive than shipments directly from donor countries. An estimated 60% of all food aid from all donors is locally or regionally procured. Earmarking Food Aid for Non-Emergency Projects The volume of Title II commodities allocated to emergencies as opposed to development projects has grown in recent years. Current law provides a mandate for a minimum volume of commodities to be used for P.L. 480 Title II development projects; however that mandate has not been met as the demand for emergency food aid has increased substantially. House and Senate versions of the farm bill provide for hard earmarks, expressed in dollar terms, for development food aid. The purpose of these hard earmarks is to ensure that a minium amount of food aid would be devoted to development projects. Both versions of a new farm bill contain earmarks of P.L. 480 Title II funds that would be allocated to non-emergency projects. The House-passed bill stipulates that of the funds made available for Title II, not less than $450 million annually be made available for non-emergency (development) food aid. This minimum level of non-emergency assistance could not be waived unless requested by the Administrator of USAID, followed by enactment of a law approving the Administrator's request. The Senate bill establishes a minimum of $600 million for development food aid that also would not be subject to waivers. The Administration has indicated that it prefers a continuation of the status quo which provides for waivers of the current minimum volume of commodities that is devoted to development activity. Following passage of the House-passed bill, the Office of Management and Budget, in its Statement of Administrative Policy, said that it strongly opposed this provision because it would deprive the Administration of the ability to quickly waive it in an emergency. OMB estimated that this House bill provision would result in a $100 million decrease in emergency food aid. Other Near-Term International Donor Responses Responses to the WFP Appeal As of early May 2008, food aid donors had pledged to provide $613.4 million to the WFP appeal or about 81% of the appeal. Of that total, the confirmed amount is $40.4 million. Public announcements by donor countries amount to $221.6 million. Committed emergency food aid of which WFP's share is to be determined is $340 million. (The U.S. contribution to WFP's urgent appeal is in this category.) Another $11.4 million is under discussion. Among the contributions announced are $181 million from the European Commission. Individual countries announcing contributions to the WFP appeal include Japan, France, Germany, the United Kingdom, Canada, and Norway. FAO's Proposal The United Nations Food and Agriculture Organization (FAO) has called for donors to contribute funds to increasing local food production in the near term. FAO launched an Initiative on Soaring Food Prices on December 17, 2007. FAO has allocated $17 million to this activity and is helping with the provision of inputs to four African countries. FAO has convened a meeting in Rome from June 3-5, 2008 that will focus not only on mobilizing short and near term resources to provide inputs and increase production, but also on longer-term approaches to enhancing world food security. World Bank and IMF Responses Both the World Bank and the International Monetary Fund (IMF) are engaged in activities to alleviate the effects of rising food prices on vulnerable countries in the near term. The World Bank is providing policy advice to countries affected by rising food prices and discussing possibilities of helping countries meet short-run financial needs. The Bank reports that a few countries, among them Burkina Faso, are considering increasing the size of their Development Policy Loans. The Bank is also reviewing the possibility of scaling up financing of existing programs and investment projects for safety net and agricultural programs. To respond to an urgent food price situation in Haiti, the World Bank is making available a grant of $10 million. These grant funds are expected to cover the provision of food for poor children and other vulnerable groups, partly through an expansion of the Bank's existing school feeding program, and job creation through labor intensive public works. The IMF reports that it is exploring augmenting existing financing arrangements under its Poverty Reduction and Growth Facility (PRGF). About 10 countries, mostly in Africa, have raised the possibility of augmenting existing arrangements so as to acquire additional financing to cover the import costs of higher food prices. The IMF is also working with PRGF-eligible countries and with other economies on appropriate responses to higher food prices. The IMF thinks that targeted social assistance is the best initial policy, but that other temporary measures such as tax or tariff cuts on food products, are available supporting measures. Other financing instruments of the IMF also are available to help countries overcome food-related balance of payments strains. IMF also is exploring the use of stand-by arrangements which are intended to help all member countries of the IMF address short-term balance of payments problems. Long-Term Considerations: Giving Priority to Agricultural Development In addition to near-term measures to meet food needs in low-income countries, aid agencies are focusing on medium- and long-term efforts to enhance food security and agricultural productivity. Many suggest that changes in the world market for food and fuel are long-term and structural, and, consequently, that more attention should be given to efforts to reduce poverty, increase food production, and enhance food security, especially in the poor developing countries. There have been calls especially for increasing the priority and allocation of resources to agricultural development in Sub-Saharan Africa. Official development assistance for agriculture, however, has been declining since the 1980's. World Bank data show, for example, that in 1980, the Bank provided 30% of its annual lending to agricultural projects, but by 2007, that had declined to 12%. Data from the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) show that the share of agricultural development assistance in total Official Development Assistance (ODA) has declined substantially from the 1980s, when it was 13% of total ODA. By 2006, the overall percentage of ODA from all donors bilateral and multilateral going to agriculture was 4%. U.S. aid for agriculture also has declined in relative terms since the early 1980s. In 1983-84, U.S. assistance for agriculture represented 11.4% of total development assistance from DAC member countries, while by 2006, the percentage of bilateral development assistance accounted for by U.S. agricultural development assistance had fallen to 2.3% of the total provided. In terms of U.S. assistance for agriculture in comparison with total U.S. assistance, aid for agriculture declined from 20% in 1980 to 3% in 2006. Other OECD data show that although the total amount of aid for agriculture has decreased, there has been a relative increase in the proportion of agricultural development assistance going to Africa in recent years, but this has been an increasing share of a decreasing total. However, the Partnership to Cut Hunger and Poverty in Africa, an organization that advocates for increased support for African agricultural development, found that U.S. assistance to African agriculture had increased in real terms between 2000 and 2004. The World Bank and USAID are two aid agencies that are promoting agricultural development and growth in low-income countries. Both indicate that African agricultural development should be a priority. But competing aid priorities, congressional earmarks, and institutional factors could make it difficult to re-order U.S. development assistance priorities. U.S. Assistance to Agriculture: Focus on Africa The U.S. Agency for International Development (USAID) provided almost $600 million of development assistance to Africa in FY2006. Of that amount, $353.8 million was allocated to a wide range of agricultural activities, such as research and development of new agricultural technologies (including biotechnology), assistance with managing natural resources, including water resources, and support for agro-forestry development. A report, prepared by the Partnership to Cut Hunger and Poverty in Africa, chaired by Peter McPherson, examined U.S. agricultural development assistance to Africa during the period 2000-2004. It identified two main factors that affect USAID's allocation of resources to agricultural development. These are competing priorities and congressional earmarks that influence funding for agricultural development assistance, and institutional factors that affect the scale and potential effectiveness of development resources. Competing Priorities and Congressional Earmarks Priorities established by USAID officials, such as giving higher priority to assisting development of African agriculture, are difficult to translate into budgetary allocations because decisions are shaped by so many other executive branch institutions and by Congress, according to the Partnership. USAID funds devoted to agricultural development compete with allocations to other important priorities for U.S. foreign assistance, notably health (including HIV/AIDS), education, and humanitarian assistance (mainly P.L. 480 food aid). Funding for health-related assistance in Africa has grown dramatically through USAID and special presidential initiatives to fight HIV/AIDS, TB, and malaria. Congressional earmarks, the Partnership says, limit the flexibility of agricultural development assistance at the country level. The Partnership estimates that 90% of USAID's development assistance devoted to agriculture is pre-allocated to specific areas, such as trade capacity building, micro enterprise development, biodiversity, and plant biotechnology. Congressional earmarks, in the view of the authors of that study, limit the flexibility of development assistance programs to respond to the most important needs at the field level and thus reduce the effectiveness of assistance. Institutional Factors The Partnership found that spending on agriculture-related objectives in Africa from 2000 to 2004 was spread across 24 countries and four regional programs, resulting in average annual funding of about $6 million per year per country. These funds were further dispersed among multiple contractors and grantees. This approach, the Partnership concludes, raises questions over whether agricultural projects are large enough to have a lasting effect and whether their combined effects collectively generate a sustainable development impact. The Partnership asserts that USAID agriculture program managers must compete for development resources with other sectors on the basis of quantifiable and near-term results reported through USAID's internal management system. This process, the Partnership suggests, may put projects that have longer-term impacts such as investment in infrastructure or in human capacity at a disadvantage vis-à-vis projects that have a shorter term impact. The Partnership questioned the effectiveness of coordination of agricultural development assistance within USAID, among other U.S. agencies that provide agriculture-related assistance, and with other bilateral donor countries and international institutions. It highlighted the absence of a mechanism for USAID to closely coordinate agricultural development strategy, resource allocation, and field program activities with these other U.S. agencies (especially the U.S. Department of Agriculture), other donors, and multilateral development institutions. Improved coordination, according to the Partnership, would help to decrease costs and increase the effectiveness of assistance by integrating priority setting and resource allocation and by boosting the scale of such efforts. A final institutional consideration raised by the Partnership is that costs of U.S. development assistance are higher because of the costs incurred by tying aid to procurement from U.S. sources (including the requirement that US. food aid must be procured in the United States and shipped on U.S.-flagged vessels), and by the requirement to use predominately U.S. contractors to implement development projects. Other U.S. Assistance Initiatives Two other U.S. assistance initiatives provide resources for agricultural development assistance. One is the Initiative to End Hunger in Africa (IEHA) and the other is the Millennium Challenge Corporation (MCC). President's Initiative to End Hunger in Africa (IEHA) The IEHA, launched in 2002, is a multi-year effort to increase agricultural productivity and rural incomes. USAID specifically links the IEHA with the U.N. Millennium Development Goal (MDG1) of cutting the number of hungry people in Africa and the world in half by 2015. IEHA focuses funding on investments with the greatest potential for raising smallholder producers' productivity and incomes. In FY2006, USAID estimates IEHA funding at $47 million. The Initiative has projects in Ghana, Kenya, Mali, Mozambique, Uganda, and Zambia, and regional activities in East, West, and Southern Africa. In Ghana, for example, USAID reports that IEHA activities focus primarily on improving the productivity of the agricultural sector. In FY2006, USAID allocated $14.2 million to agricultural development assistance in Ghana, which is about 20% of all U.S. foreign Assistance to Ghana that year. In Mali, another IEHA focus country, the Initiative emphasizes removing obstacles to agribusiness development and actively promoting agribusiness. About a quarter of total U.S. foreign assistance to Mali ($10.4 million) was allocated to agricultural development in FY2006. No new countries have been added to the IEHA since 2006. Millennium Challenge Account The Millennium Challenge Account (MCA), administered by the Millennium Challenge Corporation (MCC), was established in January 2004 as a new vehicle for providing U.S. foreign assistance. Establishment of the MCA was announced at the March 2002 International Conference on Financing for Development in Monterrey, Mexico. The MCA aims to help fulfill the U.S. commitment to the U.N. Millennium Development Goals aimed primarily at reducing poverty and, eliminating hunger, and fostering sustainable development. The president pledged to allot $5 billion annually by FY2006 to the MCC. Countries that have created the necessary enabling environment for economic growth through market-oriented, pro-growth policies, good governance and investment of their own resources in health and education can qualify for assistance under the MCC. The Partnership says that the MCC has potential importance for agricultural development in Africa for two reasons: The MCC represents a large, and potentially larger, pool of resources for development assistance. Congress appropriated almost $1 billion in FY2004, $1.5 billion in FY2005, and $1.752 billion in each of FY2006 and FY2007. These funds are available until expended. Spreading such a large volume of funds over a relatively few countries could dwarf the small programs of development assistance that USAID generally operates in its recipient countries. Half of the 20 low income countries that were deemed eligible for MCC grants in 2007 are in Africa. Compacts under the MCC have been entered into with 8 African countries: Madagascar, Cape Verde, Benin, Ghana, Mali, Mozambique, Lesotho, and Tanzania. Agriculture is a key sector for MCC funding. The MCC looks to the eligible developing country to develop its own MCA proposal, but informs countries that increasing economic growth and reducing poverty requires them to emphasize investments that raise the productive potential of a county's citizens and firms and help integrate its economy into the global product and capital markets. One of six key areas of focus for MCAs is agricultural development. Other key areas are education, enterprise and private sector development, governance, health, and trade capacity building. The MCC website reports that almost all of the MCA country proposals submitted include an agriculture component. Development Food Aid Although as noted above, most U.S. food aid to Africa goes to address emergency food needs, a smaller portion of such aid is used in development projects, many of which aim to enhance food security. In FY2007, of $1.2 billion of U.S. commodity food aid provided to Africa, just over $1 billion was provided as emergency food aid, while $167 million was allocated to development projects, many of which focus on agriculture. Non-emergency food aid financed projects are the largest amount of funding devoted to promoting food security in the USAID portfolio of projects in Africa. Observers have noted problems of scale of activity funded with food aid and also lack of coordination with other development assistance. However, USAID's food security strategy emphasizes that it will reduce the number of countries in which it carries out food aid development projects and that it will integrate P.L. 480 development projects into a country's overall agricultural development assistance program. World Bank To address problems of food security in poor countries resulting from high food prices, the President of the World Bank, Robert Zoellick, recently called for a "New Deal for Global Food Policy." In his view, not only would such a New Deal require a higher priority to food security especially in poor countries, but also attention to the interrelated challenges of energy, yields, and climate change. Zoellick said that immediate food needs such as those identified by the WFP should be met, but attention also should be paid to meeting the Millennium Development Goal (MDG) which calls for reducing by half global hunger and malnutrition by 2015. Zoellick called for "a shift from traditional food aid to a broader concept of food and nutrition assistance...." Cash or vouchers, he suggested, as opposed to commodity support, would be appropriate and enable the assistance to build local food markets and farm production. If commodities were needed, he said, they should be purchased from local farmers. The World Bank could support emergency measures to help the poor meet their food needs while encouraging incentives to produce and market food as part of sustainable development. The World Bank identified four key elements for a comprehensive medium- to long-term approach to fostering growth in developing country agriculture in its 2008 World Development Report. They include (1) improving producer incentives (including the removal of subsidies which benefit richer farmers more); (2) providing quality core public goods, e.g., science (research), infrastructure and human capital; (3) strengthening institutions to provide more access to rural finance and risk management, improve property rights, and ensure greater opportunities for collective action by farmers; and (4) ensuring sustainable use of natural resources. According to World Bank President Zoellick, Africa should be a particular priority. Echoing Ms. Sheeran's call for a Green Revolution to boost productivity in Africa, he announced that the World Bank will double its lending to agriculture in Africa from $400 million currently to $800 million by 2010.

Rising food prices are having impacts across the world, but especially among poor people in low-income developing countries. Since 2000, a year of low food prices, wheat prices in international markets have more than tripled, corn prices have doubled, and rice prices rose to unprecedented levels in March 2008. Such increases in food prices have raised concerns about the ability of poor people to meet their food and nutrition needs and in a number of countries have lead to civil unrest. More than 33 countries, most of which are in Sub-Saharan Africa are particularly affected by food prices increases. The World Bank has estimated that more than 100 million people are being pushed into poverty as a result of food-price escalation. A number of interrelated factors have been identified as causes of the rising food prices. Droughts in Australia and Eastern Europe and poor weather in Canada, Western Europe and Ukraine in 2007 have reduced available supplies. Reduced stocks have prompted many countries to restrict exports. Rising oil and energy prices have affected all levels of the food production and marketing chain from fertilizer costs to harvesting, transporting and processing food. Higher incomes in emerging markets like China and India have resulted in strong demand for food commodities, meat and processed foods and higher prices in world markets. Increased demand for biofuels has reduced the availability of agricultural products for food or feed use. Export restrictions in many countries have exacerbated the short supply situation. One immediate consequence of the rise in global food prices is the emergence of a shortfall in funding for international food aid. The World Food Program has launched an urgent appeal for $755 million to address a funding gap brought on by high food and fuel prices. WFP indicates that without additional funding it would have to curtail feeding programs that meet the needs of more than 70 million people in 80 countries. The United States has responded to the WFP appeal for food aid and its own food aid funding shortfall by announcing a release of $200 million from the Bill Emerson Humanitarian Trust (BEHT), a reserve of commodities and cash that can be used to meet unanticipated emergency food aid needs. Congress is considering an FY2008 emergency supplemental appropriation for emergency food aid requested by the Administration. The President announced on May 1, 2009 a request for Congress to appropriate an additional $770 million in FY2009 to deal with the international food situation. In addition to near-term measures to meet food needs in low-income countries, aid agencies are focusing on medium- and long-term efforts to enhance food security and agricultural productivity. There have been calls for increasing the priority and allocation of resources to agricultural development in poor countries, particularly in Sub-Saharan Africa. The World Bank and USAID are two aid agencies that are promoting agricultural development and growth in low-income countries. Both indicate that African agricultural development should be a priority.

Introduction While the power to prescribe rules as to which aliens may enter the United States and which aliens may be removed resides solely with the federal government, the impact of alien migration—whether lawful or unlawful—is arguably felt most directly in the communities where aliens settle. State and local responses to unlawfully present aliens within their jurisdictions have varied considerably, particularly as to the role that state and local police should play in enforcing federal immigration law. At one end of the spectrum, some states and localities have actively sought to deter unlawfully present aliens from settling within their jurisdictions, including by assisting federal immigration authorities in identifying and apprehending such aliens for purposes of removal. In some cases, this has involved state and local participation in federally coordinated immigration enforcement programs. In recent years, some states and localities have attempted to play an even greater role in the area of immigration enforcement, in many cases due to perceptions that federal efforts have been inadequate. Some have adopted measures that criminally sanction conduct believed to facilitate the presence of unlawfully present aliens, and have also instructed police to actively work to detect such aliens as part of their regular duties. The adoption of such measures has waned considerably, however, in the aftermath of the 2012 Supreme Court ruling in Arizona v. United States , where the Court held that many of the provisions of one such enactment, Arizona's S.B. 1070, were facially preempted by federal immigration law. At the other end of the spectrum, some states and localities have been unwilling to assist the federal government's enforcement of measures that distinguish between those residents with legal immigration status and those who lack authorization under federal law to be present in the United States. In some instances, these jurisdictions have adopted measures that seek to thwart federal efforts to identify and apprehend unlawfully present aliens within the state or locality's jurisdiction. While state and local restrictions on cooperation in federal immigration enforcement efforts have existed for decades, there has been an upswing in the adoption of these measures in recent years. Moreover, the nature of these restrictions has evolved over time, particularly in response to recent federal immigration enforcement initiatives like Secure Communities (subsequently replaced by the Priority Enforcement Program (PEP), as discussed below), which enable federal authorities to more easily identify potentially removable aliens in state or local custody. This report discusses legal issues related to state and local measures limiting law enforcement cooperation with federal immigration authorities. It begins by providing a brief overview of constitutional principles informing the relationship between federal immigration authorities and state and local jurisdictions. The report then discusses various types of measures adopted or considered by states and localities to limit their participation with federal immigration enforcement efforts, including (1) limiting police investigations into the immigration status of persons with whom they come in contact; (2) declining to honor federal immigration authorities' requests that certain aliens be held until those authorities may assume custody; (3) shielding certain unlawfully present aliens from detection by federal immigration authorities; and (4) amending or applying state criminal laws so as to reduce or eliminate the immigration consequences that might result from an alien's criminal conviction. Legal Background Pursuant to its "broad, undoubted power over the subject of immigration and the status of aliens," the federal government has established an "extensive and complex" set of rules governing the admission and removal of aliens, along with conditions for aliens' continued presence within the United States. These rules are primarily contained in the Immigration and Nationality Act of 1952, as amended (INA). The INA supplements these rules through an enforcement regime that contains criminal and civil provisions, which sometimes sanction similar conduct. The courts have consistently recognized that the removal of aliens from the United States for violating the terms of their admission or continued presence in the country is a civil action, rather than a criminal sanction, because the main purpose is not to punish wrongdoing but to end a continuing violation of the nation's immigration laws. While the federal government's authority over immigration is well established, the Supreme Court has recognized that not "every state enactment which in any way deals with aliens is a regulation of immigration and thus per se preempted" by the federal government's exclusive power over immigration. The Tenth Amendment provides that powers "not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people." Among the powers reserved to the states are traditional "police powers" concerning the promotion and regulation of safety, health, welfare, and economic activity within the state's jurisdiction. Pursuant to the exercise of these powers, states and municipalities have frequently enacted measures which, directly or indirectly, address aliens residing in their communities. The exercise of state police powers may be circumscribed by lawful assertions of federal authority. The Supremacy Clause of the Constitution establishes that federal law, treaties, and the Constitution itself are "the supreme Law of the Land." Accordingly, states and localities may be precluded from taking actions that are "preempted" by federal law, even if such actions are otherwise valid exercises of their police powers. An act of Congress may preempt state or local action in one of three ways: (1) the statute expressly indicates its preemptive intent (express preemption); (2) Congress intended to wholly occupy the regulatory field, thereby implicitly precluding supplemental action by a state or local government in that area (field preemption); or (3) state or local action conflicts with or otherwise frustrates the purpose of the federal scheme (conflict preemption). Congressional intent is paramount in the analysis as to whether federal law preempts state or local activity. However, courts' preemption analysis generally begins with the "assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Acting pursuant to its authority over immigration, the federal government has expressly or impliedly preempted a range of state and local activities that potentially undermine or conflict with federal immigration enforcement policies. Of particular relevance to this report, pursuant to §434 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA, P.L. 104-193 ) and §642 of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA, P.L. 104-208 , Div. C), Congress has preempted state or municipal measures that bar the exchange of information relating to persons' immigration status with federal, state, or local authorities. While the federal government's power to preempt activity in the area of immigration is extensive, there are constitutional limits to its power to influence state and local activity. Notably, it may not directly "commandeer" state or local governments into the service of federal immigration authorities. The anti-commandeering doctrine was most prominently defined by the Supreme Court in the cases of New York v. United States and Printz v. United States . The decisions were premised on the view that under the federalist system, the states are understood to be sovereign entities distinct from the federal government, and Congress cannot muddy this distinction by commandeering the state political branches to perform functions on the federal government's behalf. In New York , the Supreme Court ruled that the Tenth Amendment barred the federal government from directly compelling state legislatures to "enact and enforce a federal regulatory program" related to the disposal of low-level radioactive waste. In Printz, the Court considered a Tenth Amendment challenge to an interim requirement under federal law that directed state and local police to conduct background checks on prospective handgun purchases. The Court ruled that the constitutional prohibition on the federal government commandeering states to administer a federal regulatory program was "categorical" in nature and, in addition to barring the commandeering of a state's legislature, also prevented Congress from "conscripting the State's officers directly." However, not every requirement imposed by the federal government upon sub-federal government entities and officials necessarily violates the anti-commandeering principles identified in Printz and New York . A number of federal statutes provide that certain information collected by state entities must be reported to federal agencies. The Court in Printz expressly declined to consider whether these requirements were constitutionally impermissible. Moreover, the Court distinguished reporting requirements from the case before it, which involved "the forced participation of the States ... in the actual administration of a federal program." Federal measures that impose direct requirements on state or municipal authorities appear most likely to withstand an anti-commandeering challenge if they (1) are not directed at a state's regulation of the activities of private parties; and (2) apply to the activities of private parties as well as government actors. In Reno v. Condon , the Supreme Court unanimously rejected a Tenth Amendment challenge to the Driver's Privacy Protection Act (DPPA), which restricted states from disclosing or sharing a driver's personal information without the driver's consent, and also required the disclosure of some collected information. The Court distinguished the DPPA from the federal enactments struck down in New York and Printz , because the DPPA sought to regulate states "as owners of databases" and did not "require the States in their sovereign capacity to regulate their own citizens ... [or] enact any laws or regulations ... [or] require state officials to assist in the enforcement of federal statutes regulating private individuals." The Court also viewed it as significant that the DPPA's requirements relating to information-sharing covered private entities as well as state governments, though it declined to definitively rule upon whether or not the federal government may directly regulate state conduct only through laws of general applicability. While the federal government may be constitutionally barred from conscripting state authorities into assisting in the administration of a federal program, other means may be available to influence states to adopt favored policies. For example, when Congress acts in an area in which it may preempt state activity in its entirety, it might impose "preconditions to continued state regulation" in the otherwise preempted field. Congress may also permissibly condition the receipt of federal funds on state compliance with federal policy preferences. Conditioning the receipt of federal funding is generally permissible so long as the conditions "bear some relationship to the purpose of the federal spending," and the conditioned funds are not so substantial that the inducement to comply with federal preferences is "so coercive as to pass the point at which 'pressure turns into compulsion.'" Select State and Local Limitations on Immigration Enforcement Activity Several states and municipalities have considered or adopted measures intended to limit their participation in federal immigration enforcement efforts. These limitations take several forms. Some states and localities have sought to restrict police cooperation with federal immigration authorities' efforts to apprehend removable aliens. Other measures have gone further, and attempted to shield certain aliens from detection by federal authorities. Still other measures have sought to ensure that state convictions for certain criminal offenses do not carry immigration consequences for a convicted alien. The following sections discuss some of the notable state and local restrictions upon law enforcement activity in the field of immigration enforcement, including the relationship between these restrictions and current federal law. Traditional "Sanctuary" Policies A number of states and municipalities have adopted formal or informal policies which prohibit or substantially restrict police cooperation with federal immigration enforcement efforts. Entities that have adopted such policies are sometimes referred to as "sanctuary" jurisdictions, though there is not necessarily a consensus as to the meaning of this term. In some instances, jurisdictions have self-identified as "sanctuary" sites. In other cases, there might be disagreement regarding the accuracy of such a designation, particularly if state or local law enforcement cooperates with federal immigration authorities in some areas but not others. Any reference by this report to a policy of a particular jurisdiction is intended only to provide an illustrative example of the type of measure occasionally referenced in discussions of "sanctuary" policies. These references should not be taken to indicate CRS is of the view that a particular jurisdiction is a "sanctuary" for unlawfully present aliens. While state or local measures limiting police participation in immigration enforcement existed beforehand, many of the recent "sanctuary"-type initiatives trace their lineage back to actions by U.S. churches that provided refuge to unauthorized Central American aliens fleeing civil unrest in the 1980s. A number of states and municipalities issued declarations in support of these churches' actions. Others went further and enacted more substantive measures intended to limit police involvement in federal immigration enforcement activities. These have included, among other things, restricting state and local police from arresting persons for immigration violations; limiting the sharing of immigration-related information with federal authorities, and barring police from questioning a person about his or her immigration status. Limiting Arrests for Federal Immigration Violations As previously noted, violations of federal immigration law may be criminal or civil in nature, with alien removal understood to be a civil proceeding. Some immigration-related conduct potentially constitutes a removable offense and may also be subject to criminal sanction. For example, an alien who knowingly enters the United States without authorization is not only potentially subject to removal, but could also be charged with a criminal offense relating to unlawful entry. On the other hand, some violations of the INA are exclusively criminal or civil in nature. Most notably, an alien's unauthorized immigration status makes him or her removable, but absent additional factors (e.g., having reentered the United States after being formally removed), unlawful presence does not constitute a criminal offense. Some jurisdictions have adopted formal or informal measures that restrict or bar police officers from making arrests for violations of federal immigration law. In some cases, these restrictions prohibit police from making arrests for "civil" violations of federal immigration law, such as unlawful presence. In other instances, these restrictions are crafted more broadly and may also restrict arrests for some criminal violations of federal immigration law. State or local restrictions on police authority to arrest persons for federal immigration law violations do not appear to raise significant legal issues. While the INA expressly allows state and local law enforcement to directly engage in specified immigration enforcement activities within the parameters established by the applicable INA provision, nothing in the INA directly compels such participation (and indeed, any requirement would raise significant anti-commandeering issues under the Tenth Amendment). Moreover, following the Supreme Court's decision in Arizona v. United States , it appears that states and localities are generally preempted from making arrests for civil violations of the INA in the absence of either specific federal statutory authorization or the "request, approval, or instruction from the Federal Government." Limiting Information-Sharing with Federal Immigration Authorities Over the years, some states and localities restricted government agencies or employees from sharing information with federal immigration authorities, primarily to prevent federal authorities from using such information to identify and apprehend unlawfully present aliens for removal. Some of these restrictions have existed for decades, while others are of more recent vintage. In 1996, Congress sought to end these restrictions on information-sharing through provisions contained in the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) and Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA). Neither PRWORA nor IIRIRA require state or local government entities to share immigration-related information with federal authorities. Instead, these provisions bar any restrictions that prevent state or local government entities or officials from voluntarily communicating with federal immigration authorities regarding a person's immigration status. PRWORA §434 bars state and local governments from imposing any prohibition or restriction on a state or local government entity that prevents it from sending or receiving information, to or from federal immigration authorities, regarding the "immigration status" of an individual. IIRIRA §642 is broader and more detailed in scope. It bars any restriction on a federal, state, or local governmental entity or official's ability to send or receive information regarding "immigration or citizenship status" to or from federal immigration authorities. It further provides that no person or agency may prohibit a federal, state, or local government entity from (1) sending information regarding immigration status to, or requesting information from, federal immigration authorities; (2) maintaining information regarding immigration status; or (3) exchanging such information with any other federal, state, or local government entity. Shortly after these measures were enacted, the City of New York, which had in effect a policy that limited the sharing of information with federal immigration authorities, brought suit challenging the constitutionality of PRWORA §434 and IIRIRA §642. Among other things, the city alleged that the provisions facially violate the Tenth Amendment, because they bar states and localities from controlling the degree to which their officials may cooperate with federal immigration authorities. A federal district court dismissed this claim in City of New York v. United States , and a three-judge panel of the U.S. Court of Appeals for the Second Circuit affirmed this ruling in a 1999 decision. The circuit court observed that unlike the statutes struck down in New York and Printz , the information-sharing provisions in PRWORA and IIRIRA did not directly compel state authorities to administer and enforce a federal regulatory program. Instead, these provisions protected "the voluntary exchange" of immigration information between federal and state authorities. According to the circuit court, "informed, extensive, and cooperative interaction of a voluntary nature" between states and the federal authorities is an integral feature of the American system of dual sovereignty, and the information-sharing provisions of PRWORA and IIRIRA were consistent with these principles. The Second Circuit raised the possibility that the federal government might, in some circumstances, impermissibly intrude upon state and local entities' authority to control information in their possession. However, the court found that the City of New York had not provided evidence that this was such an instance, as the affected city policy only limited the sharing of a particular type of information (i.e., a person's immigration status) with a particular federal agency (i.e., the agency responsible for enforcing federal immigration law). According to the circuit court, the Tenth Amendment does not provide states and local entities with the "untrammeled right to forbid all voluntary cooperation by state or local officials with particular federal programs." The court therefore rejected the city's constitutional challenge to the information-sharing provisions of PRWORA and IIRIRA, finding that they did not facially violate the Tenth Amendment. The City of New York sought to appeal the decision to the Supreme Court, but its petition for certiorari was denied. A few months later, however, the Court issued its decision in Reno v. Condon , discussed in more detail earlier in this report, where it found that another federal statute that regulated the dissemination of information collected by state authorities did not violate the Tenth Amendment. While it might be argued that the Condon decision provides support for the constitutional validity of PRWORA §434 and IIRIRA §642, no court appears to have assessed the implications of the Condon decision upon these measures. Since the Second Circuit's ruling, it appears that there have been no judicial rulings that have questioned the validity of the information-sharing provisions in PRWORA and IIRIRA. Although some state and local measures that purport to limit officials from sharing immigration-related information with federal immigration authorities remain in effect, any attempt by the state or locality to enforce these restrictions on information-sharing could be challenged on preemption grounds. Limiting Police Inquiries into Persons' Immigration Status Most traditional "sanctuary" policies place restrictions upon police inquiries or investigations into a person's immigration status. Some policies provide, for example, that police should not question a person about his or her immigration status except as part of a criminal investigation. Other policies might provide more specific restrictions that focus upon law enforcement's questioning of crime victims and witnesses. Still other policies more broadly limit state or local officials from gathering information about persons' immigration status. Although PRWORA §434 and IIRIRA §642 prevent state or local restrictions on sharing information about a person's immigration status with federal immigration authorities, these provisions do not require state or local police to actually collect such information. Restricting the authority of police to question a person about his or her immigration status helps ensure that law enforcement lacks any information that could be shared with federal immigration authorities. It could be argued that, even though state or local restrictions on police questioning of persons regarding their immigration status is not expressly preempted by federal statute, these measures are nonetheless impliedly preempted by the information-sharing provisions of IIRIRA and PRWORA. However, this argument was rejected by a California state appellate court in the context of a legal challenge to the Los Angeles Police Department's restrictions on investigations into persons' immigration status. The federal courts have not directly considered this issue. In Arizona v. United States , the Supreme Court found that a provision of an Arizona statute, which required police to contact federal authorities to verify the immigration status of certain stopped individuals, was not facially preempted. In reaching this conclusion, the Court did not suggest that federal law might preempt states or localities from restricting the circumstances in which police might question individuals about their immigration status. Indeed, given that the Arizona Court held that state and local police were largely preempted from making arrests for immigration status violations, it seems unlikely that a federal court would find that state or local measures that limited police questioning of persons about their immigration status would be viewed as preempted by the INA. Declining to Honor Immigration Detainers An immigration detainer is a document by which U.S. Immigration and Customs Enforcement (ICE) advises other law enforcement agencies of its interest in individual aliens whom those agencies are currently holding in relation to criminal violations. ICE and its predecessor, the Immigration and Naturalization Service (INS), have used detainers as one means of obtaining custody of aliens for purposes of removal proceedings since at least 1950. However, ICE's implementation of the Secure Communities program in the period between 2008 and 2014 raised numerous questions about detainer s. This program relied upon information sharing between various levels and agencies of government to identify potentially removable aliens. Detainers were then issued for some of these aliens. DHS emphasized that it prioritized "criminal aliens," those who posed a threat to public safety, and repeat immigration violators for removal through Secure Communities, and the former Director of ICE further instructed that, among "criminal aliens," the focus was to be upon those convicted of "aggravated felonies," as defined in the INA; those convicted of other felonies; and those convicted of three or more misdemeanors. However, there were reports of detainers issued for persons who were not convicted of any offense, or whose sole offense was a misdemeanor. As a result of these and related reports, several jurisdictions adopted policies of declining immigration detainer requests for at least some aliens. In many cases, these jurisdictions will honor immigration detainers for aliens who are being held for felony crimes or who are otherwise believed to pose a threat to the community, but will decline to honor immigration detainers issued for other aliens (e.g., those who have committed non-violent misdemeanor offenses). In other cases, however, the measure appears to sweep more broadly, for example, barring officials from honoring immigration detainers absent a "written agreement with the federal government by which all costs incurred by [the jurisdiction] in complying with the ICE detainer shall be reimbursed." The detainer policy may also restrict other aspects of the jurisdiction's response to federal efforts to identify and/or obtain custody of aliens for purposes of removal. Although criticized by some for impeding federal immigration enforcement efforts, state or local policies of declining to honor at least some immigration detainers would appear to be permissible under federal law. Nothing in the INA purports to require that states and localities honor immigration detainers. The detainer regulations do use language that some have opined means that holds pursuant to detainers, at least, are required, stating that "[u]pon a determination by [ICE] to issue a detainer for an alien not otherwise detained by a criminal justice agency, such agency shall maintain custody of the alien for a period [generally] not to exceed 48 hours." However, the caption of the section containing this language refers to "temporary detention at [ICE] request," and the Executive has taken the position that the regulation requires that any period of time that a state or locality holds an alien pursuant to a detainer generally be limited to 48 hours, and not as requiring states or localities to hold aliens pursuant to detainers. Several federal courts have similarly characterized detainers as requests or otherwise agreed with the Executive's interpretation here, in part, because any purported requirement that states or localities hold aliens for ICE could be seen to run afoul of the anti-commandeering principles of the Tenth Amendment. For example, in its 2014 decision in Galarza v. Szalczyk , a majority of a three-judge panel of the U.S. Court of Appeals for the Third Circuit noted if states and localities were required to detain aliens for ICE, they would have to "expend funds and resources to effectuate a federal regulatory scheme," something found to be impermissible in prior Supreme Court decisions regarding commandeering. The Galarza majority also found that such a requirement would be "exactly the type of command that has historically disrupted our system of federalism" by obscuring which level of government is accountable for particular policies. Note, however, that DHS's recent discontinuation of the Secure Communities program and its establishment of a new Priority Enforcement Program (PEP) could allay certain of the concerns that prompted some jurisdictions to adopt policies of declining immigration detainers. PEP is like Secure Communities in that it "will continue to rely on fingerprint-based biometric data submitted during bookings by state and local law enforcement agencies to the Federal Bureau of Investigation for criminal background checks." However, with PEP, detainers are to be issued only for aliens who have been convicted of (rather than just arrested for ) certain offenses that are among ICE's priorities for civil immigration enforcement. Further, with PEP, detainers are generally to be used only to request that state and local law enforcement officials notify ICE prior to the alien's release or transfer to another institution, not to request that state and local officials detain aliens beyond the point when they otherwise would be released for the state or local offense so that ICE may assume custody. Any detainers issued to request detention (as opposed to notification) would generally have to specify that (1) the alien is subject to a final order of removal, or (2) "there is other sufficient probable cause to find that the person is a removable alien." Shielding Unlawfully Present Juveniles from Federal Detection One way in which the INA regulates immigration is by establishing the conditions under which aliens may enter and remain in the United States. Along with these conditions, it imposes sanctions to deter unlawful entry or presence in the United States. In particular, INA §274 imposes criminal penalties upon those who would transport unlawfully present aliens to or within the United States, or shield such aliens from detection by federal immigration authorities. Some activities by state or local governments or private parties have the potential to run afoul of these "anti-transportation" and "anti-harboring" provisions because the traditional conception of sanctuary entails providing material assistance—most notably, a place of refuge—to those in need. Indeed, several individual participants in the sanctuary movement in the 1980s were convicted of violating §274 because of their efforts to move unlawfully present aliens within the United States and ensure they were not detected by federal immigration officials. At least as a general rule, state or local measures that restrict involvement with federal immigration enforcement efforts typically would not appear to implicate the anti-harboring provisions of federal immigration law. However, a state or local policy under which government officials affirmatively took steps to prevent the federal government from removing a particular alien might raise more serious concerns, particularly if the officials within the jurisdiction know (or have reason to know) that specific individuals are unlawfully present and play a "key role" in furthering the aliens' unlawful presence (in the case of transportation), or "substantially facilitate" their continued presence in the United States (in the case of harboring). Such policies or practices would appear to be most likely to develop vis-à-vis specific segments of the unlawfully present alien population which are seen as particularly vulnerable to mistreatment, such as juveniles. For example, beginning in 2008, San Francisco's practice of flying unlawfully present aliens in the juvenile justice system who do not have a parent or guardian in the United States back to their home countries, or placing them in group homes in southern California, was subject to a federal grand jury investigation of potential violations of §274. Whether such policies did indeed run afoul of the anti-harboring provisions in the INA was not definitively determined, as San Francisco reportedly abandoned its policy and federal criminal charges were not pursued. Modifying Criminal Sentences to Avoid Immigration Consequences An alien's conviction for a crime under state law may also carry consequences for the alien under federal immigration law. A criminal conviction may, depending on the circumstances, subject the alien to removal under the INA, disqualify the alien from obtaining relief from removal (e.g., asylum) or an immigration benefit, and potentially result in the alien being barred from re-entering the United States once removed. Because states are responsible for the vast majority of criminal prosecutions in the United States, they have a substantial influence on the size and make-up of the alien population who are removable on criminal grounds. Some state authorities have sought to reduce or eliminate the immigration consequences of certain criminal convictions. In many instances, whether an alien's criminal activity makes him removable under the INA depends both upon the nature of the criminal offense for which the alien was convicted and the sentence that was imposed. A few states have lowered the maximum available sentence for certain offenses to 364 days' imprisonment, so that aliens will not be subject to removal under those grounds of the INA requiring the alien to have been sentenced to at least a year's imprisonment. State courts may consider the immigration consequences of a criminal conviction or sentence during the course of criminal proceedings against a foreign national. In some situations, state courts (possibly with the recommendation of the state prosecutor) might resolve a criminal case in a manner that avoids triggering immigration consequences for the criminal defendant. For example, the court might authorize the parties to enter an agreement that resolves the case in a manner that does not constitute a "conviction" for INA purposes. If an alien is convicted of a crime that constitutes a removable offense under the INA only when the alien is sentenced to a specified length of imprisonment, the court might opt to sentence the alien to a lesser term that does not result in removability. A court might also choose to modify an already-imposed sentence so that it no longer has immigration consequences. Federal legislative proposals have occasionally been considered that would negate the effects of some of these actions by state courts, but none of these bills have been enacted.

While the power to prescribe rules as to which aliens may enter the United States and which aliens may be removed resides solely with the federal government, the impact of alien migration—whether lawful or unlawful—is arguably felt most directly in the communities where aliens settle. State and local responses to unlawfully present aliens within their jurisdictions have varied considerably, particularly as to the role that state and local police should play in enforcing federal immigration law. Some states, cities, and other municipalities have sought to play an active role in immigration enforcement efforts. However, others have been unwilling to assist the federal government in enforcing measures that distinguish between residents with legal immigration status and those who lack authorization under federal law to be present in the United States. In some circumstances, these jurisdictions have actively opposed federal immigration authorities' efforts to identity and remove certain unlawfully present aliens within their jurisdictions. Although state and local restrictions on cooperation with federal immigration enforcement efforts have existed for decades, there has reportedly been an upswing in the adoption of these measures in recent years. Moreover, the nature of these restrictions has evolved over time, particularly in response to recent federal immigration enforcement initiatives like Secure Communities (subsequently replaced by the Priority Enforcement Program), which enable federal authorities to more easily identify removable aliens in state or local custody. Entities that have adopted such policies are sometimes referred to as "sanctuary" jurisdictions, though there is not necessarily a consensus as to the meaning of this term or its application to a particular state or locality. Recent reports that an alien who shot and killed a woman, after being released by San Francisco authorities who had declined to honor an immigration detainer issued by federal authorities, have brought increased attention to state and local practices of declining to honor such detainers, as well as "sanctuary" policies more generally. This report discusses legal issues related to state and local measures that limit law enforcement cooperation with federal immigration authorities. The report begins by providing a brief overview of the constitutional principles informing the relationship between federal immigration authorities and state and local jurisdictions, including the federal government's power to preempt state and local activities under the Supremacy Clause, and the Tenth Amendment's proscription against Congress directly "commandeering" the states to administer a federally enacted regulatory scheme. The report then discusses various types of measures adopted or considered by states and localities to limit their participation in federal immigration enforcement efforts, including (1) limiting police investigations into the immigration status of persons with whom they come in contact; (2) declining to honor federal immigration authorities' requests that certain aliens be held until those authorities may assume custody; (3) shielding certain unlawfully present aliens from detection by federal immigration authorities; and (4) amending or applying state criminal laws so as to reduce or eliminate the immigration consequences that might result from an alien's criminal conviction. For discussion of legal issues raised by states and localities seeking to play an active role in enforcing federal immigration law, see CRS Report R41423, Authority of State and Local Police to Enforce Federal Immigration Law, by [author name scrubbed] and [author name scrubbed].

Introduction Threats of impending disasters—such as hurricanes, floods, volcanic eruptions, the movement of airborne hazardous material, or unstable conditions at nuclear power plants—may provide officials an opportunity to save lives by encouraging or mandating civilian evacuation. Evacuation has three basic components. First is the departure of people from a stricken or threatened area. Second are the temporary resettlement of evacuees, and the provision of shelter and resources to them. Third is the final return of evacuees to either their predisaster residences or alternative locations. Moving a population out of harm's way through evacuation can save lives and substantially reduce exposure to hazards. Evacuations, however, can create complex challenges for officials and emergency managers. For instance, officials need to time the evacuation accurately to ensure the impending disaster does not occur while people are evacuating. Evacuations can also be hazardous. According to some reports, more people died during the Hurricane Rita evacuation than from the actual hurricane. Officials also need to take into account individuals who lack adequate transportation or have special needs because these individuals generally require more time to prepare to evacuate and travel out of the area. In such cases, it may be safer to have the special-needs population remain in the area and "shelter in place." Over the years, congressional concern regarding the equity, timing, and execution of evacuations has increased. Much of this concern is attributable to the New Orleans evacuation during the 2005 hurricane season, which has spurred numerous changes in federal evacuation policy. Examples of Federal Evacuation Policy In general, federal policy defers to the states to enact laws pertinent to evacuation. Using authority from state laws and local ordinances, state and local officials may suggest or require the evacuation of residents from homes and communities before certain catastrophes occur. Rather than taking the lead in evacuations, the federal government facilitates the evacuation process through federal statutes that authorize agency heads to use federal resources to assist in the evacuation of civilians. Brief descriptions of four federal authorities follow. Stafford Act: Pre-Hurricane Katrina The Robert T. Stafford Disaster and Relief Emergency Assistance Act (hereafter the Stafford Act) authorizes the President to direct the Secretary of Defense to use resources to perform necessary emergency work to preserve life and property. This may take place even before the President issues a major disaster or emergency declaration. The President may also issue the declaration before the incident to lessen or avert the threat of a catastrophe by providing assistance for "precautionary evacuations." Stafford Act: Post-Hurricane Katrina As mentioned previously, the final component of an evacuation is the return of evacuees to their predisaster residences or, if needed, to alternative locations. As amended by the Post Katrina Emergency Management Reform Act of 2006 (hereafter the Post Katrina Act), Section 425 of the Stafford Act states that the President may provide transportation assistance to "relocate individuals displaced from their predisaster primary residences as a result of an incident ... or otherwise transported from their predisaster primary residences ... to and from alternative locations for short or long-term accommodation or to return an individual or household to their predisaster primary residence or alternative location, as determined by the President." Under this authority the role of the federal government has been expanded not only to assist in the removal of citizens, but also to return disaster victims, or to relocate them. Limited information exists on the implementation of this relatively new authority for the return of evacuees to their predisaster residences. The issue of returning evacuees to their residences will be addressed later in the report. National Response Framework Another way in which the federal government facilitates evacuations is through assigning roles and responsibilities to various federal agencies, states and localities, and nonprofit organizations. The National Response Framework (NRF), administered by the Federal Emergency Management Agency (FEMA) and the Department of Homeland Security (DHS), establishes the roles and responsibilities of federal and certain non-federal entities when incidents overwhelm state or local governments. For example, the NRF identifies state, local, and tribal governments as having the responsibility of "ordering the evacuation of persons from any portions of the state threatened by the incident, giving consideration to the requirements of special-needs populations and those with household pets or service animals." The NRF includes "Incident Annexes," which are documents that address specific hazard situations. One of the annexes, the Mass Evacuation Incident Annex, assigns DHS and FEMA the responsibility for coordinating mass evacuations. With the support of other federal agencies and nonprofit organizations, the Annex also provides overall guidance for integrating the efforts of federal, state, local, and tribal governments during the evacuation of large numbers of people. According to the Annex : Federal support to mass evacuation operations will be provided at the state/tribal level and scaled to the incident.... Regardless of the scale of the incident, coordination among numerous command entities will be required to carry out the major functions of evacuation operations. National Hurricane Program Established in 1985, FEMA's National Hurricane Program (NHP) helps protect communities from hurricane hazards through various projects and activities. The NHP also provides assistance to state and local agencies in developing hurricane evacuation plans. One of the ways this is achieved is through NHP's Hurricane Evacuation Studies (HES). HES helps states and localities determine the probable effects of a hurricane, identify appropriate shelters, and predict public response to a hurricane and hurricane advisories. NHP also conducts hazard and vulnerability analyses for coastal communities. Analyses include an assessment of a hurricane's impact, a review of existing roads and transportation systems, and an analysis of the population (e.g., demographic characteristics). The information gained from analyses helps communities determine evacuation zones (areas vulnerable to the hurricane), develop evacuation maps, and determine clearance times. Evacuations: Lessons Learned General Lessons Learned from Evacuations Studies of evacuations have identified several techniques that can make evacuations more effective. For example, informing citizens about evacuation routes and shelter locations as part of a community preparedness activity can help reduce the amount of time a household takes to evacuate. Without this information, households are generally slow to react to an evacuation order. Making provisions, such as gasoline, portable restrooms, and water, available along the route can also positively influence the effectiveness of an evacuation. Having tow trucks along egress routes to move vehicles can also help to keep the roads clear. The use of hazard analyses and evacuation analyses may produce a more effective evacuation. Hazard analyses are used to identify areas susceptible to a hazard's impact. Evacuation analyses assess the size of the affected population and its capability to transport itself. Additionally, evacuation analyses help identify modes of transportation to be used in the evacuation and potential evacuation routes. These lessons were derived primarily from disasters and emergencies such as wildfires, hazardous material spills, and hurricanes that would not be categorized as large-scale or catastrophic incidents. The evacuations as a result of some of these incidents do not involve long-term displacement, or the need to evacuate a large population. Hurricanes Katrina and Rita, however, did offer lessons on large-scale evacuations. Lessons Learned from Hurricanes Katrina and Rita Hurricanes Katrina and Rita increased knowledge of evacuations from large-scale incidents. Studies and reports covering the evacuations prompted by Hurricane Katrina also found techniques that make evacuations more effective. In general, they stated that implementation of the evacuations of many of the individuals affected by Hurricane Katrina went relatively smoothly because of successful evacuation procedures. Some examples of these procedures include the use of traffic management techniques such as "contra-flow" (making the in-bound and out-bound lanes uni-directional), which proved to be very effective. The use of conference calls by emergency managers and traffic directors to coordinate evacuation efforts also produced positive results. However, reports also asserted that other aspects of the evacuations needed significant improvement. The evacuations of New Orleans and Jefferson Parish were particularly troublesome. In fact, they were so problematic that they tended to negatively shape public perception of the evacuations as a whole. One account that criticized the Hurricane Katrina and Rita evacuations said that the call to evacuate appeared to be "weak, bureaucratic, and confusing." Perhaps as a result of such criticisms, calls to evacuate during Hurricane Ike used stronger language to convey the seriousness of the event. It is unclear, however, if stronger language was more effective than other factors in getting individuals to heed notices to evacuate. Another factor that influenced the way in which people were evacuated for Hurricane Ike was the experience of gasoline shortages and gridlock. In some disasters, a phenomenon known as "shadow evacuation" takes place. Shadow evacuations consist of individuals leaving the area without being told to do so. During the Hurricane Rita evacuation, non-mandated departures burdened evacuation routes and created fuel shortages. In Hurricane Ike, efforts such as persuading individuals in non-evacuation zones not to leave and asking families not to evacuate in multiple vehicles helped reduce shadow evacuations. The Hurricane Katrina evacuations also underscored the significance of timing an evacuation. According to one view, large metropolitan areas generally need 48 hours to evacuate (for Louisiana, the preferred minimum amount of time to conduct a major evacuation is 72 hours). However, the earlier an evacuation is ordered, the greater the likelihood is that there will be an error in the weather forecast. The inability to predict a storm track compounds the difficulties of evacuation decision making. In the case of Hurricane Katrina, evacuations were declared late, or not at all, in two of Louisiana's most populous areas: New Orleans and Jefferson Parish. According to one congressional report, a more complete evacuation of these areas could have saved lives and reduced human suffering. Another congressional report concluded that the incomplete evacuation led to the need for a post-hurricane evacuation. Federal, state, and local officials had not anticipated the need for a second evacuation. As a consequence, problems in communication, lack of situational awareness, and a shortage of bus drivers resulted in poor implementation of the second evacuation. Economically disadvantaged individuals, those with pets, and special-needs populations also experienced difficulty during the evacuations. Some households who wished to leave the area could not because of a lack of transportation. Special-needs populations were underserved because some were too frail for transport. Others depended on service animals (animals that are trained to perform tasks for individuals with disabilities, such as guiding people who are blind, alerting people who are deaf, or pulling wheelchairs). Some of these individuals were helpless because their animals could not navigate flooded streets. Others elected not to evacuate because shelters had no provisions for their pets and they feared leaving their pets behind. Much of the post-Hurricane Katrina legislation is directed at these problems. For example, some of the legislation enacted after Hurricane Katrina includes grants for states and localities to develop evacuation plans and ensure that these plans include provisions for special needs populations. Another example is legislation directed toward ensuring that evacuation plans address individuals with household pets and service animals. Table A-1 in the Appendix to this report includes some of this legislation. Finally, the House report concluded that the responsibility to evacuate did not reside solely within the government. Many individuals were aware of the need to evacuate but chose not to do so. Some had waited out hurricanes in the past and believed they could do the same for Hurricane Katrina. Others simply failed to recognize the seriousness of the hurricane. Despite the severity of the event, the amount of evacuation planning that takes place, and the necessary resources at hand, there will always be individuals who choose to remain in the affected area. Potential Congressional Issues During a review of issues related to evacuation, displacement, and sheltering policies, Congress might move to consider options for better integrating federal, state, and local efforts during evacuation. Congress might also review options that address issues of inequity or reform evacuation policy to make the decision to evacuate more precise, or take no action. Low-Income Individuals and Households The Stafford Act stipulates that relief and assistance be provided "without discrimination on the grounds of ... economic status." FEMA has responsibility to provide for the evacuation of disaster victims and provide for evacuation as part of federal emergency preparedness efforts. Congress might assess whether existing evacuation plans and procedures comport with the requirements of the Stafford Act, and whether other efforts are required to ensure that low-income individuals and households receive necessary aid. The Evacuation of Children26 Months after Hurricane Katrina struck, over 5,000 children from affected areas were reported as missing to the National Center for Missing and Exploited Children. In response to the challenges of family reunification, the National Commission on Children in Disasters recommended developing a "standardized, interoperable, national evacuee tracking and family reunification system that ensures the safety and well-being of children." The Post-Katrina Emergency Management Reform Act required FEMA to establish the National Emergency Family Registry and Locator (NEFRL) system and the National Emergency Child Locator Center to address family reunification needs in disasters. The act also required FEMA to establish a disability coordinator to ensure that the needs of individuals with disabilities in disasters are addressed. Currently, there is no similar statutory provision for a coordinator for children in disasters. Congress might choose to consider establishing a coordinator within FEMA to ensure that the needs of children are addressed in the development and implementation of a national, standardized, and interoperable evacuee tracking and family reunification system. Evacuating Foreign Nationals31 Foreign nationals living in the United States face particular problems during natural disasters. Lack of adequate documents for personal identification—a problem for many victims as a result of being evacuated from their homes or the loss of or damage to personal items and records—has specific consequences under immigration laws. Enforcement of immigration laws may also inhibit foreign nationals' access to emergency disaster relief. According to §401 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, unauthorized aliens are eligible for short-term, in-kind emergency disaster relief assistance that delivers in-kind services at the community level, provides assistance without individual determinations of each recipient's needs, and is necessary for the protection of life and safety. Unauthorized aliens who are receiving federal disaster aid, however, have no immunity from deportation, according to DHS officials. In the aftermath of Hurricanes Katrina and Rita in 2005, many displaced aliens reportedly feared that seeking government help might lead to their deportation. DHS arrested, detained, and ordered deported an unspecified number of unauthorized aliens displaced by the 2005 hurricanes. It is possible that this situation may inhibit those who fear deportation from evacuating, potentially placing these individuals at risk during catastrophic incidents. Congress might elect to review the relationship between evacuation policy and immigration policy. Federal, State, and Local Integration In conjunction with DHS, the U.S. Department of Transportation issued a report entitled Report to Congress on Catastrophic Hurricane Evacuation Plan Evaluation . The report found that federal, state, and local emergency plans and operations for evacuations were not well integrated. Congress could consider measures to improve jurisdictional integration. Technology Congress might consider expanding FEMA grants for the research and development of technologies that could improve evacuation planning and decision making. Current advances in technology include the use of geographic information systems (GIS) to help emergency managers make more informed decisions regarding evacuations. Some of the ways in which GIS can be used are determining efficient evacuation routes and identifying and mapping areas containing populations who might have difficulty evacuating (e.g., nursing home residents, hospital patients, and non-English speaking groups). Recently, GIS and aerial photography were combined to create a real-time application called "Virtual Alabama." The program offers a panoramic view of the Alabama coastline, allowing emergency mangers to direct assets and responders where they are needed most. The program also allows for real-time evacuation routing and vehicle and asset tracking. A citizen-evacuation system is also being developed that employs radio-frequency identification (RFID) and wireless technologies to help individuals during emergencies and disasters. When finished, the system should provide real-time information on evacuees to assist officials in tracking the evacuation of special-needs populations and tracking individuals to help reunite families after an emergency or a disaster. The system is also designed to help reduce the number of dangerous search-and-rescue operations that need to be conducted during and after disasters. Another example of an emerging technology might be a software tool that applies operations research methods to help emergency managers better decide whether and when to order evacuations. Using operations research methods enables a modeler to identify bottlenecks in evacuations and predict problems and solutions for a complex evacuation situation. This tool might aid emergency managers in conducting evacuations more efficiently by clearing out inhabitants in stages. Software and other tools could also help planners optimize the location of relief supplies before a hurricane made landfall. Congress could consider approaches for making such technology more readily available to state and local emergency managers, or fund further research in the area. Re-entry into Evacuated Zones Evacuation policy may present difficult choices to inhabitants of hazardous areas. Whereas individuals who choose not to evacuate remain in their residences and retain access to their property, evacuees may not be granted reentry to their residences for prolonged periods of time. This tension may be problematic for the implementation of evacuation policy for at least two reasons. First, it creates a disincentive to evacuate and potentially places individuals at risk because some may be concerned about being absent from their property for a prolonged period. Second, it may create an inequity between those who evacuate and those who stay, because those who remain may be able to protect their property and begin the recovery process more quickly than those who evacuate. If this topic were of interest, Congress might explore options related to this tension. For example, Congress might create incentives for individuals to evacuate and create mechanisms to ensure a timely yet safe return to an evacuated area. Many city and county codes require damaged residences to be inspected before individuals are allowed to re-enter their homes. After large disasters, however, there often is a lack of inspectors available for conducting inspections. If Congress addressed this concern, it might consider expanding the Stafford Act's Public Assistance program to include programs that bring outside inspectors to an affected area to hasten the inspection process. Additionally, Congress might choose to investigate evacuee expenditures for re-entry to determine if the matter warrants federal assistance such as grant assistance, small loans, and tax credits or deductions. Citizen Participation in Evacuation Planning It has been argued that the success of an evacuation is significantly enhanced when citizens participate in evacuation planning. Citizens, according to this argument, are less likely to resist evacuation orders when there is increased citizen participation because they believe they had a say in how the evacuations should be conducted. Congress might explore options for increasing citizen participation in state and local evacuation planning. Congress could also explore options to help state and local governments carry out evacuations or pass legislation that would help disseminate information to the public. Such options might increase citizen "buy-in" and could lead to more complete evacuations. Evacuation Fatigue Hurricanes generally occur in close succession, which sometimes necessitates more than one evacuation. Under such circumstances, individuals may become "burned out" and reluctant to heed orders to evacuate. This was a concern for officials during Hurricane Ike; they stated that evacuation fatigue may have contributed to an incomplete evacuation. If Congress wished to address this issue, it could offer grants to universities and colleges to study evacuation fatigue and produce methods to increase citizen participation in evacuations, even when they occur in succession. Returning and Relocating Evacuees In addition to removing people from a hazardous area, successful evacuation plans also address strategies for returning and relocating residents when it is safe for the area to be inhabited again. Section 425 of Post-Katrina Act amends the Stafford Act to provide transportation assistance to relocate displaced individuals to and from alternative locations for short- or long-term accommodation, or to return an individual or household to the predisaster primary residence, or an alternative location. This amendment expands the role of the federal government beyond merely assisting states and localities in evacuations by authorizing the federal government to return evacuees to their predisaster residences. Furthermore, administering the return of evacuees raises issues that may involve oversight by Congress. If evacuees were flown out of the area, does the federal government cover the cost for return airfare? Or can the return of evacuees be accomplished with a less expensive mode of transportation such as a bus? Since the Hurricane Katrina evacuation, many individuals and households have purchased new furnishings and other belongings. Is the federal government responsible to pay for the return of these belongings? If so, the federal government may have to reimburse individuals and households for such items as moving vans and rental trucks. If individuals and households are not reimbursed for moving their belongings, some may not have the economic means to do so themselves. On August 13, 2008, the National Advisory Committee (NAC) stated that while it supports the return of disaster victims to their homes when transported by FEMA, NAC could not reach a consensus on how to proceed with the return policy and identified some concerns relating to the issue. For one, NAC noted that providing transportation for evacuees back to their homes may prove to be difficult for FEMA to manage. Another concern was the clarity of the policy. NAC requested that FEMA establish clear guidance concerning the criteria for transportation assistance. Some might argue that such concerns indicate a need for congressional oversight. If this amendment proves costly or difficult to administer, Congress might elect to re-examine this policy. Concluding Observations Prior to Hurricane Katrina, evacuations were primarily a state and local responsibility. Because of lessons learned from Hurricane Katrina, federal policy now establishes national standards. Federal legislation authorizing the return or relocation of evacuees was enacted after Hurricane Katrina. Also, Congress amended the Stafford Act to ensure that transportation-dependent groups are included in state and local evacuation plans. President Obama's platform of addressing the requirements of special-needs populations in evacuation policy may also deepen federal involvement. As the federal government becomes more involved in evacuations, there may be a fundamental shift in the roles and responsibilities of the various actors involved in evacuations. Federal assumption of more responsibility in evacuations creates standards and guidelines for states and localities to follow. While some may contend that this shift will save lives, others may argue that an increased federal role will intrude on state sovereignty, or result in an unfunded mandate. As it currently stands, states and localities will have to increase planning, dedicate resources, and possibly shift priorities as they work to ensure that special-needs groups are not left out of evacuation plans. The identification of transportation-dependent groups is part of the evacuation process. According to Government Accountability Office (GAO) testimony, some emergency management officials did not have a good understanding of the size, location, and composition of the transportation disadvantaged in their communities. Thus, Congress might elect to monitor how well states and localities are (1) identifying populations who may experience difficulty evacuating; (2) incorporating these groups into evacuation plans, and updating them periodically as demographic characteristics change; and (3) anticipating potential problems in their evacuation planning, rather than merely using the lessons learned from past failures. Appendix. Statutory Authority for Evacuations Table A-1 lists examples of evacuation-related statutes. Although the provisions address many issues, two prevalent themes are (1) integrating federal, state, and local evacuation efforts; and (2) addressing equity issues that may arise as a result of an evacuation.

When government officials become aware of an impending disaster, they may take steps to protect citizens before the incident occurs. Evacuation of the geographic area that may be affected is one option to ensure public safety. If implemented properly, evacuation can be an effective strategy for saving lives. Evacuations and decisions to evacuate, however, can also entail complex factors and elevated risks. Decisions to evacuate may require officials to balance potentially costly, hazardous, or unnecessary evacuations against the possibility of loss of life due to a delayed order to evacuate. Some observers of evacuations, notably those from New Orleans during Hurricane Katrina, claim evacuations pose unique challenges to certain segments of society. From their perspective, special-needs populations, the transit-dependent, and individuals with pets faced particular hardships associated with the storm. This, they claim, is because some evacuation plans, and the way in which they were carried out, appeared to inadequately address their unique circumstances or needs. In responding to these challenges, then-Senator Obama introduced S. 1685 in the 109 th Congress, which would have directed the Secretary of Homeland Security to ensure that each state provided detailed and comprehensive information regarding its pre-disaster and post-disaster plans for the evacuation of individuals with special needs in emergencies. President Barack Obama indicated during his campaign that he would continue to pursue similar evacuation polices. Another facet of evacuation is sheltering displaced individuals. For short-term sheltering, federally provided resources include food, water, cots, and essential toiletries. When displaced individuals need long-term sheltering, federal policy provides financial assistance for alternative accommodations such as apartments, motels and hotels, recreational vehicles, and modular units. While federal law provides for certain aspects of civilian emergency evacuation, evacuation policy generally is established and enforced by state and local officials. In recent years, Members of Congress have focused, in part, on policy options that addressed issues of equity during evacuations as well as attempts to integrate federal, state, and local evacuation efforts more fully. This report discusses federal evacuation policy and analyzes potential lessons learned from the evacuations of individuals in response to the Gulf Coast hurricanes of 2005. Several issue areas that might arise concerning potential lawmaking and oversight on evacuation policy are also highlighted. This report will be updated as significant legislative or administrative changes occur.

Educational Attainment in Latin America Recent Developments As a whole, Latin American countries have made significant progress in improving their education systems, particularly in the last two decades. Governments have increased spending on education, expanded cooperation with the United States, the World Bank, and other donors, and pledged to achieve certain educational milestones established through the Organization of American States' Summit of the Americas process. Latin America is close to attaining the Millennium Development Goal (MDG) of having universal primary enrollment by 2015, with 97% of students enrolled in primary school. The region is also making major progress towards ensuring that once enrolled, students complete their primary education. Improvements in basic education have led to an average youth literacy rate of 96%, exceeding the world average rate of 87%. The region has also achieved gender parity in literacy performance and primary school enrollment rates. Unlike most other regions, Latin American countries now have more girls than boys enrolled in secondary schools and universities. In recent years, Latin American governments have implemented a variety of programs to increase the supply of and demand for education in their countries, many of which have specifically targeted disadvantaged students and school districts. In general, the success of those programs has hinged upon the accuracy of their targeting mechanisms in reaching the poorest, most disadvantaged students. One recent review of education interventions in Latin America suggests that providing free textbooks and creating classroom libraries are the most cost-effective ways to improve equity in education. Other interventions that are thought to be effective when implemented in poor districts are in-service teacher training programs and tutoring programs for students. Free food distribution programs, while showing positive effects on some learning outcomes, are not regarded as particularly cost-effective education interventions. On the demand side, many countries in Latin America have successfully boosted enrollments by providing compensatory cash transfers to families in exchange for keeping their children in school. Remaining Challenges Despite these recent improvements, Latin America's education indicators still lag behind the developed world and many developing countries of comparable income levels in East Asia. Students from Latin America tend to underperform on international assessment tests, even when comparisons are limited to countries with similar income levels. Test scores on national exams for students across all education levels remain low, with students from rural, poor, Afro-descendant, and indigenous households having less access to quality education than the general population. In Brazil, nonwhite students score significantly lower than white students from similar socioeconomic backgrounds on national tests. Across the region, indigenous people complete fewer years of schooling than non-indigenous people and have lower economic returns for each year of schooling completed. These gaps in access to quality education are most pervasive in countries with high levels of income inequality. In addition to equity issues, grade repetition and dropout rates are still high, particularly at the secondary level, with boys tending to have higher dropout rates than girls. This problem is particularly pervasive in the poorer countries of Central America, where dropout rates stood at roughly 52% in Guatemala, 53% in Honduras, and 41% in Nicaragua in 2005. Haiti, the poorest country in the Western Hemisphere, with a primary enrollment rate of some 67% and a primary completion rate of less than 30%, lags far behind other countries in the region on all education indicators. Few governments in Latin America invest the percent of their budgets on education that is recommended by international education experts. Moreover, most governments have devoted a much larger percentage of their education budgets to funding primary schools and subsidizing public universities rather than secondary schools. A recent World Bank study maintains that in order to reach a secondary target enrollment rate of 85%, Latin America would need to double their current resource allocation level for secondary education, which could be difficult given current resource constraints in many countries. U.S. Education Programs in Latin America The United States has long been a major supporter of education programs in Latin America. Education assistance programs are generally administered by USAID, whereas most educational exchange and scholarship programs are run by the State Department's Bureau of Education and Cultural Affairs (ECA). U.S. Agency for International Development USAID's Bureau of Latin America and the Caribbean (LAC) implements regional and bilateral education assistance programs in Latin America. Those programs focus on: increasing resources for basic education, providing teacher training, improving the quality of curricula and teaching materials, strengthening parental and community engagement in schools, and increasing access to educational opportunities for disadvantaged youth. In FY2006, the U.S. government provided some $73.4 million in total education assistance to Latin America. Total education assistance fell to roughly $54.4 million in FY2007. The FY2008 request for education in Latin America was reduced again to $39.4 million. Regional Programs There are three major regional education assistance programs supported by USAID in Latin America. In 2001, President Bush established the Centers of Excellence for Teacher Training (CETT) initiative in order to strengthen the quality of literacy instruction offered in Latin America. Since 2002, CETT has provided training and follow-up support to more than 15,000 teachers of Grades 1-3 from fifteen countries in the region. CETT programs are offered at regional training centers located in Peru, Jamaica, and Honduras. CETT plans to have trained a total of 20,000 teachers by 2009, with the aim of improving the basic literacy instruction offered to some 650,000 children. The Partnership for Educational Revitalization in the Americas (PREAL) is a private group that seeks to monitor equity and quality in national and regional education programs in Latin America. It publishes "report cards" on educational performance in each country in the region, compiles and disseminates best practices, and convenes conferences and seminars on education in the Americas. The Cooperative Association of States for Scholarships (CASS) , founded in 1985, provides two-year scholarships for disadvantaged students and rural professionals from Central America, Haiti, and Mexico to community colleges in the United States. The students receive technical and leadership training on how to promote economic and social development in their countries of origin. More than 5,000 individuals have graduated from the CASS program. The CASS program is similar to a past scholarship program, the Caribbean and Latin American Scholarship Program (CLASP), which provided academic and/or technical training in the United States to more than 23,000 individuals from Latin America and the Caribbean between 1985 and 1996. Country Programs In Latin America, USAID currently provides bilateral education assistance to the Dominican Republic, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, and Peru. Other countries that receive assistance through USAID's regional education programs include Belize, Bolivia, Ecuador, Grenada, Guyana, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago. Many of these country programs are implemented by USAID's partner organizations through the "Equip123" contracting mechanism. Equip 1 programs focus on building education quality in the classroom, school and community. Equip 2 programs aim to improve educational systems and management. Equip 3 programs seek to serve out-of-school youth. The largest bilateral education programs are in Haiti and Honduras. In FY2006, Haiti received $10.4 million to support basic education programs and $2.5 million to support higher education programs. According to USAID, ongoing U.S.-supported education programs have lowered dropout rates and raised the performance of more than 75,000 Haitian youth. In Honduras, USAID has helped the government to develop new curriculum standards and a monthly evaluation system to ensure that students are learning math and reading skills. The chart below displays funding amounts for USAID country education assistance programs for FY2006, FY2007, as well as the FY2008 funding request for each country. State Department The State Department supports and administers most U.S. education and cultural exchange programs, as well as some scholarship programs that benefit Latin American students. In March 2007, President Bush announced the creation of a Partnership for Latin American Youth program, a $75 million initiative over three fiscal years to provide English training for students, home-country and U.S.-based study opportunities, and skills development for high school aged students in Latin America. In 2006, the Study of the United States Institute for Student Leaders brought 35 Latin American undergraduate students to the United States for an intensive course of study on U.S. society, culture, history, and values. In addition, the Fusion Arts Exchange enabled twelve talented undergraduates from the region to participate in intensive academic exchanges with institutions focused on their respective fields of expertise. The best known graduate fellowship program funded by the State Department is the Fulbright Foreign Student Program . The Fulbright Program provides fellowships to foreign graduate students for study and research abroad. In 2007, 389 Latin American students were given Fulbright scholarships to study at U.S. universities. On a recent visit to the region, U.S. Secretary of Education Margaret Spellings said that the United States has begun to regain ground lost to Australia, Canada, and the United Kingdom as the primary destination for Latin American students seeking to studying abroad, despite the additional visa requirements that have been put in place since September 11, 2001. While applications for student visas to the United States have declined in recent years, the number of exchange visas granted to students and professionals from Latin America and other regions has been increasing. The Bureau of Educational and Cultural Affairs (ECA) supports a number of International Visitor Leadership Programs that have enabled young professionals to travel to the United States for training and enrichment programs. In recent years, special efforts have been made to provide opportunities to candidates from diverse ethnic backgrounds, including Afro-Latinos and indigenous groups. ECA also provides visitor programs for foreign educators who teach English as a foreign language and/or American studies through institutes and teaching assistant programs. The Hubert H. Humphrey Fellowship Program brings mid-career professionals from developing countries to the United States for a year of non-degree, graduate-level course work in their field of professional expertise. In 2007, 19 Latin Americans received Humphrey fellowships. The State Department also gives grants to non-governmental organizations (NGOs) for citizen exchange programs. The 2006 grants included an exchange program between immigrant youth in San Diego, California and internally displaced young people in Bogota, Colombia, and a film, mural, and theater exchange project between the Harlem neighborhood of New York City and El Alto and Potosi, Bolivia. Legislative Initiatives In the 110 th Congress, H.R. 176 (Lee), the Shirley A. Chisholm United States-Caribbean Educational Exchange Act of 2007, was passed (371-55) by the House on July 31. It would authorize assistance to the countries of the Caribbean Community (CARICOM) to fund educational development and exchange programs. It would provide two-year scholarships in the United States for secondary students, four years of study for undergraduate students, 30 months of study for graduate students, and up to one year of study for post-graduate students and scholars from CARICOM countries. In return, the students would be required to either return to work in a CARICOM country or to work in a capacity that directly benefits a CARICOM country for a period of time equal to the length of their scholarship, not to exceed two years. H.R. 2092 (Lowey)/ S. 1259 (Clinton), the Education for All Act of 2007 (introduced on May 1, 2007 in both the House and the Senate) would amend the Foreign Assistance Act of 1961 to provide assistance for developing countries to improve their basic education systems. The bill would also establish the achievement of universal basic education in all developing countries as an objective of U.S. foreign assistance.

The United States has long supported education programs in Latin America, and has a vested interest in promoting educational progress in the region. In the last 20 years, most Latin American countries have taken significant steps to improve their education systems, but major challenges remain. Those challenges include unequal access to education, high dropout and repetition rates, poor teacher quality, and uneven assessments and accountability systems. Regional and bilateral education assistance programs administered by the U.S. Agency for International Development (USAID) have sought to help countries address many of those challenges. At the same time, the State Department's Bureau of Education and Cultural Affairs (ECA) has supported educational exchange and scholarship programs for Latin American students and teachers. This report provides an overview of the current level of educational attainment in Latin America, U.S. education programs in the region, and related legislative proposals. It will not be updated.

Background The seismic design criteria applied to siting commercial nuclear power plants operating in the United States received increased attention following the March 11, 2011, earthquake and tsunami that devastated Japan's Fukushima Daiichi nuclear power station. Since the event, a magnitude 5.8 earthquake near Mineral, VA, on August 23, 2011, precipitated the temporary shutdown of Dominion Power's North Anna nuclear power plant. Some Members of Congress have questioned whether U.S nuclear plants are more vulnerable to seismic threats than previously assessed, particularly given the Nuclear Regulatory Commission's (NRC's) ongoing reassessment of seismic risks at certain plant sites. Currently, 104 commercial nuclear power plants operating in the United States use variations in light water reactor designs and construction. Figure 1 shows the locations of all 104 nuclear power reactors operating in the United States. Light water reactors use ordinary water as a neutron moderator and coolant, and uranium fuel enriched in fissile uranium-235. Designs fall into either pressurized water reactor (PWR) or boiling water reactor (BWR) categories. Both have reactor cores (the source of heat) consisting of arrays of uranium fuel bundles capable of sustaining a controlled nuclear chain reaction. U.S. commercial nuclear power plants incorporate safety features intended to ensure that, in the event of an earthquake, the reactor core would remain cooled, the reactor containment would remain intact, and radioactive releases would not occur from spent fuel storage pools. NRC defines this as the "safe-shutdown condition." When utilities began building nuclear power plants in the 1960s-1970s era, they typically hired an architect/engineering firm, then contracted with a reactor manufacturer ("nuclear vendors") to build the nuclear steam supply system (NSSS), consisting of the nuclear core, reactor vessel, steam generators and pressurizer (in PWRs), and control mechanisms—representing about 10% of the plant investment. The balance of the plant (BOP) consisted of secondary cooling systems, feed-water systems, steam systems, control room, and generator systems. At the time, the four vendors who offered designs for nuclear reactor systems in the United States were Babcock & Wilcox, Combustion Engineering, General Electric, and Westinghouse. About 12 architect/engineering firms were available to design the balance of the plant. Each architect/engineer had its own preferred approach to designing the balance of plant systems. The custom design-and-build industry approach resulted in problems verifying the safety of individual plants and in transferring the safety lessons learned from one reactor to another. In addition to the custom-design features of each plant, designers also had to contend with earthquake hazards unique to each plant site. Designs for structures, systems, and components important to a nuclear power plant operation must withstand earthquakes without losing their intended safety-related function. This report presents some of the general design concepts of operating nuclear power plants in order to discuss design considerations for seismic events. This report does not attempt to conclude whether one design is inherently safer or less safe than another plant. Nor does it attempt to conclude whether operating nuclear power plants are at any greater or lesser risk from earthquakes given recent updates to seismic data and seismic hazard maps. Nuclear Power Plant Designs General design criteria for nuclear power plants require that structures and components important to safety withstand the effects of earthquakes, tornados, hurricanes, floods, tsunamis, and seiche waves without losing the capability to perform their safety function. These "safety-related" structures, systems, and components are those necessary to assure: The capability to maintain the reactor coolant pressure, The capability to shut down the reactor and maintain it in a safe condition, or The capability to prevent or mitigate the consequences of accidents, which could result in potential offsite radiation exposures. All BWR plants operating in the United States use variations of a General Electric design. The more numerous PWR plants use Babcock & Wilcox, Combustion Engineering, and Westinghouse designs. Table 1 summarizes the various reactor types. The sections that follow discuss them further. Boiling Water Reactor (BWR) Systems A boiling water reactor generates steam directly inside the reactor vessel as water flows upward through the reactor's core (see Figure 2 ). The water also cools the reactor core, and the reactor operator is able to vary the reactor's power by controlling the rate of water flow through the core with recirculation pumps and jet pumps. The generated steam flows out the top of the reactor vessel through pipelines to a combined high-pressure/low-pressure turbine-generator. After the exhausted steam leaves the low-pressure turbine, it runs through a condenser/heat exchanger that cools the steam and condenses it back to water. A series of pumps return the condensed water back to the reactor vessel. The heat exchanger cycles cooling water through a cooling tower, or takes in water and directly discharges it to a lake, river, or ocean. The water that flows through the reactor, steam turbines, and condenser is a closed loop that never contacts the outside environment under normal operating conditions. Reactors of this design operate at temperatures of approximately 570" F and pressures of 1,000 pounds per square inch (psi) atmospheric. BWR Safe Shutdown Condition In the case of events that cause a nuclear power plant to exceed its operating parameters (for example, an earthquake or a critical component's failure) design safety features must provide a means to control reactivity and cool the reactor. During normal operation, reactor cooling relies on the water that enters the reactor vessel and the generated steam that exits. During safe shutdown, after the fission process is halted, the reactor core continues to generate heat by radioactive decay and generates steam. The heat from this radioactive decay initially equals about 6% of the heat produced by the reactor at full power and gradually declines. Under this condition, the steam bypasses the turbine and diverts directly to the condenser to cool the reactor. When the reactor vessel pressure decreases to approximately 50 psi, the shutdown-cooling mode removes residual heat by pumping water from the reactor recirculation loop through a heat exchanger and back to the reactor via the recirculation loop. The recirculation loop design limits the number of pipes that penetrate the reactor vessel. Loss of Coolant Accident The most severe operating condition affecting a BWR is a loss of coolant accident (LOCA). In the absence of coolant, the uncovered reactor core continues to generate heat through radioactive decay. The resulting heat buildup can damage the fuel or fuel cladding and lead to a fuel "meltdown." Under such a condition, an emergency core cooling system (ECCS) provides water to cool the reactor core. The ECCS is an independent high-pressure coolant injection system that requires no auxiliary electrical power, plant air systems, or external cooling water systems to provide makeup water under small and intermediate loss of coolant accidents. A low-pressure ECCS sprays water from the suppression pool into the reactor vessel and on top of the fuel assemblies. The ECCS must also be sized to provide adequate makeup water to compensate for a break of the largest diameter pipe in the primary system (i.e., the so-called "double-ended guillotine break" (DEGB)). The NRC views the DEGB as an extremely unlikely event (likely to occur only once per 100,000 years of reactor operation). BWR Design Evolution Only General Electric boiling water reactors operate in the United States ( Table 1 ). BWRs are inherently simpler designs than other light water reactor types. Since they heat water and generate steam directly inside the reactor vessel, they have fewer components than pressurized water reactors. The original BWR design-types have been decommissioned, but Type 2 through Type 6 BWRs continue to operate. Some of the BWR evolutionary design features are summarized in Table 2 . Along with the evolution in BWR reactor design, containment structure designs have also evolved ( Figure 3 , Figure 4 , and Figure 5 ). Pressurized Water Reactor Systems A pressurized water reactor (PWR) generates steam outside the reactor vessel, unlike a BWR design. A primary system (reactor cooling system) cycles superheated water from the core to a heat exchanger/steam generator. A secondary system then transfers steam to a combined high-pressure/low-pressure turbine generator ( Figure 6 ). Steam exhausted from the low-pressure turbine runs through a condenser that cools and condenses it back to water. Pumps return the cooled water back to the steam generator for reuse. The condenser cools the steam leaving the turbine-generator through a third system by flowing past a heat-exchanger that recycles cooling water through a cooling tower, or takes in water and directly discharges it to a lake, river, or ocean. Unlike a BWR design, the cooling water that flows through the reactor core never contacts the turbine-generator. Under normal operating conditions, reactor cooling-water does not contact the environment. To keep the reactor operating under ideal conditions, a pressurizer keeps water and steam pressure under equilibrium conditions. The pressurizer is part of the reactor coolant system, and consists of electrical heaters, pressure sprays, power-operated relief valves, and safety valves. For example, if pressure rises too high, water spray cools the steam in the pressurizer; or if pressure is too low, the heaters increase steam pressure. The cause of the pressure deviation is normally associated with a change in the temperature of the reactor coolant system. PWR Design Evolutions All PWR systems consist of the same major components, but arranged and designed differently. For example, Westinghouse has built plants with two, three, or four primary coolant loops, depending upon the power output of the plant. PWR Safe Shutdown Condition During normal operation, a PWR does not generate steam directly. For cooling, it transfers heat via the reactor primary coolant to a secondary coolant in the steam generators. There, the secondary coolant water is boiled into steam and sent to the main turbine to generate electricity. Even after shutdown (when the moderated uranium fission is halted), the reactor continues to produce a significant amount of heat from decay of uranium fission products (decay heat). The decay heat is sufficient to cause fuel damage if the core cooling is inadequate. Auxiliary feed-water systems and the steam dump systems work together to remove the decay heat from the reactor. If a system for dumping built-up steam is not available or inoperative, atmospheric relief valves can dump the steam directly to the atmosphere. Under normal operating conditions, water flowing through the secondary system does not contact the reactor core; dumped-steam does not present a radiological release. Loss of Coolant Accident As with BWRs, the most severe operating condition affecting a PWR is the loss of coolant accident (LOCA), the extreme case represented by the double-ended guillotine break (DEGB) of large diameter pipe systems. In the event of a LOCA, the reactor's emergency core cooling system (ECCS) provides core cooling to minimize fuel damage by injecting large amounts of cool, borated water into the reactor coolant system from a storage tank. The borated water stops the fission process by absorbing neutrons, and thus aids in shutting down the reactor. The ECCS on the PWR consists of four separate systems: the high-pressure injection (or charging) system, the intermediate pressure injection system, the cold leg accumulators, and the low-pressure injection system (residual heat removal). The high-pressure injection system provides water to the core during emergencies in which reactor coolant-system pressure remains relatively high (such as small breaks in the reactor coolant system, steam break accidents, and leaks of reactor coolant through a steam generator tube to the secondary side). The intermediate pressure injection system responds to emergency conditions under which the primary pressure stays relatively high; for example, small to intermediate size primary breaks. The cold leg accumulators operate without electrical power by using a pressurized nitrogen gas bubble on the top of tanks that contain large amounts of borated water. The low-pressure injection system removes residual heat by injecting water from the refueling water storage tank into the reactor coolant system during large breaks (which would cause very low reactor coolant-system pressure). Containment Structure Designs All U.S. reactors have primary containment structures designed to minimize releases of radioactive material into the environment. The PWR primary containment structure must surround all the components of the primary cooling system, including the reactor vessel, steam generators, and pressurizer. BWR primary containments typically are smaller, because there are no steam generators or pressurizers. Containments must be strong enough to withstand the pressure created by large amounts of steam that the reactor cooling system may release during an accident. The largest containment designs provide sufficient space for steam released by an accident to expand and cool to keep pressure within the design parameters of the structure. Smaller containments, such as those for BWRs, require pressure suppression systems to condense much of the released steam into water. Smaller PWR containments also may include pressure suppression systems, such as ice condensers. To further limit the leakage from the containment structure following an accident, a steel liner that covers the inside surface of the containment building acts as a vapor-proof membrane to prevent any gas from escaping through any cracks that may develop in the concrete of the containment structure. Two systems act to reduce temperature and pressure within the containment structure: a fan cooler system that circulates air through heat exchangers, and a containment spray system. All U.S. PWR designs include a containment system with multiple Engineered Safety Features (ESFs). A dry containment system consists of a steel shell surrounded by a concrete biological shield that protects the reactor against outside elements, for example, debris driven by hurricane winds or an aircraft strike. The outer shield does not have a design function as a barrier against the release of radiation. Although the concrete structures in existing plants act as insulators against uncontrolled releases of radioactivity to the environment, they will fail if the ESFs fail in their function. A summary of containment building design features appears in Table 4 . The NRC Containment Performance Working Group studied containment buildings in 1985 to estimate their potential leak rates as a function of increasing internal pressure and temperature associated with severe accident sequences involving significant core damage. It indentified potential leak paths through containment penetration assemblies (such as equipment hatches, airlocks, purge and vent valves, and electrical penetrations) and their contributions to leakage from for the containment. Because the group lacked reliable experimental data on the leakage behavior of containment penetrations and isolation barriers at pressures beyond their design conditions, it relied on an analytical approach to estimate the leakage behavior of components found in specific reference plants that approximately characterize the various containment types. Seismic Siting Criteria Earthquakes occur when stresses in the earth exceed the strength of a rock mass, creating a fault or mobilizing an existing fault. The fault can slip laterally (a strike/slip fault, such as the San Andreas Fault), move vertically (a thrust or reverse fault, such as the fault that caused the March 11 Japanese earthquake), or move in some combination of the two. The fault's sudden release sends seismic shock waves through the earth that have two primary characteristics: (1) amplitude—a measure of the peak wave height, and (2) period—the time interval between the arrival of successive peaks or valleys. The seismic wave's arrival causes ground motion. The intensity of ground motion depends primarily on three factors: the distance from the source (also known as focus or epicenter), the amount of energy released (magnitude of the earthquake), and the type of soil or rock at the site. In general, for a given magnitude earthquake, the shallower the focus, the stronger the wave will be when reaching the surface. In addition, the intensity of ground shaking diminishes with increasing distance from the earthquake focus. Sites with deep, soft soils or loosely compacted fill will experience stronger ground motion than sites with stiff soils or rock. Safe Shutdown Earthquake Condition In 1973, the concept of the "safe shutdown earthquake" (SSE) was introduced in Title 10 Part 100 of the Code of Federal Regulations (10 CFR 100), Appendix A—Seismic and Geologic Siting Criteria for Nuclear Power Plants . The NRC defines the Safe Shutdown Earthquake as the maximum earthquake in which certain structures, systems, and components, important to safety, must remain functional. Under an "operating basis earthquake," the reactor could continue operation without undue risk to the safety of the public. Ground motion at any specific location, such as a nuclear plant site, depends on the earthquake source, magnitude, distance to the source, and the attenuation (dampening) caused by rock and soil characteristics. A nuclear power plant responds to an earthquake depending on how its individual structures, systems, and components resonate, or vibrate, with the ground shaking. Heavier and more massive structures resonate at lower frequencies, while light components resonate at higher frequencies. During an earthquake, ground motion transmits vibrations to a nuclear power plant's foundation and structure. The vibrations cause back-and-forth acceleration of a structure, system or components that is measured relative to the earth's gravitational acceleration constant (g). Both vertical and horizontal components of ground acceleration place loads, or stresses, on a nuclear power plant's structure. Peak Ground Acceleration (PGA) is a measure that has been widely used in developing nuclear power plant "fragility estimates," which represent the sensitivity of nuclear plant structures, systems, and components (SSCs) to the inertial effects of acceleration during ground shaking. Cumulative Absolute Velocity Structural damage to nuclear power plants occurs when the cumulative effects of ground acceleration (seismically induced vibrations) cross a certain threshold. The Electric Power Research Institute (EPRI) developed the concept of "cumulative absolute velocity" (CAV) in 1988 as an index for indicating the onset of structural damage from the cumulative effects of ground acceleration. The threshold between damaging and non-damaging earthquakes (for well-designed buildings) conservatively occurs at ground motions with cumulative absolute velocities (CAV) greater than 0.16 g-seconds. In simple terms, CAV is the sum of various ground acceleration frequencies (measured in terms of g) and the duration of their acceleration (measured in seconds). An example of this phenomenon is a wire coat-hanger that breaks from metal fatigue after being rapidly bent multiple times. Experimental and empirical seismic data have provided insights into the behavior of different structures under various acceleration and shaking conditions. For example, welded steel piping at nuclear power plants rarely failed when peak ground accelerations remained below 0.5g. Other types of structures exhibit different behaviors. Engineers design the various plant structures to withstand a certain severity of earthquake and estimates of ground shaking specific to each plant site. The maximum vibratory accelerations of the Safe Shutdown Earthquake must take into account the characteristics of the underlying soil material in transmitting the earthquake-induced motions at the various locations of the plant's foundation. Various plant structures, depending upon their elevation above the foundation, vibrate at different frequencies during an earthquake. Vibrations in the range of 1 to 10 Hz are particularly problematic, because a wide range of structures are susceptible to damaging resonance at those frequencies. These accelerations and the corresponding shaking frequencies are factors in the Probabilistic Seismic Hazard Analysis (PSHA, discussed below). The full seismic spectrum often can be characterized by two intervals: peak ground acceleration (PGA) and spectral acceleration (SA) averaged between 5 and 10 hertz (Hz). Seismic Design Varies by Region In the western United States (WUS), where earthquakes with frequencies below 15 Hz predominate, earthquake magnitude is a principal design consideration for nuclear power plants. Earthquakes below the 10 Hz frequency range pose the greatest hazard to nuclear power plants. In the central and eastern United States (CEUS), designs considered both earthquake magnitude and Modified Mercalli Intensity (MMI) due to sparse recordings of actual earthquake events. While plants designed to operate in the CEUS must also withstand low frequency earthquakes, the earthquakes that do occur are associated more often with higher frequencies than in the WUS. Higher frequency earthquakes are less damaging to large structures but may adversely affect small components. Deterministic Seismic Hazard Analysis By the late 1940s, structural engineers had begun considering the shear forces caused by earthquakes that structures must resist. To supplement their design calculations, they referred to the Seismic Zone Map published by the Uniform Building Code (UBC). (Refer to Appendix Figure B -1 .) The UBC map divided the United State into six distinct seismic zones representing various degrees of seismic risk. The map expressed peak ground acceleration as the decimal ratio of the gravitational acceleration constant (g) that applied to a Maximum Credible Earthquake (MCE) and an Operating Basis Earthquake (OBE). UBC defined a maximum credible earthquake and its associated ground motion as the largest magnitude earthquake that could reasonably occur along the recognized faults or within a particular seismic source. An operating basis earthquake was defined as having the greatest level of ground motion likely to occur during the economic life of a structure. Designs for nuclear power plants granted construction permits during the 1960s and 1970s applied a deterministic approach to seismic design based on site-specific investigations of local and regional seismology, geology, and geotechnical soil conditions to determine the maximum credible earthquake from a single source (fault). Deterministic Seismic Hazard Analysis (DSHA) attempted to quantify the effects of a maximum credible earthquake based on known seismic sources sufficiently near the site and available historical seismic and geological data to estimate ground motion at the plant site. Appendix A to 10 CFR 100 requires an investigation of fault and earthquake occurrences to provide the basis for determining a safe shutdown earthquake. Appendix A to 10 CFR 100 notes the limitations for basing seismic design criteria on literature reviews of geophysical and geologic information, and requires supplementing the investigation with studies for vibratory ground motion, evidence of surface faulting, and evidence of seismically induced floods and water waves that have or could have affected the site. Probabilistic Seismic Hazard Analysis Under 10 CFR 100.23 (Geologic and Seismic Siting Criteria), designs for new nuclear power plants will base their Safe Shutdown Earthquake on Probabilistic Seismic Hazard Analysis (PSHA). The methodology has also found widespread use in U.S. engineering practice for non-nuclear structures. Where DSHA had based peak ground acceleration (PGA) on a single earthquake source, PSHA uses up-to-date interpretations of earthquake sources, earthquake recurrence, and strong ground motion estimates to estimate the probability of exceeding various levels of earthquake-caused ground motion at a given location in a given future time period. It quantifies a site's seismic hazard characteristics from seismic hazard curves or "response spectra" developed in part by identifying and characterizing each seismic source in terms of maximum magnitude, magnitude recurrence relationship, and source geometry. A response spectrum is a plot of the maximum response (acceleration, velocity, or displacement) of a family of oscillations (ground or structures). When derived from a earthquake record, the site-specific ground motion response spectrum appears as an irregular graph of peaks and valleys that combines a number of individual response spectra from past earthquakes ( Figure 7 ). Design Response Spectra for Seismic Design of Nuclear Power Plants Each earthquake produces a spectrum of ground motions that vary in frequency and acceleration. The seismic spectra important to nuclear power plant design are peak ground accelerations between 5 and 10 Hz. The NRC has developed Design Response Spectra statistically from response spectra of past strong motion earthquakes. The former Atomic Energy Commission (AEC) (the NRC's predecessor) published Regulatory Guide 1.60, Design Response Spectra of Nuclear Power Reactors in 1973 to provide spectral shapes for horizontal and vertical ground movements that designs must respond to (design response). A Safe Shutdown Earthquake is defined by 10 CFR 100 Appendix A as the response spectra corresponding to the maximum vibratory accelerations at the elevations of the nuclear power plant structural foundations. NRC may credit nuclear power plant foundations with a 5% dampening affect in reducing the transmission of ground accelerations. In the example of Figure 8 , the range of maximum accelerations (g) is plotted against the range of corresponding frequencies (Hz) for the Surry Nuclear Power Plant containment building. The NRC requires that nuclear plant designs account for site-specific ground motions and has specified a minimum ground motion level for nuclear plant designs. The NRC Regulatory Guide 1.208 endorses either the EPRI or Lawrence Livermore National Laboratory (LLNL) seismic hazard models as a starting point for conducting a PSHA in siting nuclear power plants. In 2007, the NRC contracted with Brookhaven National Laboratory to produce Evaluation of the Seismic Design Criteria in ASCE/SEI Standard 43-05 for Application to Nuclear Power Plants (NUREG/CR-6926). The report presents the results of a review of the American Society of Civil Engineers/Structural Engineering Institute (ASCE/SEI) Standard 43-05, "Seismic Design Criteria for Structures, Systems, and Components in Nuclear Facilities." As its title implies, this standard provides seismic design criteria for safety-related structures, systems, and components (SSCs) in a broad spectrum of nuclear facilities. National Seismic Hazard Maps In 2008, the U.S. Geological Survey (USGS) released an update of the National Seismic Hazard Maps (NSHM). The purpose of the maps is to show the likelihood of a particular severity of shaking within a specified time-period. The Seismic Hazard maps are the basis for seismic design provisions of building codes to allow buildings, highways, and critical infrastructure to withstand earthquake shaking without collapse. The USGS revises the NHSM every six years to reflect newly published earthquake data. The NHSM are used to update building code seismic design provisions. USGS notes that the 2008 hazard maps differ significantly from the 2002 maps in many parts of the United States: The new maps generally show 10- to 15-percent reductions in acceleration across much of the Central and Eastern United States [CEUS] for 0.2-s [second] and 1.0-s spectral acceleration and peak horizontal ground acceleration for 2-percent probability of exceedance in 50 years. The new maps for the Western United States [WUS] indicate about 10-percent reductions for 0.2-s spectral acceleration and peak horizontal ground acceleration and up to 30-percent reductions in 1.0-s spectral acceleration at similar hazard levels. Although the seismic hazard is highest in the most tectonically active regions of the western United States, including Alaska, the Central and Eastern United States (CEUS) also contain regions of elevated seismic hazard. The USGS has mapped the New Madrid Seismic Zone (NMSZ)—which includes parts of Arkansas, Tennessee, Missouri, Illinois, and Kentucky—as comparable to the more seismically active portions of California. Portions of Indiana are also subject to elevated seismic hazard from the Wabash Valley Seismic Zone along the border of Illinois and Indiana. Earthquakes also occur in the central United States outside of these two documented zones, however, as demonstrated by the November 6, 2011, magnitude 5.6 earthquake that occurred 40 miles east of Oklahoma City. In the CEUS, the New Madrid Seismic Zone and the Charleston area in southeast South Carolina comprise the dominant seismic hazard (at 2% probability of exceedance in 50 years). Seismically active portions of eastern Tennessee and some portions of the Northeast also contribute to the seismic hazard. The hazard at the 2% probability of exceedance in 50 years level is typically a factor of two to four times higher than the 10% probability of exceedance in 50 years values in the seismically active portions of the CEUS. The elevated seismic hazard in the New Madrid Seismic Zone is due primarily to three large earthquakes of magnitude 7.0 or greater that occurred during 1811-1812 and the chances of an earthquake of similar magnitude striking the region again. Because of the elevated hazard, portions of the NMSZ in the central United States require monitoring by a relatively dense array of seismometers compared to the northeastern and southeastern United States. As discussed earlier, most of the nation's nuclear power plants are located in the CEUS. The dominant earthquake hazard in the northeastern United States is related to seismic activity in the St. Lawrence rift zone, which extends from northeastern New York State into Canada. However, other parts of the Northeast have also experienced earthquakes, including western New York, Massachusetts, New Jersey, Pennsylvania, Ohio, and Maine. The seismic hazard in the southeastern United States is primarily near Charleston, SC, and along the Eastern Tennessee Seismic Zone. The largest historically documented earthquake that occurred in the CEUS other than the 1811-1812 earthquakes in the NMSZ took place near Charleston in 1886. The Eastern Tennessee Seismic Zone comprises a swath including portions of Alabama, Georgia, Tennessee, North Carolina, and Virginia. The magnitude 5.8 earthquake that struck Virginia on August 23, 2011, may have been in the northernmost portion of the Eastern Tennessee Seismic Zone. Figure 9 and Figure 10 show the locations of nuclear plant sites on the 2008 USGS National Seismic Hazard Map for the United States. These maps display quantitative information about seismic ground motion hazards expressed as horizontal ground acceleration ( g ) of a particle at ground level moving horizontally during an earthquake. CRS cautions against drawing any conclusion regarding a plant's seismic risk from the figures. Figure 11 shows the proximity of plant sites to Quaternary period faults based on the USGS Quaternary Fault and Fold Database of the United States. (Quaternary-active faults are those that have slipped in Quaternary time—the last 1.6 million years.) The map is not a prediction of an earthquake event. The USGS Database has information on faults and associated folds in the United States that are believed to be sources of greater than magnitude 6 earthquakes during the Quaternary period. Geologists think that these faults are the most likely source of future great earthquakes, so it is important to know what they are, where they are, and how they work. NRC Review—Implications of Updated Probabilistic Seismic Hazard Estimates in Central and Eastern United States on Existing Plants The NRC does not rank nuclear plants by seismic risk, and the NRC has not published a regulatory guide that recommends using the USGS national hazard maps for siting nuclear power plants. However, it recently considered the implications of updated USGS seismic hazard models on the seismic risk of nuclear power plants sites operating in the Central and Eastern United states. The NRC has required that each nuclear plant built meet certain structural specifications based on the earthquake susceptibility of each plant site. The NRC may re-evaluate some of those design specifications in light of the 2008 USGS seismic hazard maps. In 2010, the NRC published Review Implications of Updated Probabilistic Seismic H azard Estimates in the Central and Eastern United States on Existing Plants (GI-199 Safety/Risk Assessment), a two-stage assessment that determines the implications of the 2008 USGS updated probabilistic seismic hazard maps in the CEUS on existing nuclear power plant sites. NRC's objective in the GI-199 Safety/Risk Assessment was to evaluate the need for further investigations of seismic safety for operating reactors in the CEUS. The assessment first evaluated the change in seismic hazard with respect to previous estimates at individual nuclear power plants, and then estimated the change in Seismic Core Damage Frequency (SCDF) resulting from the change in the seismic hazard. Seismic core damage frequency is the probability of damage to the reactor core (fuel rods) resulting from a seismic initiating event. It does not necessarily imply that a core meltdown or loss of containment (associated with a radiological release) would occur. The seismic hazard at each plant site depends on the unique seismology and geology surrounding the site. Consequently, the report separately determined the implications of updated probabilistic seismic hazard for each of the 96 operating nuclear power plants in the CEUS. The data evaluated in the assessment suggest that the probability for earthquake ground motion above the seismic design basis for some nuclear plants in the CEUS, although still low, is larger than previous estimates. In March 2011, the NRC announced that it had identified 27 nuclear reactors operating in the CEUS (listed in Table 5 ) subject to priority earthquake safety reviews. Recent Legislative Activities On March 17, 2011, the Senate Committee on Homeland Security and Governmental Affairs held a hearing on Catastrophic Preparedness that looked at technologies and emergency procedures used in the event of a large-scale earthquake or other natural disaster. On April 6, 2011, the Subcommittee on Oversight and Investigations of the House Energy and Commerce Committee held a hearing on the U.S. Government Response to the Nuclear Power Plant Incident in Japan. On April 7, 2011, the Subcommittee on Technology and Innovation of the House Science, Space, and Technology Committee held a hearing on Earthquake Risk Reduction. Legislation introduced in the Senate and House would reauthorize appropriations and make some changes to the ongoing National Earthquake Hazards Reduction Program (NEHRP). H.R. 1379 and S. 646 would amend the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7704), and reauthorize appropriations through FY2015 (authorization for appropriations for NEHRP activities ended in FY2009). H.R. 3479 would also make some changes to NEHRP, and authorize appropriations through FY2014. Activities conducted under NEHRP are intended to improve the scientific understanding of earthquakes and their effects on people and infrastructure, develop effective measures to reduce earthquake hazards, and promote the adoption of earthquake hazard reduction activities. Results from these activities could improve the current understanding of how earthquake-caused shaking would affect nuclear power plants. H.R. 1268 , the Nuclear Power Licensing Reform Act of 2011, would amend Section 103 of the Atomic Energy Act of 1954 (42 U.S.C. 2133), subsection c, by adding at the end the following requirements for nuclear power plant licenses: Any such renewal shall be subject to the same criteria and requirements that would be applicable for an original application for initial construction, and the Commission shall ensure that any changes in the size or distribution of the surrounding population, or seismic or other scientific data not available at time of original licensing, have not resulted in the facility being located at a site at which a new facility would not be allowed to be built. H.R. 1242 , the Nuclear Power Safety Act of 2011, would amend the Atomic Energy Act to revise regulations to ensure that nuclear facilities licensed under the act can withstand and adequately respond to an earthquake, tsunami (for a facility located in a coastal area), strong storm, or other event that threatens a major impact to the facility; a loss of the primary operating power source for at least 14 days; and a loss of the primary backup operating power source for at least 72 hours. Policy Considerations for Monitoring Earthquakes in the CEUS in Support of Seismic Assessments of Nuclear Power Plants The USGS developed a 2011 report in response to a request from the NRC evaluating seismic monitoring capabilities in the CEUS, with particular emphasis on meeting the current and future needs of the NRC. The USGS report recommends adding 100 new stations to existing arrays of seismometers in the CEUS: 38 deployed in seismically active zones in the CEUS to capture information from infrequent earthquakes for use in improving the understanding of how, where, and why earthquakes occur in the region; and 62 stations deployed near nuclear power plants to understand the site-specific response to earthquakes and improve assessments of seismic risk at the facilities. According to the USGS, the 38 proposed stations in seismically active zones would bolster earthquake monitoring where it is currently inadequate. The new stations would fill in where existing stations are farther than 50 kilometers apart (about 31 miles) or where existing stations could go off-scale during an earthquake of expected magnitude for the seismic zone. These stations would also help improve assessments of how well the seismic waves travel, or propagate, from the epicenter outwards, and inversely how the seismic energy is lost, or attenuated, as the earthquake waves move away from the epicenter. As people experienced first-hand, Virginia's August 2011 earthquake broadcast widespread ground shaking. For similar magnitude earthquakes, seismic waves travel more efficiently in general in the CEUS and shaking is felt over a broader area compared to the western United States. According to its report, the USGS proposes deploying 62 additional stations near nuclear power plants to help characterize earthquake effects for site-specific engineering and emergency-response applications. This would aid in the location and degree of ground shaking and estimation of damage to structures in near-real time. The combined 100 new stations proposed by the USGS would supplement the Advanced National Seismic System (ANSS) to compute earthquake properties more accurately in the region and improve the likelihood of capturing important earthquake data within 50 kilometers of the earthquake epicenter for moderate and large earthquakes. The USGS report indicates that this information would be useful to the NRC. The USGS report also includes cost information for the seismometers, which range from $15,000 to $20,000 to purchase and install "Class A" systems, and about $10,000 for "Class B" systems. Class A systems have higher resolution and other features superior to Class B systems. Operating costs range from $2,000 to $5,000 per year. For 100 new stations, costs to purchase and install Class A systems would range between $1.5 million and $2.0 million versus $1.0 million for 100 Class B systems. Operating costs would range between $200,000 to $500,000 per year, depending on location and options for transmitting data from the stations. Appendix A. Magnitude, Intensity, and Seismic Spectrum Earthquake magnitude is a measure of the strength of the earthquake as determined from seismographic observations. Magnitude is essentially an objective, quantitative measure of an earthquake's size expressed in various ways based on seismographic records (e.g., Richter Local Magnitude, Surface Wave Magnitude, Body Wave Magnitude, and Moment Magnitude). Currently, the most commonly used magnitude measurement is Moment Magnitude (M), which accounts for the strength of the rock that ruptured, the area of the fault that ruptured, and the average amount of slip. Moment is a physical quantity proportional to the slip on the fault times the area of the fault surface that slips. It relates to the total energy released in the earthquake. The moment can be estimated from seismograms (and from geodetic measurements). The Moment Magnitude provides an estimate of earthquake size that is valid over the complete range of magnitudes, a characteristic that was lacking in other magnitude scales, such as the Richter scale. Because of the logarithmic basis of the moment magnitude scale, each whole number increase in magnitude represents a tenfold increase in measured amplitude; as an estimate of energy, each whole number step in the magnitude scale corresponds to the release of about 31 times more energy than the amount associated with the preceding whole number value. In 1935, Charles F. Richter of the California Institute of Technology developed the Richter magnitude scale based on the behavior of a specific seismograph manufactured at that time. The instruments are no longer in use and therefore the Richter magnitude scale is no longer used in the technical community. However, the term Richter Scale is so common in use that scientists generally just answer questions about "Richter" magnitude by substituting moment magnitude without correcting the misunderstanding. The intensity of an earthquake is a qualitative assessment of effects of the earthquake at a particular location. The assigned intensity factors include observed effects on humans, on human-built structures, and on the earth's surface at a particular location. The most commonly used scale in the United States is the Modified Mercalli Intensity (MMI) scale, which has values ranging from I to XII in the order of severity. MMI of I indicates an earthquake that was not felt except by a very few, whereas MMI of XII indicates damage to all works of construction, either partially or completely. While an earthquake has only one magnitude, intensity depends on the effects at each particular location. Greater magnitude earthquakes are generally associated with greater lengths of fault ruptures. A fault break of 100 miles might be associated with an M8 earthquake, while a break of several miles might generate an M6 earthquake. The length of the fault break, however, is not directly proportional to the energy released. The induced amplitude of acceleration (g) does increase with increasing magnitude (M). Various methods developed relate the magnitude of an earthquake to the amplitude of acceleration it induces, and different methods may result in significant variations in results. Appendix B. Early Seismic Zone Map In the late 1940s, structural engineers began considering the seismic-based shear forces that structures must resist. To supplement their design calculations, they referred to the Seismic Zone Map published by the Uniform Building Code (UBC, in Figure B -1 ). The UBC map divided the United States into six distinct seismic zones representing various degrees of seismic risk. The map expressed peak ground acceleration as the decimal ratio of the acceleration due to gravity (g) that applied to a Maximum Credible Earthquake (MCE) and an Operating Basis Earthquake (OBE). UBC defined a maximum credible earthquake as producing the greatest level of ground motion at a site. An operating basis earthquake was be defined as the greatest level of ground motion likely to occur during the economic life of a structure. Appendix C. Terms Boiling water reactor (BWR) directly generates steam inside the reactor vessel. Deterministic Seismic Hazard Assessment (DSHA) focuses on a single earthquake event to determine the finite probability of damage occurring. Double-ended guillotine break (DEGB) represents a break of the largest diameter pipe in the primary system that the emergency core cooling system (ECCS) must be sized to provide adequate makeup water to compensate for. Light water reactor systems use ordinary water as a fuel moderator and coolant, and uranium fuel artificially enriched to 3%-5% fissile uranium-235. Includes BWR and PWR types. Loss of Coolant Accident (LOCA) is an accident involving a broken pipe, stuck-open valve, or other leak in the reactor coolant system that results in a loss of the water cooling the reactor core. Operating Basis Earthquake is the maximum vibratory ground motion for which a reactor could continue operation without undue risk and safety of the public. Pressurized water reactor (PWR) uses two major loops to convert the heat generated by the reactor core into steam outside of the reactor vessel. Probabilistic Seismic Hazard Assessments (PSHA) attempt to quantify the probability of exceeding various ground-motion levels at a site given all possible earthquakes. Safe Shutdown Earthquake (also design basis earthquake) is the maximum vibratory ground motion at which certain structures, systems, and components are designed to remain functional. Seismic Core Damage Frequency is the probability of damage to the core resulting from a seismic initiating event.

The earthquake and subsequent tsunami that devastated Japan's Fukushima Daiichi nuclear power station and the earthquake that forced the North Anna, VA, nuclear power plant's temporary shutdown have focused attention on the seismic criteria applied to siting and designing commercial nuclear power plants. Some Members of Congress have questioned whether U.S nuclear plants are more vulnerable to seismic threats than previously assessed, particularly given the Nuclear Regulatory Commission's (NRC's) ongoing reassessment of seismic risks at certain plant sites. The design and operation of commercial nuclear power plants operating in the United States vary considerably because most were custom-designed and custom-built. Boiling water reactors (BWRs) directly generate steam inside the reactor vessel. Pressurized water reactors (PWRs) use heat exchangers to convert the heat generated by the reactor core into steam outside of the reactor vessel. U.S. utilities currently operate 104 nuclear power reactors at 65 sites in 31 states; 69 are PWR designs and the 35 are BWR designs. One of the most severe operating conditions a reactor may face is a loss of coolant accident (LOCA), which can lead to a reactor core meltdown. The emergency core cooling system (ECCS) provides core cooling to minimize fuel damage by injecting large amounts of cool water containing boron (borated water slows the fission process) into the reactor coolant system following a pipe rupture or other water loss. The ECCS must be sized to provide adequate make-up water to compensate for a break of the largest diameter pipe in the primary system (i.e., the so-called "double-ended guillotine break" (DEGB)). The NRC considers the DEGB to be an extremely unlikely event; however, even unlikely events can occur, as the magnitude 9.0 earthquake and resulting tsunami that struck Fukushima Daiichi proves. U.S. nuclear power plants designed in the 1960s and 1970s used a deterministic statistical approach to addressing the risk of damage from shaking caused by a large earthquake (termed Deterministic Seismic Hazard Analysis, or DSHA). Since then, engineers have adopted a more comprehensive approach to design known as Probabilistic Seismic Hazard Analysis (PSHA). PSHA estimates the likelihood that various levels of ground motion will be exceeded at a given location in a given future time period. New nuclear plant designs will apply PSHA. In 2008, the U.S Geological Survey (USGS) updated the National Seismic Hazard Maps (NSHM) that were last revised in 2002. USGS notes that the 2008 hazard maps differ significantly from the 2002 maps in many parts of the United States, and generally show 10%-15% reductions in spectral and peak ground acceleration across much of the Central and Eastern United States (CEUS), and about 10% reductions for spectral and peak horizontal ground acceleration in the Western United States (WUS). Spectral acceleration refers to ground motion over a range, or spectra, of frequencies. Seismic hazards are greatest in the WUS, particularly in California, Oregon, and Washington, as well as Alaska and Hawaii. In 2010, the NRC examined the implications of the updated NSHM for nuclear power plants operating in the CEUS, and concluded that NSHM data suggest that the probability for earthquake ground motions may be above the seismic design basis for some nuclear plants in the CEUS. In late March 2011, NRC announced that it had identified 27 nuclear reactors operating in the CEUS that would receive priority earthquake safety reviews.

Origins The African Union (AU) has its roots in the Organization of African Unity (OAU) and the African Economic Community (AEC)Treaty of 1991. It came into force in 1994, following ratification by two-thirds of OAU member states. (1) The AEC Treaty set up asix-stage economic integration process leading to the anticipated creation, by 2028, of a common market and a rangeof commonpolitical and economic institutions. Its lengthy implementation schedule, however, meant that the treaty might yieldfew benefits fordecades. This factor, along with increasing calls for a basic restructuring of the purposes, priorities, and organizationof the OAU,ultimately led to its replacement by the AU. Developments in the late 1990s that contributed to the reformmovement included: Increasing support by OAU member states for good governance and its rejection of undemocratic changes ofpower. A loosening of the OAU's adherence to its long-standing doctrine of non-interference by member statesin theaffairs of their peers, including some marked by human rights abuses and undemocratic transfers ofpower. The rising importance of economic liberalization, renewed attention to market-driven economic growth,andglobal trends toward regional economic integration. H.Res. 155 , introduced by Representative Meeks on March 2003, urges that the United States commend the AU'screation and support its diverse economic and political goals. Sirte Summit. In September 1999, a summit of OAU heads of state held in Sirte,Libya assessed and sought to improve the OAU charter. The meeting, held on the 30th anniversary of Libyan leaderMuammaral-Qadhafi's coup d'état, was seen as an effort to extend Libya's growing influence in Africa, and to end itsinternational isolation inthe wake of the Lockerbie airplane bombing. (2) Al-Qadhafi hosted the meeting to press for the creation of a United States of Africa,loosely modeled on the United States. Such a union, he asserted, was needed to further intra-continental economicdevelopment andintegration, and to enable more organic relations to emerge between nations divided by arbitrary, colonial-eraborders. He cited theAEC Treaty as the legal and institutional basis of his proposal, stating that it had fundamentally redefined the OAUCharter, andnoting that it allowed for the creation of a range of common, pan-continental institutions. His proposal, whichechoed 1960s-erapan-Africanist ideas, emphasized a need to resolve and prevent Africa's conflicts through the establishment ofcommon defenseinstitutions. Summit participants issued the Sirte Declaration. Explicitly referencing al-Qadhafi's ideas, it called forthe revitalizationof the OAU and provided for the creation of an African Union, which was to conform with the OAU Charter andthe AEC Treaty. Italso called for the accelerated implementation of the AEC Treaty, and set the year 2000 as the projected start-up datefor apan-African parliament. It tasked the presidents of Algeria and South Africa, in consultation with the OAU ContactGroup onAfrica's External Debt, with seeking a substantial reduction or the total cancellation of Africa's foreign debt. Subsequent Developments. In March 2000, in Addis Ababa, Ethiopia, the OAUCouncil of Ministers ratified the Sirte Declaration. In July 2000, in Lomé, Togo, the OAU Assembly ofHeads of State andGovernment adopted an African Union Draft Constitutive Act. It also requested that OAU member parliamentariansvet aPan-African Parliament (PAP) Draft Protocol to the AEC Treaty, prior to its ratification. The AU Draft ConstitutiveAct text differedsubstantially from the model proposed by al-Qadhafi, and contained no binding provisions or timetables. In March2001, againmeeting in Libya, an OAU/AEC summit of heads of state mandated that the AU would come into being upon the36th ratification byan OAU member state of the AU Constitutive Act -- a benchmark reached in April 2001, when Nigeria depositedits instrument ofratification. The summit also adopted the PAP Draft Protocol, prior to its approval by OAU members. An OAU/AEC Summit, meeting in July 2001 in Lusaka, Zambia, charged the OAU Secretary General, in consultation with OAUstates, with determining the modalities necessary for the creation, structuring, and functioning of the organs of theAU. Priority wasgiven to the creation of an Assembly, Executive Council, Commission, and a Permanent RepresentativesCommittee. The sameactors were charged with defining the areas of competence, inter-relationships, and linkages with other externalmultilateral,non-governmental, and professional organizations of the OAU's specialized agencies, and processes forreconstituting these as AUorgans. The Summit also: Determined that regional economic communities would function as key "building blocks" of the AU. (3) Authorized the OAU Secretary General to "identify alternative modalities of funding the activities andprograms of the [AU], bearing in mind that the Union cannot operate on the basis of assessed contributions fromMember Statesonly." (4) Mandated that, as provided by the AU Constitutive Act, OAU assets, liabilities, and agreements withotherparties would devolve to the AU. In July 2002 in Durban, South Africa, the final meetings of the OAU were held. They were followed by official inauguration of theAfrican Union, and meetings of its Assembly, Executive Council, and Assembly of Heads of State and Government. Structure and Functioning of the African Union Organization. The Constitutive Act of the African Union defines the institutionalstructure, organizational principles, and broad policy roles of constituent AU organs. These include the following: An Assembly, an Executive Council, and a Commission of the Union. A Pan-African Parliament and a Permanent Representatives Committee. Court of Justice. Peace and Security Council. (5) Specialized Technical Committees, responsible to the Executive Council. These include committeeson:Economy and Agricultural Matters; Monetary and Financial Affairs; Trade, Customs and Immigration Matters;Industry, Science andTechnology, Energy, Natural Resources and Environment; Transport, Communications and Tourism; Health, Laborand SocialAffairs; and Education, Culture and Human Resources. Economic, Social and Cultural Council. Central Financial Institutions (including an African Central Bank; and African Monetary Fund; andan AfricanInvestment Bank). The precise operational relationships among these organs and with their subsidiary bodies, and their structures, functions, mandates,and powers, are yet to be determined. African Union Policy: NEPAD. A key AU policy vehicle is the New Partnershipfor Africa's Development (NEPAD), a multi-sector sustainable development and investment planning and advocacyframework. Ithas been endorsed by diverse African leaders and by key multilateral organizations. (6) A core feature of NEPAD is the voluntary,progress-based African Peer Review Mechanism (APRM). APRM signatory states will be subject to peerevaluations that will assesstheir degree of adherence to political, economic and corporate governance goals, codes, and standards containedin the NEPAD Declaration on Democracy, Political, Economic and Corporate Governance . Defining the AU Agenda: Contrasting Visions of Reform During the African Union inaugural summit in July 2002, leaders from across Africa joined together in a public display ofcontinental unity and pageantry. The formation of the African Union, however, was reportedly the subject ofsignificant, sometimesdivisive debate among African leaders. The debate arrayed leading political and economic reformers, in particularadvocates ofNEPAD and of Africa's further integration into the global economy, against several leaders who have championedAfrican politicalautonomy and nationalist policy agendas. The latter, including the heads of state of Libya, Zimbabwe, Namibia andGambia,criticized NEPAD. They warned that for such a plan to be successful, it would need to be defined, realized, andcontrolled byAfricans alone, independent of external influences. NEPAD was defined by foreign political and economic models,they asserted,and might subject Africa to externally-imposed political conditions in exchange for credit and other assistance. Theyalso assertedthat NEPAD would create financial dependency on external creditors. (7) Libyan and South African Leadership Roles. Differences over the proposedpurpose and role of the AU played out in reported disagreements between President Thabo Mbeki of South Africaand Libyan leaderMuammar al-Qadhafi. The latter has promoted a range of populist, sometimes radical, proposals. These reflecttraditionalpan-Africanist goals emphasizing a need for greater continental unity and sovereignty vis-a-vis the industrializedworld, and a strongrejection of policy conditionalities in exchange for access to credit. Despite al-Qadhafi's early conceptualcontributions to thecreation of the AU and his subsequent outreach efforts, the AU organization that ultimately emerged reflected broadAfricanleadership support for NEPAD. The gradual displacement of al-Qadhafi's agenda by NEPAD reportedly gave riseto a leadershipstruggle between him and President Mbeki. During a June 2002 state visit by Mbeki to Libya, al-Qadhafi reportedlycalled NEPAD aproject of "former colonisers and racists," i.e., of Western governments. (8) He also reportedly attempted to delay the July 2002initiation of the AU in Durban, South Africa in favor of a launch in 2003 in Libya, with Libya -- not South Africa-- as the first AUchair. Libya has helped some countries to pay their OAU arrears, in an apparent attempt to garner support and toincrease itsinfluence within the OAU during the transition to the AU. The president of Zambia, which received such assistance,reportedlychampioned the transfer of AU headquarters from Ethiopia to Libya, asserting that such a key role was befitting ofLibya, as one ofthe richest AU countries. The Libyan and South Africa governments have dismissed claims that a rivalry exists between them, and efforts to bridge theirdifferences appear to have been successful, albeit broadly in favor of the South African agenda. President ThaboMbeki was namedas the first chairperson of the AU during its inaugural year, and the first AU summit was held in Durban, SouthAfrica. Libya hasindicated its acceptance of NEPAD and its Peer Review mechanism, and Libya is represented on the NEPADImplementationCommittee. Some AU inauguration summit participants reportedly believe that al-Qadhafi's presence in NEPADcould jeopardizethe recent endorsement of the plan by the G-8 countries. (9) Current Topics and Issues HIV/AIDS. World-wide, Africa is the region currently most affected by theHIV/AIDS epidemic. In many African countries, it is rapidly decreasing life expectancy rates, reducing current andfuture economicproduction, and leading to enormous human resource losses, including within the educated work force. Some criticsclaim thatNEPAD fails to substantively and pro-actively address the extreme devastation being engendered by the spread ofAIDS in manyAfrican countries. War and Conflict. Conflicts in Sierra Leone and Angola have recently ended, buthostilities continue in Somalia, Liberia, Burundi, Sudan and the Democratic Republic of the Congo (DRC). (10) Many other countrieshave faced armed insurgencies or periodically high levels of political violence in recent years. Such conflicts posepotent challengesto the AU goal of achieving continental peace and security, while upholding the doctrine of member states'non-interference in theinternal affairs of their peers. In late April 2003, the AU began deploying the first 100 members of a planned3,500-strong combinedSouth African, Ethiopian, and Mozambican peacekeeping force that will monitor and reinforce a cease-fire andpolitical successionaimed at ending Burundi's civil war. Democracy and Governance Challenges. The extent of the African Union'sdetermination to consolidate democratic institutions and culture, and ensure good governance and adherence to therule of law -- asreflected in the AU Constitutive Act and in multiple NEPAD texts -- face immediate tests. In recent years, theconstitutions ofseveral African states have been amended expressly to allow current leaders to renew their terms of office. Suchdevelopmentssuggest that the power of incumbency, rather than the rule of law, effectively governs political power-holding inmany Africancountries -- although in several countries, including Zambia, Malawi, and Mozambique, the trend towardentrenched presidentialincumbency has been reversed. In other cases, the legitimacy of recent local legislative elections administered byruling parties havebeen questioned by opposition groups and outside observers. Key challenges facing the AU are disputed polls inMadagascar,Zimbabwe; Nigeria also held a widely criticized election. Madagascar. In the island nation of Madagascar, contested presidential elections in late 2001 led to a tense, violent, half year stand-off between the two candidates and their supporters. After theelection, thechallenger, businessman Marc Ravalomanana, citing electoral irregularities, declared himself the electoral winnerover DidierRatsiraka, the longtime incumbent. The Malagasy Supreme Court later sanctioned his claim. In June 2002, theUnited States andseveral other powers formally recognized Ravalomanana's government, and France soon followed suite. The AU,however, has notrecognized the new government, and has called for new elections. Senegal, which had tried to mediate in crisis, didnot endorse theAU decision. It recognized the new government, as did Burkina Faso, Mauritius, Libya and the Comoros. There areindications thatthe AU may soon recognize the current Malagasy government. Zimbabwe. In contrast to its Madagascar decision, the inaugural AU Assembly tacitly accepted the highly disputed March 2002 re-election of Zimbabwean President Robert Mugabe, which was precededby extensivepolitical violence and a controversial land redistribution program. Although the AU did not directly address theelection, it affirmedearlier OAU endorsements of it, mirroring acceptance of the election by sub-regional leaders and SADC. In contrast,the UnitedStates, the European Union, and other countries rejected the Zimbabwean poll. Leaders of the Zimbabweanopposition Movementfor Democratic Change, some of whom were prevented from attending the AU inauguration, called upon the AUto use the NEPADAfrican Peer Review Mechanism to sanction the Zimbabwean government for abuses of human and political rights. Elitism and Popular Participation. Civil society activists have long charged thatthe OAU was a state-centric forum that upheld the interest of political elites, rather than the public good. Somecritics predict that theAU may become subject to similar biases, and assert that without much broader input from African societies atlarge, the AU willbecome irrelevant to the needs of the majority of Africa's citizens. Still, many critics see positive potential in boththe AU andNEPAD, and leading AU architects, such as President Mbeki, have recognized their concerns in public statements.Mbeki hassponsored forums focusing on AU-related policy goals of diverse civil society groups. Structural Poverty and Financing of NEPAD. The AU may face difficulties infinancing its ambitious agenda, as did the OAU. The average sub-Saharan per capita in 2002 was $470 and wasmuch lower in manynon-oil-producing countries. In addition, wealth is highly unequally distributed in many African countries; even inthe wealthiest ofsub-Saharan countries, the majority of people are poor. While NEPAD is an attempt to improve the economicstanding of Africa ingeneral, growth that it may generate is likely to occur over the medium to long-term. In the short to medium term,funding shortfallsare likely to curtail the ability of the AU to meet its planned objectives.

In July 2002, the Organization of African Unity (OAU), founded in 1963 during thedecolonization era, was superseded by the African Union (AU). An AU Interim Commission, created to transfer theinstitutional andreal assets and liabilities of the OAU to the AU, and establish the AU's organizational structure, is the focal pointof AU activitiesduring its inaugural year. The AU's policy agenda overlaps substantially with that of the OAU, but more stronglyemphasizes a needfor greater economic growth and for governance reforms. The AU is likely to confront many of the same policy andfiscal challengesfaced by the OAU (see CRS Report RS20945(pdf), The Organization of African Unity). H.Res. 155,introduced in March2003, urges U.S. support of the AU and its diverse economic and political goals. This report will be updated asevents warrant.

The East Asia Summit: Background and Context Kishore Mahbubani, formerly a senior official in Singapore's Ministry of Foreign Affairs andTrade, stated that history will view the EAS as the real beginning of the Pacific century. (3) The EAS is viewed asimportant not only because of its implications for regional trade but more importantly for itspotential importance as an indicator of China's rising geopolitical importance. It is also of importancebecause the positions of regional states relative to China and the United States were brought intoperspective as the diplomacy surrounding the summit unfolded. The EAS is viewed as potentiallyof strategic importance because many believe that it could form the basis of a future East AsianCommunity, which might make collective agreements on trade or even security affairs without U.S.input. As such, regional states have sought to be included in the summit so that they will not beexcluded from any future East Asian Community. The United States has not played a role in the EAS process nor was it invited to attend. Whatis of concern to some analysts is that this appears to be a potential challenge to Americaninvolvement in the region. Some fear that by shifting emphasis from APEC, an organization in whichthe United States has played a leading role and which encompasses the broader Pacific Rim, to anannual East Asia Summit, in which the United States is not a participant, America's overall positioncould become relatively less influential and the United States could potentially be excluded frompreferential trade agreements. Though President Bush attended the APEC gathering in Busan, SouthKorea in November 2005, that gathering is being viewed by some as "trumped" by the December2005 EAS meeting. (4) APEC, however, is primarily a trade and economic organization. A major strategic consideration isthat APEC includes Taiwan whereas the EAS does not. (5) Membership Issues Some view the inclusion of India, Australia, and New Zealand as a partial balancer to thegeopolitical weight of China within the grouping. (6) This is thought to be the perspective of countries such asSingapore, Japan, Vietnam, and Indonesia, though other states are thought to be relativelycomfortable with China's role and an ASEAN Plus Three format. (7) Some observers believe thatdespite its acceptance of the current membership of the EAS, China actually favors a future EastAsian Community based on the more restricted membership of the ASEAN Plus Three states. Thiswould exclude Australia and New Zealand, which are more closely aligned with the United States,as well as India. India is China's traditional rival in Asia and is in the process of developing closerties with the United States. This issue came to light as China reportedly favored a draft jointdeclaration for the summit which portrayed ASEAN Plus Three states as having a dialogue withIndia, Australia and New Zealand at the summit. Japan reportedly opposed such a definition of thegrouping. India reportedly opposed any joint declaration that did not imply that the EAS would formthe basis of a future East Asian Community. (8) To some, the EAS is an extension of the East Asian Economic Caucus (EAEC) concept putforward by former Prime Minister Mahathir Mohammed of Malaysia. The EAEC was a revisedversion of Mahathir's 1990 East Asian Economic Group (EAEG) concept. (9) The EAEC was to excludenon-Asian states, such as the United States, Australia, New Zealand, and Canada. The United Stateswas opposed to such an exclusive East Asian grouping, and Japan reportedly worked to thwart itwhile Australia promoted the APEC grouping which includes all states concerned. (10) The evolution of the EastAsian Community concept, of which the EAS is the latest manifestation, evolved further whenASEAN joined with China, Japan, and Korea in 1997/1998 to form the ASEAN Plus Threegrouping. (11) The United States' Position Singaporean Foreign Minister George Yeo stated after a meeting with Secretary of State Ricein February 2005 that the United States "has some concerns that the East Asia Summit will be inwardlooking and exclusive." (12) The United States has been criticized by regional states for notpaying enough attention to Southeast Asia. This was highlighted by Secretary of State CondoleezzaRice's decision to break with tradition and not to attend the July 24-29, 2005 ASEAN Ministerialmeeting in Vientiane, Laos. Secretary of State Rice also canceled a planned visit to Indonesia inJanuary 2006 reportedly due to developments in the Middle East. (13) Some interpreted this moveas "a sign that the United States was ceding the region to China." (14) The Administration hasindicated that the EAS agenda is not clear and that it continues to support APEC as "by far the mostrobust, multilateral grouping in Asia." (15) Despite the perceived lack of attention by the U.S., the UnitedStates and ASEAN announced a Joint Vision Statement on the ASEAN-U.S. Enhanced Partnershipjust prior to President Bush's meeting with ASEAN leaders on the sidelines of the November 2005APEC meeting in South Korea. (16) A Singaporean Foreign Affairs spokesman greeted the JointVision Statement by stating that "The enhanced partnership ... will substantially broaden the UnitedStates' engagement with ASEAN ... and will better position both sides to meet the challengesahead." (17) China's Posture China's approach to multilateral institutions which involve ASEAN has undergone atransformation as have Southeast Asian states' perceptions of China. China has evolved fromviewing multilateral institutions in Southeast Asia as potentially constraining to viewing them asuseful for promoting China's foreign policy objectives. (18) Southeast Asian states' views of China have evolved as Chinahas abandoned its support of communist insurgencies in the region, been less assertive in the SouthChina Sea, and has embarked on diplomatic and trade initiatives. Since taking office in March of2003, President Hu Jintao has traveled extensively in the region. (19) Some view the currentdrive for the creation of an East Asian Community as having roots in the perceived failure of theUnited States to effectively respond to the 1997/98 Asian financial crisis. (20) At that time, China gainedmuch favor by not devaluing its currency and by providing a reported $US 4 billion in aid to affectedcountries at a time when the United States' response was not viewed positively by regional states.China is also developing defense cooperation with Indonesia, Malaysia, and the Philippines. Chinaviews the region as key for its energy security both as a region through which its energy flows (some80% of China's oil imports flow through the straits of Malacca) as well as a region from which Chinacan derive energy resources. (21) China-ASEAN trade exceeded $100 billion in 2004, a 30% increase over 2003 levels. (22) The rapid growth in tradebetween China and regional states provides the economic ballast for a broader relationship that mayincreasingly encompass political and security linkages as well. China and ASEAN have signed aFree Trade Agreement and are negotiating to reduce tariffs to between zero and 5% on certain goodsby 2010 and by 2015 for poorer members of ASEAN. (23) The combined gross domestic product (GDP) of Asian countriesis approximately 22% of the world total while the United States and Europe account forapproximately 28% and 30% respectively. (24) Asia has experienced much higher rates of growth than theUnited States and Europe in recent years, and this trend is widely expected to continue. Southeast Asian Perspectives There are a range of perspectives within ASEAN on the EAS and China's evolving role ina potential East Asian Community. While all invitees to the EAS see value in developing diplomaticand trade relations with China, some are more concerned than others that China's potentiallypreponderant influence should be balanced. Singapore has taken a leading role in articulating thebenefits of an open regional framework for Southeast Asia. Prime Minister Lee Hsien Loong hasstated "ASEAN does not want to be exclusively dependent on China and does not want to be forcedto choose sides between China and the United States or China and Japan." He also reportedly stated"if the world is split up into closed blocs or exclusive spheres of influence, rivalry, antagonism andconflict are inevitable." (25) Singapore has supported India's inclusion in both the East AsiaSummit and India's bid for a permanent seat on the United Nations Security Council. (26) Singapore also seekscontinued U.S. engagement in the region. Burma and Laos are viewed as already significantly underChina's sphere of influence in Southeast Asia. (27) Other Perspectives It is not only Southeast Asian states that are feeling the pull of China's diplomatic initiatives;"loyal allies of the United States, such as Japan, South Korea, and Australia, already feel themagnetic force of a new geopolitical pole." (28) Australia reversed its previous policy on the ASEAN Treaty ofAmity and Cooperation and signed the treaty which enabled it to attend the East Asia Summit. It isunclear to what extent current tensions between Japan and China will hinder the future developmentof the EAS. China has reportedly postponed discussions involving Japan which were to take placeon the sidelines of the EAS. (29) This conflict, and Japan's perceived declining regional influence,may have contributed to enthusiasm among others to include India, Australia, and New Zealand inthe group. Some view recent developments in America's bilateral relationship with India as in partinspired by a desire to build ties with another regional state which may not be comfortable with arapidly expanded Chinese position. (30) China was recently able to gain observer status to the SouthAsian Association of Regional Cooperation, the main multilateral grouping in South Asia. (31) Key Outcomes of the First East Asia Summit The Kuala Lumpur Declaration on the East Asia Summit, of December 14, 2005, madeseveral key declarations which are listed below. "... we have established the East Asia Summit as a forum for dialogue on broadstrategic, political and economic issues of common interest and concern with the aim of promotingpeace, stability and prosperity in East Asia." "... the efforts of the East Asia Summit to promote community building in thisregion will be consistent with and reinforce the realization of the ASEAN Community, and will forman integral part of the evolving regional architecture." "... the East Asia Summit will be an open inclusive, transparent and outwardlooking forum ... with ASEAN as the driving force ..." The EAS will focus on "fostering strategic dialogue and promoting cooperationin political and security issues ... promoting development, financial stability, energy security,economic integration and growth eradicating poverty and narrowing the development gap in EastAsia ..." (32) The summit has highlighted a number of evolving geopolitical dynamics in the region. It hasbeen observed that key outcomes of the summit are that ASEAN "successfully projected its politicalcentrality in a wider region fast becoming a function of the economic weight of China and India,"and those within ASEAN Plus Three who advocated a more inclusive membership were able to bringIndia, Australia, and New Zealand into the group. (33) It has been reported that Japan, Singapore, and Indonesia workedto broaden membership to include India, Australia, and New Zealand. (34) Such additions are thoughtto partially offset the influence of China within the group. It was also observed that while the UnitedStates did not participate, "its influence remains directly and via regional allies." While media reportsdid focus on the EAS as a new Asian bloc they also pointed to conflicts within the region,particularly the Sino-Japanese conflict, that may limit future regional cooperation. (35) Some analysts haveobserved that rather than bringing Asia together under Chinese leadership the EAS may have moreclearly defined Asian rivalry and regional geostrategic divisions. (36) Russia, which had observerstatus at the EAS, also is reportedly seeking to become a full member at the next EAS meeting. (37) The group plans to holdits second summit in the Philippines in 2006. (38) Implications for U.S. Policy Some have asked why the United States should be concerned with an EAS that has yet todemonstrate that it will be a threat to American influence in Asia. Others argue that it will lead toa reduction in influence that would limit America's ability to promote its values or look after itsinterests whether they be economic or strategic. To some, America's preoccupation with Iraq hasbeen a distraction that has led it to underestimate the importance of evolving geopolitical dynamicsin Asia including the EAS. (39) The focus on the EAS comes at a time when APEC is generally perceived to have lostmomentum. There is an increasing perception that APEC, which has 21 members and wasestablished in 1989, is disintegrating into regional and bilateral blocs and that it does not have theleadership necessary to meet future challenges. Some feel that a return to APEC core issues of tradeliberalization and the reduction of trade barriers is the best way for APEC to regain itsmomentum. (40) Australia, which played a key role in the development of APEC, will be the 2007 Chair of APEC.A question is whether the United States should take additional measures to strengthen APEC. Somesuggest this would also keep Taiwan from becoming increasingly isolated. To some, the key question concerning the EAS is whether China's leadership "will be benignor will it be aimed -- or be perceived by the U.S. as being aimed -- at limiting or replacingWashington's (and Tokyo's) influence in the region." (41) China's actions through the Shanghai Cooperation Organization(SCO), which includes China, Russia, Kazakhstan, Tajikistan, and Uzbekistan, and Kyrgyzstan, areviewed by some as challenging America's regional presence. (42) The SCO asked in July2005 for a timetable for the withdrawal of U.S. coalition forces in Central Asia. (43) China's potentialopposition to America presence in a region that it may increasingly see as within its sphere ofinfluence may portend future negative postures relative to American forces elsewhere in Asia. Developing a constructive relationship with China is generally viewed as the most significantforeign policy challenge for the United States in Asia, and possibly the world, in the years ahead.How the United States reacts to China's bid to position itself more centrally in Asia, as demonstratedby the EAS, is an important component of this challenge. A policy approach that seeks to continueto foster the peaceful rise of China appeals to many. (44) Some feel that it is important that American policy on the EastAsia Summit, or a potential future East Asian Community, not be interpreted by China as an effortto contain China but rather as a policy initiative to demonstrate that America seeks to remain anactive and constructive actor in Asian multilateral affairs and that it supports the constructiveintegration of China into regional and world affairs.

The first East Asia Summit (EAS) met on December 14, 2005, in Kuala Lumpur, Malaysia.It brought together the ten Association of Southeast Asian Nations (ASEAN), [Brunei, Burma,Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam] as well as the"plus three" states [China, South Korea, and Japan] and Australia, New Zealand, and India, todiscuss issues of common concern. Japanese officials have described the EAS as an "historic summitmeeting to be held with a view to establishing a future East Asia Community." (1) Such a group could potentiallyreplace Asia Pacific Economic Cooperation (APEC) as the main multilateral forum in Asia on tradeand investment liberalization and economic integration. Russia was invited to attend the EAS as aspecial guest. (2) Some inthe United States are concerned that the East Asia Summit marks a rise in Asian regionalism inwhich the United States is not playing a leading role. There is also concern that China may use theEast Asia Summit to consolidate a leading role in Asia. A key outcome of the first East Asia Summitis that ASEAN appears to have retained a central role in the process. This report will be updated ascircumstances warrant.

Introduction During the 1990s and early 2000s, Guinea was considered a locus of relative stability as civil conflicts raged in neighboring Liberia, Sierra Leone, Guinea-Bissau, Côte d'Ivoire, and Mali. However, Guinea subsequently came to be viewed as a potential source of regional instability due to its fractious and sometimes restive military, periodic political unrest, ethnic tensions, and the rise of transnational drug trafficking and maritime piracy. Poor governance, corruption, weak or nonexistent infrastructure, and other factors have prevented Guinea's population from benefiting from its rich natural resource endowments, and average living conditions are poor even by regional standards in West Africa. The ongoing Ebola outbreak in West Africa has highlighted stark gaps in Guinea's healthcare infrastructure. It has also cast a spotlight on deep mistrust between local communities and historically absent or abusive state institutions. Such tensions are particularly evident in the remote southeast "Forest" region, where the epidemic reportedly originated in December 2013. However, now that dwindling Ebola cases are concentrated in the capital, Conakry, and along the coast, communities in those areas have also resisted Ebola education and treatment campaigns. The outbreak has affected Guinea's economy, social relations, and politics. Previously, Guinea had seen a relative increase in stability since elections in 2010 brought an end to two years of turbulent military rule. Longtime opposition leader Alpha Condé was elected president in the country's first ever open elections organized by an independent electoral commission. As president, Condé has enacted economic reforms and has largely confined the military to the barracks. Critics, however, accuse him of ruling unilaterally, and his time in office has been characterized by severe political tensions. The Ebola crisis, at its height, led to a hiatus of political demonstrations and protests. However, as the urgency of the crisis has faded, political leaders have turned to a dispute over the timetable and appropriate sequencing for presidential and local elections, currently scheduled for October 2015 and early-to-mid-2016, respectively. In 2010, significant election-related violence along ethnic lines revealed latent tensions and damaging the social fabric in ethnically mixed areas. These events left scars that continue to affect political dynamics. At the local level, in the Forest region, tensions between ethnic Malinkés (who trace their heritage to northeastern Guinea) and diverse groups viewed as the area's indigenous inhabitants (known collectively as Forestiers) also spark periodic violence. Ethnic differences sometimes map onto religious identity, particularly in the Forest region, but religion alone is not a major factor in national politics. The United States played a key role in Guinea's 2010 political transition by isolating the military junta and providing high-level support for elections. U.S. bilateral aid has since decreased, and is overwhelmingly focused on health. Congress has appropriated funds for U.S. aid to Guinea, including for Ebola response, and some Members have periodically expressed interest in Guinea's political stability, democratic trajectory, human rights record, and role in regional security. Background The past seven years have seen dramatic political changes for a country that previously had had two presidents since independence from France in 1958. In 2008, President Lansana Conté, who came to power in a military coup in 1984, died after a long illness. Mid-ranking military officers seized power upon his death, initiating a period of chaotic state decision-making. Popular opposition to the junta grew, and the security forces violently attacked peaceful protesters at a stadium in Conakry in September 2009, killing over 150 people and raping over 100. This sparked international condemnation. In December, Junta leader Captain Moussa Dadis Camara was shot and wounded by a member of his personal guard. His departure into exile paved the way for a military-led transitional government formed in early 2010 with international backing. A new constitution was drafted and adopted in May 2010 by a National Transitional Council (CNT). In June 2010, Guineans voted in their country's first presidential elections organized by an independent electoral commission and without an incumbent candidate. Former Prime Minister Cellou Dalein Diallo came in first but did not get enough votes to avert a run-off against Alpha Condé, which took place in November. The two candidates had widely divergent political backgrounds: Diallo was widely seen as a political insider, while Condé was a longtime opposition activist who had lived in exile during most of Guinea's post-independence history. The vote was nevertheless perceived by many as a contest between Guinea's two largest ethnic groups: the Peul, seen as constituting Diallo's base, and the Malinké, seen as Condé's. Condé ultimately benefitted from cross-ethnic support, in part because other groups apparently feared political consolidation by the already economically influential Peul community. (There has never been a Peul president in Guinea, but Peuls are prominent in domestic and regional commerce.) International election observers ultimately concluded that the overall conduct of the elections was acceptable, while noting concerns regarding logistical shortcomings, delays between the first and second rounds of voting, political polarization, and election-related violence. Diallo contested but ultimately accepted the results. Some opposition activists continue to claim that Condé's 2010 electoral victory itself was illegitimate. Legislative elections held in 2013 allowed an elected parliament to replace an appointed, quasi-legislative body created under the junta. The election process was contentious, however, and the ability of opposition groups to participate in legislative deliberations has not eased political polarization (see " Politics " below). Politics Guinea's political system concentrates substantial power in the presidency. President Condé has arguably deepened this tendency through the elevation of presidential advisors and a pattern of unilateral decision-making. Although Condé appears to have consolidated political power, he has not been able to fulfill campaign promises to raise living standards, and analysts periodically express concerns about political stability. Condé's leading opponent remains Cellou Dalein Diallo, his top rival in 2010, who leads the Union of Democratic Forces of Guinea (UFDG) party and the opposition block in parliament. Political dynamics in 2015 have been dominated by entrenched disputes over the upcoming electoral cycle. In early 2015, the national electoral commission (CENI, after its French acronym) scheduled the presidential election for October 2015 and local elections for 2016. Opposition leaders, however, assert that a 2013 political agreement between the government and opposition requires local elections to be held before the presidential vote. They accuse Condé's administration of politicizing the CENI and seeking to manipulate the electoral process—including through the appointment of partisan individuals to replace elected local-level officials. The opposition withdrew its representatives from parliament in March 2015 in protest against perceived political interference in election preparations and staged multiple anti-government protests in April-May, several of which turned violent. An investigation by Human Rights Watch (HRW) found that on numerous occasions, security forces responding to the protests used excessive force, engaged in theft and banditry, and employed "ethnic slurs" against opposition supporters. HRW also reported that protesters engaged in criminal conduct. In response, the Guinean government blamed these issues on a lack of training. The protests have also exhibited a new trend of civilian-on-civilian violence, often along ethnic lines. Many Guineans view the crux of national politics as a power-struggle between Guinea's two largest ethno-regional communities, the Peul and Malinké, with other communities forced to choose sides or else face political irrelevance. Given Condé's past electoral success in Malinké areas and Diallo's in Peul areas, the presidential contest is thus expected to be hard-fought in the melting pot of Conakry and in potential "swing districts," such as the ethnic Soussou-dominated coastal region and the ethnically diverse Forest region in the southeast. Perhaps as a result of ethno-regional calculations, in June 2015, Diallo's UFDG announced an electoral alliance with former military junta leader Moussa Dadis Camara, a Forestier, who is in exile in Burkina Faso. Soon after, the Guinean government—after years of delay—brought criminal charges against Dadis Camara for the massacre of protesters by security forces in 2009, while he was president. Whether Dadis Camara will return to Guinea is a matter of intense speculation. Legislative elections were held in September 2013, following the aforementioned political agreement, which was brokered by the Special Representative of the U.N. Secretary-General for West Africa and backed by the European Union (EU). The elections were initially supposed to take place in 2011 but had been repeatedly delayed due to a dispute over electoral procedures. The elections were widely viewed as a key step in Guinea's political transition, and the EU had conditioned the full resumption of its development aid on completing them. The lead-up to the vote was violent, however, and the opposition contested the results. Condé's RPG won a plurality of seats (53 out of 114), which, in coalition with smaller parties in the ruling Rainbow Alliance, allowed it to control a slim majority of 59 seats. The State Department's annual human rights report lauded the 2013 elections as "the first competitive and inclusive legislative elections in the country's history." However, EU election observers criticized both technical shortfalls and the overall political climate. For example, EU observers stated that "the transmission of results suffered from a lack of transparency" and reported that a number of problems had "a negative impact on the quality of operations and lessened public confidence in electoral administration," including "the absence of detailed data on the revision of the electoral registry, the release of provisional voter lists that had not been purged or corrected, the unilateral and tardy announcement of a new map of polling stations that did not conform to legal requirements, concerns regarding the contractor in charge of the electoral registry, the inversion of key steps in the process, and the removal of proxy voting a week before the polls." EU observers also criticized aspects of Guinea's legal electoral framework. The Economy Guinea boasts bountiful natural resources, including the world's largest known reserves of bauxite (aluminum ore); sizable deposits of high-grade iron ore, diamonds, gold, and uranium; and potential offshore oil and gas reserves. It also has significant hydroelectric and commercial agricultural potential. The economy relies heavily on mineral exports, notably joint-venture bauxite mining and alumina operations. Extractive industries are estimated to account for over 30% of gross domestic product (GDP). Over three-quarters of the labor force, however, works in the largely subsistence-focused agricultural sector. Economic hardship has contributed to periodic unrest, including general strikes in 2007 that turned into a national anti-government protest movement. Economic growth has been buffeted by regional instability and swings in global mineral prices, and growth rates of 2%-4% per year from 2010 to 2013 were insufficient to reduce poverty or improve living standards. Since 2014, Ebola has substantially reduced growth and investment, with a slight recession projected in 2015. President Condé has worked to attract greater foreign investment, particularly in the mining and electrification sectors. Investors nonetheless face sharp obstacles, including electricity shortages, poor infrastructure, and a lack of skilled workers. Condé's administration has improved macroeconomic stability by addressing key aspects of poor economic governance under past regimes—such as unsustainable spending and the printing of extra currency to meet budget shortfalls, which caused high inflation. Condé's reforms secured $2.1 billion in debt relief in 2012 under the World Bank- and International Monetary Fund (IMF)-managed Highly Indebted Poor Countries Initiative. As a result, Guinea's debt decreased from 100% of GDP in 2010 to 37% in 2014. The reforms also enabled the restoration of international financial institution aid, which had been suspended due to payment arrears and policy concerns. Selected Issues Governance and Human Rights The State Department's 2014 human rights report identified the following as the most "serious" human rights concerns: "life-threatening prison and detention center conditions; denial of fair trial; and violence and discrimination against women and girls, including forced and early marriage and female genital mutilation/cutting." The report also documented security force abuses, including killings and use of excessive force against civilians, as well as limitations on political and civil rights, including the detention of "political prisoners," restrictions on freedoms of press and assembly, and "corruption at all levels of government." Guinea has arguably never experienced the effective rule of law. According to the State Department's human rights report, "the judicial system lacked independence and was underfunded, inefficient, and overtly corrupt." The 2010 constitution contains a number of provisions aimed at improving the functioning of political institutions and protecting human rights, but implementation has been slow and incomplete. The military and other state security forces were implicated in allegedly systematic and widespread abuses against civilians during large political demonstrations in 2007 and 2009. A Human Rights Watch investigation of security forces' actions during post-election unrest in November 2010 found that the security forces "demonstrated a lack of neutrality in responding to the political and ethnic violence, and for targeting members of the Peuhl [Peul] ethnic group," possibly because the latter were seen as opposition supporters. Security forces' actions during more recent protests have also resulted in civilian deaths and injuries. Some Guinean activists contend that a truth and reconciliation process is needed to address allegations of state-backed human rights abuses stretching back to Guinea's first post-independence regime. The Guinean government, a U.N. Commission of Inquiry, and the International Criminal Court (ICC) have each conducted investigations into the 2009 brutal crackdown on civilian demonstrators, also known as the "stadium massacre." A Guinean Panel of Judges has interviewed victims, sought to locate mass graves, and summoned senior officials and military officers. In 2013, charges were brought against several key commanders—but only one low-level gendarme has been tried and convicted, and some of those who face charges have retained high-level state posts. The ICC has so far refrained from initiating prosecutions while the Guinean justice system is pursuing cases, although it continues to monitor the situation. The Role of the Military Guinea's civilian-military balance has long been fragile. Prior to President Condé's election in 2010, the country was ruled for 26 years by presidents who came to power in military coups. Successive army mutinies, a pattern of serious human rights abuses against civilians, and the incomplete integration of waves of irregular recruits significantly undermined the military's reputation, and the 2008 military coup revealed serious internal divisions along generational, ethnic, and factional lines. The military is disproportionately large by regional standards (estimated at over 45,000 personnel in 2010), with an aging force and a corps of officers that far outweighs the number of enlisted soldiers. President Condé has leveraged a combination of strategic appointments, promotions, and forced retirements to exercise control over the armed forces. Condé's home came under armed attack in July 2011, reportedly by disgruntled soldiers, after which several prominent officers were arrested or dismissed. There have not been episodes since then to suggest high-level civil-military tensions. The police and relatively professional gendarmes, not the military, have led the security response to recent protests in Conakry, lessening the potential for military abuses. Condé has pledged to prioritize security sector reform (SSR), for which the United States has provided support (see " Foreign Assistance " below). In November 2011, Condé announced the retirement of over 4,000 soldiers and paramilitary officers, with U.N. assistance to finance the cost of severance. However, overarching attempts to develop a coherent national security strategy and to tailor the mandate and size of the various services accordingly have advanced slowly, if at all, and civilian oversight of the defense sector budget and management remains limited. Drug Trafficking Guinea, among other countries in the region, is a transshipment hub for cocaine en route from South America to Europe. The junta that seized power in 2008 initiated populist moves to crack down on drug trafficking, but these were politically selective, neglected due process, and empowered security agencies associated with a lack of accountability. Some analysts posit that narcotics flows have increased in recent years, with a Reuters investigation in 2014 reporting that traffickers may have relocated to Guinea from Guinea-Bissau following the U.S. Drug Enforcement Agency arrest of a top Guinea-Bissau military commander in 2013. The report also found that traffickers are operating in Guinea "with the protection of senior civilian, military and police officials." The head of the country's top counter-narcotics agency is an individual implicated in the September 2009 security force massacre of protesters in Conakry, potentially complicating international cooperation efforts. The Mining Sector Guinea's economy and budget depend on mineral exports, but erratic government decision-making and regulatory uncertainty have historically constituted serious concerns for mining firms. President Condé has identified mining sector reform as a priority, and in 2011 his administration promulgated a new mining code, amending it in 2013 in response to industry input. The code increases the required ownership stake for the Guinean government in all mining projects; introduces new procedures for obtaining mining permits; and raises taxes on mineral exports, among other provisions. Industry reactions have varied between strident criticism and a wait-and-see attitude. In February 2013, the government published all mining contracts online, an unprecedented move. The decision led Guinea to be determined "compliant" with the Extractive Industries Transparency Initiative (EITI), an international effort to foster open and accountable management of natural resource revenues. The government has revoked some mining contracts pursuant to investigations into alleged mining sector corruption. Notably, in 2013, it revoked a large iron ore concession acquired in 2008 by Benny Steinmetz Group Resources (BSGR), a firm headed by Israeli businessman Benny Steinmetz. The concession was located in the Simandou region of southeastern Guinea, one of the world's largest untapped, high-grade iron ore deposits. BSGR had subsequently entered into a lucrative joint venture with the Brazil-based mining company Vale. BSGR's acquisition of its concession is also subject to a U.S. Department of Justice (DOJ) Foreign Corrupt Practices Act investigation. An alleged BSGR surrogate was arrested by the United States in 2013 and, more recently, U.S.-based assets were seized that allegedly belonged to the widow of former Guinean president Conté, who has reportedly cooperated with DOJ. BSGR has vigorously contested the loss of its concession, accusing the Condé administration of corrupt motivations, and has appealed for international mediation. The firm has also sought to undermine President Condé's legitimacy, including by circulating allegations that the election that brought him to office was rigged. U.S. Relations and Aid According to the State Department, "U.S. policy seeks to encourage Guinea's democratic reforms, its positive contribution to regional stability, and sustainable economic and social development." The Obama Administration hailed the 2013 legislative elections as "a positive advance in Guinea's democratic development," and called for "fortifying the National Assembly, constructing a transparent judiciary, and preparing for 2015 Presidential elections." The Administration has also continued to call for those responsible for the 2009 massacre of protesters during the military junta to be brought to justice. The Obama Administration congratulated Guinea in 2010 "on the successful completion of its first democratic presidential election" and congratulated President Condé on his victory, expressing hopes that "it is only the first step on the road to democratic transition and civilian rule." As a result of that election, U.S. aid restrictions related to the 2008 military coup were lifted, and Guinea's eligibility for trade preferences under the African Growth and Opportunity Act (AGOA) was restored. President Condé, along with three other West African presidents who had been democratically elected, met with President Obama at the White House in 2011. The Ebola crisis has led to new U.S. aid and engagement, along with a change in immigration regulations for Guinean nationals residing in the United States. In November 2014, citing the Ebola crisis, the Secretary of Homeland Security designated Guinea for "Temporary Protected Status" for a period of 18 months, under Section 244(b)(1)(c) of the Immigration and Nationality Act. The designation allows eligible resident Guinean nationals to remain in the United States. Guinea's large mineral deposits represent potential strategic and commercial interests for U.S. actors. Several U.S.-based resource firms operate in Guinea and face competition from other foreign investors. Guinea's extractive industries have also drawn attention from the U.S. Department of Justice for potential violations of the Foreign Corrupt Practices Act (FCPA) of 1977. As noted above (" The Mining Sector "), DOJ is pursuing at least one such case related to the acquisition of a Guinean iron ore concession by Benny Steinmetz Group Resources (BSGR). A U.S.-based firm, Hyperdynamics, is reportedly also under DOJ scrutiny for potential FCPA violations in connection with its acquisition of an offshore oil concession in Guinea. Foreign Assistance U.S. bilateral aid to Guinea is predominantly focused on health assistance ( Table 1 ), in addition to separate Ebola-related programs. Total U.S. bilateral aid allocations for Guinea (not counting food aid) trended downward following the 2010 elections, but the Administration has requested a slight increase in FY2016, including $6 million in Development Assistance (DA) for agricultural programs. In contrast to previous years, no DA was requested in FY2015 or allocated in FY2015. In addition to what is shown in Table 1 , nearly $98 million in U.S. FY2014 and FY2015 funding has been devoted to date to responding to Ebola in Guinea, in addition to other Ebola-related regional funding. Also in addition to bilateral allocations, the State Department has provided over $6 million to support security sector reform in Guinea since 2010, using Peacekeeping Operations (PKO) funds. Guinean troops have also received U.S. training and equipment in support of their deployment to the U.N. peacekeeping operation in Mali, under the State Department's Africa Contingency Operations Training and Assistance (ACOTA) program, also funded through PKO. International financial institutions, which receive significant U.S. support, separately provide significant financing and technical aid to Guinea. Recent Congressional Actions The FY2015 Consolidated and Further Continuing Appropriations Act ( P.L. 113-235 , Division J, Section 7042 [e]) restricts Guinea's ability to receive International Military Education and Training (IMET) assistance for purposes other than "training related to international peacekeeping operations and expanded IMET," with a further exception for maritime security assistance. Expanded IMET, or E-IMET, focuses on encouraging respect for human rights and civilian control of the military. Similar restrictions have been contained in previous annual appropriations measures. The FY2012 National Defense Authorization Act ( P.L. 112-81 ) authorized Guinea, among several West African countries, to receive Defense Department-administered counter-narcotics assistance. During the 111 th Congress, two resolutions condemning the "stadium massacre" of protesters in 2009 passed their respective chambers: H.Res. 1013 (Ros-Lehtinen) passed in the House; and S.Res. 345 (Boxer) passed in the Senate. Outlook The United States played a key role in Guinea's 2010 transition to an elected, civilian government. That transition led to a significant improvement in Guinea's security situation and political stability. Still, the election and its aftermath created new political tensions that have contributed to, and fed off of, ethnic divisions. Such tensions are likely to increase further ahead of presidential elections scheduled for October 2015. Guinea may continue to interest U.S. policymakers for its role in regional security, its economic potential, and its recent democratic transition—but generally, U.S. policy attention faded substantially after 2010. The Ebola outbreak has prompted new concerns, accompanied by substantial resource commitments for affected countries. The outbreak is impacting Guinean politics and society, with potentially serious implications for the country's prosperity and future stability.

Guinea is one of three countries most affected by the Ebola outbreak in West Africa, which has affected the country's economy, social relations, food security, and politics. A former French colony on West Africa's Atlantic coast with a population of about 11 million, Guinea is rich in natural resources, but poverty is widespread. President Alpha Condé, a former opposition leader, was voted into office in 2010 in Guinea's first ever presidential election organized by an independent electoral commission and without an incumbent candidate. His inauguration brought an end to a turbulent period of military rule that followed the death in 2008 of longtime leader Lansana Conté (who himself came to power in a military coup). As president, Condé has focused on containing the political influence of the military and improving economic governance, including by overhauling the mining code. However, state institutions remain weak; living conditions remain overwhelmingly poor; ethnic tensions have risen; and opposition activists accuse Condé of authoritarian tendencies. Political unrest appears likely ahead of presidential elections scheduled for October 2015, in which Condé is seeking a second term. Local-level elections have been repeatedly delayed and are the subject of a stand-off between the government and opposition over electoral procedures. U.S. engagement in Guinea is focused on health assistance, military professionalization, counter-narcotics issues, and concerns about regional peace and stability. Following the 2008 military coup, the United States identified Guinea's political transition as a key policy goal in West Africa and made significant diplomatic and financial contributions toward the success of Guinea's 2010 election process. U.S. bilateral aid is now overwhelmingly focused on health issues. Guinea's large mineral deposits, including the world's largest known reserves of bauxite (an ore used in producing aluminum), represent potential strategic and commercial interests for U.S. actors. Guinea's extractive industries have also drawn recent attention from the U.S. Department of Justice for potential violations of the Foreign Corrupt Practices Act. Congress plays a role in shaping U.S. engagement through its authorization and appropriation of aid funding, and its oversight of U.S. policies and aid programs. The FY2015 Consolidated and Further Continuing Appropriations Act (P.L. 113-235) restricts Guinea's ability to receive International Military Education and Training (IMET) assistance, except for certain purposes. Similar restrictions have been contained in previous annual foreign aid appropriations measures. The FY2012 National Defense Authorization Act (P.L. 112-81) authorized Guinea, among several West African countries, to receive Defense Department-administered counter-narcotics assistance. During the 111th Congress, two resolutions condemning a massacre of civilian protesters in the capital, Conakry, in September 2009, passed their respective chambers: H.Res. 1013 (Ros-Lehtinen) passed in the House; and S.Res. 345 (Boxer) passed in the Senate. See also CRS Report R43807, FY2015 Funding to Counter Ebola and the Islamic State (IS), coordinated by [author name scrubbed]; CRS In Focus IF10022, The Global Health Security Agenda and International Health Regulations, by [author name scrubbed]; and CRS Report R43736, Ebola Virus Disease (Ebola or EVD): Experts List, by [author name scrubbed].

Conflicts of Interest, Generally Principles Underlying Conflict of Interest Regulation The underlying principle of the financial conflict of interest laws adopted by Congress, and of the regulations promulgated in the executive branch, embodies the axiom "that a public servant owes undivided loyalty to the Government," and that decisions, advice, and recommendations made by or given to the government by its officers be made in the public interest and not be tainted, even unintentionally, with influence from personal financial interests. The House Judiciary Committee, reporting out major conflict of interest revisions made in the 1960s, found: The proper operation of a democratic government requires that officials be independent and impartial; that Government decisions and policy be made in the proper channels of the governmental structure; ... and that the public have confidence in the integrity of its government. The attainment of one or more of these ends is impaired whenever there exists, or appears to exist an actual or potential conflict between the private interests of a Government employee and his duties as an official. As noted in expert studies in the field of conflicts of interest, the concern in such regulation is generally, "... not only the possibility or appearance of private gain from public office, but the risk that official decisions, whether consciously or otherwise, will be motivated by something other than the publics interest. The ultimate concern is bad government.... " The conflict of interest laws are thus directed not only at conduct which is improper, but rather are often preventative or prophylactic in nature, directed at situations which merely have the potential to tempt or subtly influence an official in the performance of official public duties. As explained by the Supreme Court with regard to a predecessor conflict of interest law requiring disqualification of officials from matters in which they have a personal financial interest: This broad proscription embodies a recognition of the fact that an impairment of impartial judgment can occur in even the most well-meaning men when their personal economic interests are affected by the business they transact on behalf of the Government. Outside Interests Regulated The term "conflict of interest" may have many diverse meanings in common usage. When used specifically in reference to federal laws and rules regulating official conduct, however, it generally relates to a potential conflict between a federal employee's official governmental duties and responsibilities on the one hand, and the personal financial or economic interests of the employee on the other. Officers and employees of the federal government may naturally have many outside, private, and personal "interests." However, limiting the federal regulation of an employee's outside interests to financial interests may avoid, as one federal court has noted, "invit[ing] challenges to officials based not upon true conflicts of interest but upon their philosophical or ideological leanings.... " Such limitation of conflict of interest regulation to outside, personal financial interests may also ameliorate First Amendment issues regarding attempts to regulate the outside, private associations, memberships, or organizational activities of public employees. Federal employees in the executive branch have an express obligation to be "impartial" in the exercise of their official responsibilities. Although the impartiality language is fairly broad on its face, the "impartiality" actually required of a federal employee in a governmental matter by the specific conflict of interest and federal ethical standards—in addition to treating all organizations and individuals fairly—is a disinterestedness in the matter from the point of view of any financial impact that such a matter may have upon the employee personally (or upon certain entities, persons, or organizations which are closely associated with the employee and whose interests may thus be fairly "imputed" to the employee). As noted by the Office of Government Ethics, the central office for ethics administration and interpretation in the executive branch of the federal government: Questions regarding impartiality necessarily arise when an employee's official duties impact upon the employee's own financial interests or those of certain other persons, such as the employee's spouse or minor child. The "impartiality" required of a federal employee in a matter thus does not mean that every federal employee must be completely "neutral" on an issue or matter before him or her, in the sense that the employee has no personal opinion, view, position, or predilection on a matter based on noneconomic "interests" and factors such as the ethical, religious, ideological, or political beliefs in the background or in the current outside affiliations of the employee. In the specific regulations on "impartiality" and participation in outside organizations, the Office of Government Ethics notes: "Nothing in this section shall be construed to suggest that an employee should not participate in a matter because of his political, religious or moral views." Executive branch employees—whose duties involve generally administration, enforcement, or regulation—are not held to the strict neutrality standard applicable to federal judges and to those involved in adjudications or quasi-adjudicatory functions. As a federal court has noted, "We must not impose judicial roles upon administrators when they perform functions very different from those of judges." The Supreme Court has recognized that the Due Process Clause which imposes "rigid" neutrality requirements "designed for officials performing judicial or quasi-judicial functions, are not applicable" to officials performing different, executive and administrative duties. There are several methods by which conflicts of interest for public employees may be regulated and avoided. In the federal sector, for executive branch employees, these methods have been described as involving the "3-D" scheme of conflict of interest regulation: (1) disqualification, (2) disclosure, and (3) divestiture. Disqualification The principal statutory method of dealing with potential conflicts of interest of an executive branch officer or employee is to require, under 18 U.S.C. § 208, the disqualification (or "recusal") of the officer or employee from participating in any official governmental matter in which that official (or those persons or entities close enough to the official that their interests may be "imputed" to the official) has any "financial interest." This criminal statute requiring disqualification applies to all officers and employees in the executive branch and independent agencies, but expressly excludes the President and Vice President. There is, it should be noted, no de minimis exception expressly stated in the statute for the value of an asset or ownership interest. However, regulations may exempt certain categories of investments and interests which are deemed too remote or inconsequential to affect the performance of federal officials' governmental duties, and Office of Government Ethics regulations exempt several such interests in stocks, bonds, and mutual funds. Additionally, executive branch officers or employees may receive an individual written waiver from their employing authority to participate in a matter when the employees' interests are not deemed so substantial as to affect the integrity of the performance of their official duties. Effect on Covered Financial Interests The statutory language of § 208 requires a disqualification of a government employee in a particular matter in which the employee, the employee's family, or an organization or business connected to the employee, "has a financial interest." This has been interpreted to mean that the particular governmental matter in which the employee would be involved has a "real possibility" of affecting those financial interests. The regulations of the Office of Government Ethics (OGE) state that an employee must recuse himself or herself if the governmental matter "will have a direct and predictable effect" on those covered financial interests. OGE explains that a matter will have a direct effect on a financial interest "if there is a close causal link between any decision or action to be taken in the matter and any expected effect," that is, if the "chain of causation" is neither "attenuated" nor "contingent upon the occurrence of events that are speculative or that are independent of, and unrelated to, the matter." The financial interests of businesses and outside private entities with which an employee is associated (as an "officer, director, trustee, general partner or employee" of such organization) are among those interests which are imputed to the employee for disqualification purposes. However, the participation by an employee in or association with an outside non-profit organization which has an advocacy interest in public policy matters, even concerning public policy matters associated and connected with one's agency, does not necessarily raise a "conflict of interest" disqualification requirement. This is because it is only "financial" interests that are regulated and affected by the disqualification statute, and it has been determined that a non-profit, advocacy organization's "financial interests" are not generally directly or predictably affected by the attainment or non-attainment of public policy goals. The disqualification requirement of § 208 applies only to current and existing financial and economic factors. The language of the statute requires an official's recusal from a particular governmental matter in which the officer, his or her spouse, or dependent " has a financial interest," or which impacts a financial interest of an outside entity "in which he [the government official] is serving" as an employee, officer, or director, or with whom he " is negotiating or has an arrangement" for future employment. The statutory language is thus stated in the present tense and is directed only to current financial interests and existing arrangements or current understandings for future employment, and the statutory provision does not require disqualification on a matter because of a past affiliation or previous economic interest. Although past affiliations and prior economic interests may not be a subject of the law, certain pensions to which an employee is entitled because of past employment may be considered a current and existing economic interest. Recusal from Personal and Substantial Participation The kind of "participation" which is barred for a federal official in matters such as contracts, claims, drafting of regulations, applications, or determinations which affect the financial interests of the employee, is participation in a matter "personally and substantially ... through decision, approval, disapproval, recommendation, the rendering of advice, investigation or otherwise.... " It would appear that the qualifier "personally" within § 208 means that one took the governmental action (or inaction) in question oneself, as opposed to having it merely under one's overall, general responsibility (as a head of a department would have over all department matters). However, regulations adopted by the Office of Government Ethics note that personal participation "includes the direct and active supervision of the participation of a subordinate in the matter." The qualifier "substantially" would appear to rule out merely "ministerial" or procedural acts or acts on a peripheral matter, and relates to the significance and nature of the involvement, and not merely the time devoted to the matter. Particular Matter The personal participation by an official in a governmental matter, such as giving advice or making recommendations, will come within the statute when such involvement is in regard to a "particular matter," rather than just merely in relation to a general area of public policy, such as "in relation to economics." The term "particular matter" and the enumeration of those particular matters in the statute have been recognized to be "comprehensive of all matters that come before a federal department or agency." Since, for the statutory disqualification requirement, the "particular matter" need not involve specific or identified parties, such term has been broadly interpreted to mean any "discrete and identifiable matter" such as "general rulemaking" or proposed regulations. As stated by the Department of Justice's Office of Legal Counsel, the restrictions of § 208 will apply when a federal official reviews proposed rules that will impact an entire industry of which a firm connected to the federal official is part, and need not affect or deal with only that particular firm to come within the restrictions of § 208(a): [W]e have consistently interpreted § 208(a) to apply to rule-making proceedings or advisory committee deliberations of general applicability where the outcome may have a "direct and predictable effect" on a firm in which the Government employee is affiliated, even though all other firms similarly situated will be affected in a like manner. An example might be the drafting or review of environmental regulations which would require the considerable expenditures by all firms in the particular industry of which the company is a part. The Office of Government Ethics, in regulations issued under the statutory disqualification provision, has explained that the recusal requirement will extend to "governmental action such as legislation or policy-making that is narrowly focused on the interests of ... a discrete and identifiable class of persons." These regulations note, however, that the disqualification provision will not apply to "the consideration or adoption of broad policy options that are directed to the interests of a large and diverse group of persons." Accomplishing Recusal Recusal or disqualification is generally accomplished simply by not participating in a matter. An employee who knows that he needs to be disqualified on a matter is instructed to notify the "person responsible for his assignment," who is then instructed to "take whatever steps are necessary to ensure" that the employee does not participate in the matter. There is no general requirement for a written or filed disqualification, unless such statement is required from an official to comply with a written "ethics agreement" with the Office of Government Ethics, or is required by the agency. It is suggested that an employee "may elect to create a record" of his actions concerning a disqualification, and so provide written statements. Although there is no general requirement for written recusal statements, employees of particular agencies may be required, under agency-specific supplemental ethics regulations, to file such written recusal statements with agency personnel. Exemptions, Waivers for Covered Interests The statutory provision at 18 U.S.C. § 208 applies generally to all officers and employees in the executive branch of government, including the independent agencies, but does not apply to the President or the Vice President. Although there is no de minimis exception expressly stated in the statute, the law does provide that regulations may exempt certain categories of investments and interests which are deemed too remote or inconsequential to affect the performance of an official's governmental duties. The current Office of Government Ethics regulations exempt several such interests, including all interests in "diversified" mutual funds; interests in sector funds which include some companies affected by a governmental matter but where those companies are outside of the primary sector in which that fund specializes; and other sector funds specializing in the particular sector but where one's interest in the fund is no more than $50,000; securities, stocks, and bonds in a publicly traded company which is a party to and directly affected by a governmental matter if one's ownership value is no more than $15,000; securities, stocks, and bonds in such a company which is not a specific party to a matter but is in a class affected by the governmental matter, if the employee's ownership interest is no more than $25,000 (if securities in more than one such company are owned, then the aggregate value cannot exceed $50,000 to be exempt from the statute). Waivers may also be obtained by an individual employee for insubstantial financial interests under § 208(b)(1). These individual waivers may be obtained by an employee or officer concerning a particular financial interest if the employee advises the government official responsible for his or her appointment about the nature and circumstances of the interest, discloses the interest, and receives a written determination from the appointing official that the financial interest "is not so substantial as to be deemed likely to affect the integrity of the services which the Government may expect from such officer or employee." Finally, advisory committee members who are "special Government employees" may receive individual waivers for conflicting interests even though such interests are not "insubstantial" (as under a 208(b)(1) waiver), if, after a review of the financial disclosure report of the advisory committee member by the official who appoints that advisory committee member, the appointing official determines that the "potential" conflicts of interest raised by the financial interests of the individual, or by those imputed to him, are "outweigh[ed]" by the "need for the individual's services.... " This waiver may apply to even substantial economic or financial interests of the employee/advisor. Regulatory Disqualification Requirement In addition to the statutory disqualification requirement, recusal or disqualification may be required of executive branch officials under regulations promulgated by the Office of Government Ethics. These regulations require recusal from a narrower range of official "matters" (narrower than the statutory recusal requirement), but which may impact the financial interests of a broader range of persons or entities associated with the public official (a broader range of "imputed" personal interests than the statute includes). The regulations of the Office of Government Ethics provide this regulatory disqualification provision to help assure the avoidance of "an appearance of loss of impartiality in the performance of" official duties by a federal employee. The recusal regulation covers a government employee's participation in a "particular matter involving specific parties" when (1) the employee knows that the matter will have a direct and predictable effect on the financial interests of a member of his or her household, or (2) when a person or entity with whom the employee has a "covered relationship" represents or is a party in that matter. The employee must recuse himself or herself from such a matter where the employee believes that his or her impartiality may be questioned, unless the employee first advises his or her agency about the matter and receives authorization to participate in the matter. This regulation, like the statutory recusal requirement, expressly excludes the President and Vice President, and may be waived for other officers and employees by supervisory personnel. For the purposes of requiring recusal, the regulation imputes to the employee the financial interests of persons other than the employee's spouse, minor children, and entities with whom the employee is affiliated (as in the statutory recusal requirement), and requires recusal from a "particular matter involving specific parties" when the employee knows that the matter will have a direct and predictable effect on the financial interests of a "member of his household." Additionally, the interests of an even wider range of persons and entities may be relevant when any person or entity with whom the employee "has a covered relationship" is a party to the matter, or represents a party to the matter. The regulation defines a "covered relationship" to be one with: those persons or entities with whom the employee seeks a business, contractual or other financial relationship; a member of the employee's household, or a relative with whom the employee has a close personal relationship; a person or entity with whom the employee's spouse, child, or parent is serving or seeks to serve as an officer, director, trustee, general partner, agent, attorney, consultant, contractor, or employee; any person or entity for whom the employee served within the last year as an officer, director, trustee, general partner, agent, attorney, consultant, contractor or employee; or an organization (other than a political party) in which the employee is an active participant. Under the regulation, therefore, although the financial interests of persons or entities that may be imputed to the employee are broadened, the types of governmental "matters" from which an employee should recuse himself or herself are narrowed. A particular governmental matter "involving specific parties" is narrower than merely a "particular matter," and would not include such things as general rulemaking affecting an industry, but rather would apply only to matters such as a determination, contract, claim, controversy, investigation, charge, accusation, arrest or other such matter involving a particular party where the United States is also a party or has a direct or substantial interest. A particular matter "involving specific parties" is generally or typically a matter involving "a specific proceeding affecting the legal rights of the parties or an isolatable transaction or related set of transactions between identifiable parties," as opposed to rulemaking, legislation, or the formulation of general policy or standards. Additionally, when it is the financial interests of those with whom the employee may have a "covered relationship" beyond the household of the employee, the disqualification requirement would only apply when such persons or entities are actually parties to the particular matter or represent parties to the particular matter involving specific parties. Disclosure Detailed annual public financial disclosure is required for all high-level officials in all three branches of the United States Government under the public financial disclosure provisions of the Ethics in Government Act of 1978, as amended. Such disclosures were intended to serve the purpose of identifying "potential conflicts of interest or situations that might present the appearance of a conflict of interest" for government officials in policy making positions; to increase public confidence in the integrity of the institutions of government and in those who serve them; and to deter the ownership of particular assets and interests which may raise conflicts issues for a public official. Under the disclosure law, assets "held for investment or the production of income," such as stocks, stock options, bonds, mutual funds, and other income producing property held by the reporting individual, and the individual's spouse and dependent children, are the types of financial interests that must be disclosed. Although the financial disclosure laws are principally directed at current and existing financial interests, such current interests may also reflect "retain[ed] ties" to a former employer or to former associates of a current executive branch official. Who Must Publicly Disclose Generally, all high-level officials of the federal government are required to file by May 15 of every year a public financial disclosure statement. The public disclosure law applies to the President and Vice President, all Members of Congress, federal judges, and all officers and employees of the executive branch occupying, for more than 60 days in a calendar year, "a position classified above GS-15," or, if not on the General Schedule, in a position compensated at a "rate of basic pay ... equal to or greater than 120 percent of the minimum rate of basic pay payable for GS-15." Information Disclosed The annual disclosure statement provides detailed financial information about the private financial interests and ownerships of the public official, and the officials spouse and dependent children. The disclosure statement requires public revelation of the identity and/or the value (generally in "categories of value") of such items as (1) the officials private income (including unearned income and capital gains), (2) gifts received (including reimbursements for travel over certain amounts), (3) assets and income-producing property of over $1,000 in value (including savings accounts over $5,000), (4) liabilities exceeding $10,000, (5) financial transactions exceeding $1,000 in income-producing property and securities, (6) positions held in outside businesses and organizations, (7) agreements for future employment or leaves of absence with private entities, continuing payments from or participation in benefit plans of former employers, and (8) the cash value of the interests in any blind trusts. Filing and Availability of Reports An officials annual financial disclosure report is generally to be filed with the designated agency ethics officer within the individuals agency or department, and for high-level presidential appointees such report is then required to be transmitted to the Director of the Office of Government Ethics (OGE). The report is reviewed within the agency (and by the Director of the Office of Government Ethics when appropriate for high level officials and nominees) to flag potential conflict of interest issues or problems, and to resolve any such conflicts. The financial disclosure reports of the highest level federal officials—the President, Vice President, Cabinet officers (Level I of the Executive Schedule), and sub-Cabinet positions and certain heads of regulatory agencies (on Level II of the Executive Schedule)—are now required to be posted on the Internet, and may be accessed and searched by the public. For all other executive branch officials, the public financial disclosure reports remain available to the public for copy or inspection from the officials agency within 30 days after the May 15 filing deadline, and are to be released to a member of the public (for a reasonable fee to cover necessary reproduction and mailing) when requested by written application providing the requesters name, occupation, and address; the name of the organization or other person on whose behalf the inspection or copy is requested; and a statement that the person requesting the copy is aware of the prohibitions on using such reports for commercial, credit rating, or solicitation purposes. The reports are generally retained by the filing agency for six years, then are destroyed. Periodic Reporting of Financial Transactions Under the provisions of the "STOCK Act," signed into law on April 4, 2012, all federal officials who are required to file annual public financial disclosure statements must also file periodic reports during the year which detail financial transactions of $1,000 or more taken by or for the official. These more frequent, periodic transaction reports must be filed within 30 days after the official is notified of a covered transaction in stocks, bonds, or other such securities (but no later than 45 days after the date of the transaction). The requirement for more frequent filing applies generally to transactions in stocks and bonds of individual companies, but does not apply to most mutual funds or to exchange traded funds (ETFs), nor to transactions in real property. Confidential Disclosures In addition to the legislative and regulatory scheme for public financial disclosure for certain federal officials, there is in place a requirement for confidential disclosure reports to be filed with an employee's agency by some lower level federal officers and employees. The confidential reporting requirements are intended to complement the public disclosure system, and apply to those employees who do not have to file under the public reporting provisions of the Ethics in Government Act. Generally, the confidential reporting requirements apply to certain "rank and file" employees who are compensated below the threshold rate of pay for public disclosures (GS-15 or below, or less than 120% of the basic rate of pay for a GS-15), and who are determined by the employee's agency to perform duties or exercise responsibilities in regard to government contracting or procurement, government grants, government subsidies or licensing, auditing, or other duties which may particularly require the employee to avoid financial conflicts of interest. Such a person may be required to file a confidential report if he or she performs the duties of the position "for a period in excess of 60 days during the calendar year." Additionally, unless required to file public reports, confidential reports are required from all "special Government employees" in the executive branch (those employees who are employed by the government for not more than 130 days in a year), including those "special Government employees" who serve on federal advisory committees. Divestiture There is no federal statute which expressly implements a general, executive branch-wide requirement for federal officials to divest particular private assets or holdings to resolve likely or potential conflicts of interest with an official's public duties. However, there are a few instances in which divestiture of an asset or assets may be required. In some cases, a statutory provision might provide that a director, commissioner, or board member of a particular federal regulatory entity shall have no financial interests in the business, industry, or sector which the agency, bureau, or commission regulates or oversees. Furthermore, an agency may by regulation prohibit or restrict the ownership of certain financial assets or class of assets by its officers and employees where a perceived "conflict of interest" with the agency mission may arise. In such instances, these statutory and regulatory provisions would not only prohibit the acquisition of such assets, but may also require the divestiture of a particular asset or holding of certain individuals to be appointed to such positions or who are incumbents in such positions. Finally, in reviewing financial holdings of its officers, an agency's ethics officer may recommend (or require) divestiture of particular assets of a certain official which, because of the official's duties and responsibilities, may raise substantial conflict issues. Prohibitions on Owning Certain Assets There may be certain statutory provisions, often the organic act establishing an agency, bureau, or commission, which will provide an express prohibition upon the directors or heads of such agency or commission from owning stock or having other such financial interests in businesses or other private entities in the particular industry or field that the agency is to regulate. For example, federal law provides that "No member of the Board of Governors of the Federal Reserve System shall ... hold stock in any bank, banking institution, or trust company.... " With respect to the Federal Aviation Administration, federal law provides that "The Administrator and the Deputy Administrator may not have a pecuniary interest in, or own stock in or bonds of, an aeronautical enterprise, or engage in another business, vocation, or employment." Federal law provides that no person may be appointed to the National Indian Gaming Commission who has any financial interest in any gaming activity. The Office of Surface Mining Reclamation and Enforcement is within the Department of Interior, and the legislation establishing such office provides that "No employee of the Office or any other Federal employee performing any function or duty under this chapter shall have a direct or indirect financial interest in underground or surface coal mining operations." The head of the Transportation Security Administration is the Under Secretary of Transportation for Security, and such person "may not own stock in or bonds of a transportation or security enterprise or an enterprise that makes equipment that could be used for security purposes." Members of the Surface Transportation Board within the Department of Transportation may also "not have a pecuniary interest in, hold an official relation to, or own stock in or bonds of, a carrier providing transportation by any mode.... " In addition to statutory provisions, executive agencies are permitted to issue additional and supplemental ethics regulations for their own personnel upon the concurrence and joint issuance of the regulations by the Office of Government Ethics. Agencies may, therefore ̶ by such regulations ̶ prohibit officers and employees of the agency from acquiring, or owning or holding, certain financial interests, assets, and property when the ownership or holding of such interests would, because of the mission of the agency, "cause a reasonable person to question the impartiality and objectivity with which agency programs are administered." The broadest regulatory restriction upon the employees of an agency would appear to be that of the Securities and Exchange Commission which prohibits, with some exceptions, officers and employees (as well as an employee's spouse and dependent children) from "knowingly purchasing or holding a security or other financial interest in an entity regulated by the Commission." Other examples of agency or departmental-specific restrictions on agency officers and employees (and in many cases, their spouse and dependent children) owning particular assets or financial interests of companies and entities directly regulated by or affected by the agency include restrictions on employees of: the Bureau of Alcohol, Tobacco and Firearms; the Office of the Comptroller of the Currency; the Office of Thrift Supervision; Federal Deposit Insurance Corporation; the Federal Energy Regulatory Commission; Department of Interior; the Farm Credit System Insurance Corporation; Farm Credit Administration; the Interstate Commerce Commission; Mine Safety and Health Administration (Department of Labor); Food and Drug Administration (HHS); National Institutes of Health (HHS); Postal Rate Commission; Nuclear Regulatory Commission; Federal Railroad Administration and Federal Aviation Administration, Department of Transportation; Environmental Protection Agency; Board of Governors of the Federal Reserve System; Housing and Urban Development; Rural Development, Department of Agriculture; Federal Mine Safety and Health Review Commission; Federal Housing Finance Agency; and the Consumer Financial Protection Bureau. In reviewing or examining the financial interests and potential conflicts of interest of an executive branch official, the agency-specific regulations or statutory provisions—specifically applicable only to officers and employees of that particular agency, commission, or bureau—which limit or prohibit the acquisition or ownership of a particular category or type of financial asset or financial interest, need to be considered and consulted. Divestiture Required Upon Ethics Review The divestiture of particular assets, properties, or holdings may be required of an individual as a conflict of interest resolution or avoidance mechanism by administrative provisions and review in the executive branch, as well as required by a Senate committee or the Senate as a whole as a condition of favorable action on a presidential nominee requiring Senate confirmation. With respect to administrative review, as noted above, the principal statutory method of conflict of interest avoidance—concerning particular assets and holdings of a federal official—is to require the disqualification of that official from a governmental matter affecting those financial interests. Under current regulations of the Office of Government Ethics, as part of the ethics review process, an agency may require the divestiture of certain assets of an individual employee where those interests would require the employee's disqualification from matters so central to his or her job that it would impair the employee's ability to perform his or her duties, or where it could adversely affect the agency's mission because another employee could not easily be substituted for the disqualified employee. Such a requirement may be imposed as part of an "ethics agreement" which an appointee or a nominee may make with his or her agency, and approved by the Office of Government Ethics, as a device to provide options and alternatives to avoid conflicts of interest because of the ownership of certain assets and financial instruments. When divestiture is required for ethics reasons, a current employee should be afforded a "reasonable amount of time" to effectuate the disposal of the asset; furthermore, it is possible to ameliorate potential unfair tax burdens that may arise because of such required sale of an asset by receiving a certificate of divestiture and postponing capital gains taxes. Blind Trusts In some instances, the establishment of a "qualified blind trust" may be used to ameliorate or avoid conflicts of interest as an alternative to divestiture of conflicting assets. Although generally, the underlying assets in a trust in which one has a beneficial interest must normally be disclosed in annual public financial disclosure reports —and would under conflict of interest law be considered "financial interests" of the employee/beneficiary for disqualification purposes—federal officials may, as a conflict of interest avoidance measure, place certain assets with an independent trustee in what is called a "qualified blind trust." The nature of a "blind trust," generally, is such that the official will have no control over, will receive no communications about, and will (eventually as existing assets are sold and new ones obtained by the trustee) have no knowledge of the identity of the specific assets held in the trust. As such, an official will not need to identify and disclose the particular assets in the corpus of a "blind trust" in future financial disclosure reports, and such assets will not be "financial interests" of the employee for disqualification purposes. The conflict of interest theory under which the blind trust provisions operate is that since the official will not know the identity of the specific assets in the trust, those assets and financial interests could not influence the official decisions and governmental duties of the reporting official, thus avoiding potential conflict of interest problems or appearances. Assets originally placed into the trust by the official will, of course, be known to that official, and therefore will continue to be "financial interests" of the public official for conflict of interest purposes until the trustee notifies the official "that such asset has been disposed of, or has a value of less than $1,000."

Congressional offices reviewing or conducting oversight concerning the operations of executive agencies and departments, reviewing executive branch nominees for high-level appointments, or responding to constituent inquiries or petitions, may often be confronted with issues and questions of possible "conflicts of interest" of agency officials or nominees. This report summarizes and analyzes the issues of conflicts of interest that are addressed in federal law and regulation regarding officers and employees in the executive branch of the federal government. Federal conflict of interest laws and regulations deal for the most part with the potential conflict between the official duties and responsibilities of a public officer on the one hand, and the outside, personal economic or financial interests of that individual (including the financial interests of that individual's spouse and minor children) on the other. When a particular governmental matter may have a real and predictable impact on an officer's or employee's personal financial interests or assets, that officer's or employee's work on such a matter for the government would raise conflict of interest issues. The concern in such cases is that the judgment of the officer or employee could be influenced and affected, even subtly or unconsciously, by his or her own personal financial stake in the matter, as opposed to decisions, advice, and official actions of public officers being based solely on the overall, general public interest. Although federal officials may have many and varied outside, personal "interests," federal conflict of interest law and regulation focuses specifically on regulating outside, personal financial interests of the officer. The regulatory scheme for conflicts of interest in the executive branch of the federal government may generally be summarized in three broad categories: disqualification, disclosure, and divestiture. The principal conflict of interest statute under federal law is a criminal provision which requires federal executive branch officials to disqualify or "recuse" themselves from working personally and substantially on any particular matter before the government in which that official (or those close enough to the official that their interests may be imputed to the official) has any "financial interest." 18 U.S.C. § 208. There are certain financial interests which are considered either de minimis, or too remote or inconsequential to affect the duties expected of employees, and such interests are exempted from the prohibition by regulations of the Office of Government Ethics. Most high-ranking federal officials must file public annual financial disclosure reports, as well as periodic disclosure reports on certain financial transactions, which detail financial holdings, assets, property, and financial transactions of the official, the official's spouse, and dependent children. Additionally, there may be confidential financial disclosure reports required from certain rank-and-file employees who do not file publicly. All of these disclosure reports are reviewed by agency ethics personnel, and are intended to facilitate conflict of interest regulation by identifying assets, property, and ownerships with a conflict potential, and to resolve any such conflicts of interest. Although there is no overall, general divestiture requirement in federal law, the divestiture of assets may be one method of conflict of interest resolution or avoidance that could be required by agency ethics personnel for assets with conflict of interest potential. Additionally, there are particular statutes and regulations applicable to certain officers and agencies which may prohibit the ownership of a range or category of particular assets. These provisions, in addition to prohibiting the acquisition of such assets, may also require the divestiture of such assets already held by incumbent officers or nominees to certain positions.

Background on Mexico Over the past two decades, Mexico has transitioned from a centralized political system dominated by the Institutional Revolutionary Party (PRI) to a true multiparty democracy. Since the PRI last governed in the 1990s, presidential power has become increasingly constrained by Mexico's Congress, its Supreme Court, and increasingly powerful governors. Partially as a result of those constraints, two successive National Action Party (PAN) administrations struggled to enact the structural reforms needed to boost Mexico's economic competitiveness and effectively address the country's security challenges. Weak institutions remain an impediment to democratic consolidation in Mexico. Political Developments During the Calderón Administration Felipe Calderón of the conservative PAN won the July 2006 presidential election in an extremely tight race, defeating Andrés Manuel López Obrador of the leftist Party of the Democratic Revolution (PRD) by fewer than 234,000 votes. President Calderón began his six- year term on December 1, 2006; his term concluded on November 30, 2012. Calderón was succeeded by Enrique Peña Nieto of the Institutional Revolutionary Party (PRI). The serious economic and security challenges that Mexico has faced over the last few years have overshadowed the policy achievements of the Calderón Administration. Despite taking office in a relatively weak position after a disputed election, Calderón shepherded some significant reforms through the Mexican Congress in the beginning and end of his term, including historic labor reforms enacted in November 2012. The Calderón government maintained macroeconomic stability amidst an unstable global economy, expanded access to health insurance, and started to reform Mexico's federal security apparatus. Mexico-U.S. relations grew stronger through cooperation under the Mérida Initiative, as did Mexico's relations with Latin America. Nevertheless, Mexico experienced an unprecedented security crisis that occurred, at least in part, because of the government's campaign against organized crime. Escalating violence, persistent poverty and joblessness, and lingering corruption and impunity caused Calderón's popularity to decline and prompted some negative assessments of his presidency. In the first half of his term, President Calderón, whose PAN became the largest party in the Senate and Chamber of Deputies after the 2006 legislative elections, had some success in turning to the PRI for help in advancing his legislative agenda. In 2007, he secured passage of long-awaited fiscal and pension reforms that had stalled under the PAN Administration of Vicente Fox (2000-2006). In June 2008, President Calderón signed a judicial reform decree after securing the approval of Congress and Mexico's states for an amendment to Mexico's Constitution. Under the judicial reform, Mexico will have until 2016 to move from a closed door process based on written arguments to a public trial system with oral arguments and the presumption of innocence. In October 2008, the government secured approval of an energy sector reform designed to improve the transparency and management flexibility of state oil company Petró leos Mexicanos (PEMEX). Critics maintained that the law, which provided only limited opportunities for private partnerships with the company, would not do enough to encourage new oil exploration. Mexico held mid-term elections in July 2009. The PRI performed even better in those elections than polls had suggested it would, capturing a plurality of seats in the Chamber of Deputies and five of six governorships. Analysts attributed the PRI's strong performance to growing popular concern about the country's economic downturn, as well as the party's effective use of its still formidable national machinery. Although President Calderón remained popular, the PAN lost seats in the Chamber and two key governorships, with voters expressing frustration with the party's failure to distinguish itself from the PRI. (The PAN still controlled the Senate, however.) The PRD fared even worse than the PAN, as internal divisions led López Obrador to throw his support behind left-leaning candidates from smaller parties, many of whom won. The composition of the Chamber of Deputies sworn in on September 1, 2009 complicated President Calderon's legislative agenda, which had included enacting a package of comprehensive political reforms. The PRI, with the support of the allied Green Ecological Party (PVEM) party, controlled a majority in the Chamber and proved reluctant to enact legislation that could have cost the party votes in the 2012 elections. Reforms to the national security law, labor reforms to regulate unions, and anti-money laundering legislation that had passed the Senate remained pending in the Chamber. Several presidential initiatives did not pass either body, including a law to reorganize municipal and state police and a reform of the federal criminal procedures code necessary for the 2008 judicial reforms to advance. During its three-year term, the Congress did enact antitrust legislation, an immigration law giving migrants (including illegal migrants) increased human rights protections, constitutional reforms on human rights, and some limited political reforms. July 1, 2012, Elections: Outcome and Political Transition7 On July 1, 2012, Mexico held federal (presidential and legislative) and state elections in 14 states. Voter turnout reached record levels as 63% of eligible voters cast ballots in the election. Mexico's Federal Electoral Institute (IFE) conducted the elections with the oversight of the Federal Electoral Tribunal, which officially certified the election results on August 31, 2012, after dismissing evidence presented by the PRD-led coalition that vote-buying tainted the results. While PRD leaders initially criticized the Tribunal's decision, they and the other leftist parties in their coalition later pledged to abide by its decision. In contrast, López Obrador refused to recognize the election results and left the PRD in order to turn his Morena (Movement for National Regeneration) social movement into a political party. As predicted, the PRI that governed Mexico from 1929 to 2000 retook the presidency after 12 years of rule by the PAN and won a plurality (but not a majority) in the Senate and Chamber of Deputies. PRI/PVEM candidate Enrique Peña Nieto, a former governor of the state of Mexico, won the presidential election, albeit by a smaller margin than polls had forecast. Peña Nieto captured 38.2% of the vote, followed by Andrés Manuel López Obrador of the PRD with 31.6%, Josefina Vázquez Mota of the PAN with 25.4%, and Gabriel Quadri of the National Alliance Party (PANAL) with 2.3%. Peña Nieto vowed to lead a "new PRI" government free from the corruption that characterized the party in the past and ready to enact bold reforms. The PRI/PVEM failed to capture a majority in either chamber of the legislature that began its three-year term on September 1, 2012, which could complicate President Peña Nieto's ability to enact legislation. The PRI/PVEM could achieve a simple majority in the Chamber of Deputies by aligning with its former ally, the PANAL, a small party affiliated with the Mexican teachers' union. However, for legislation to pass the Senate, and for any measures to amend the constitution (which require a two-thirds majority), the PRI will have to form cross-party coalitions. The PRI will most likely find support from the PAN, which lost seats in the Chamber but retained a powerful bargaining position. PAN leaders in the Congress have pledged to support aspects of Peña Nieto's reform agenda that they believe are in the best interest of the country, even proposals blocked by the PRI in the last Congress. The PRD-led coalition, which now has more seats in the Chamber than the PAN and remains the third-largest force in the Senate, could complicate some reform efforts, including those aimed at increasing private participation in the energy sector, a key priority for Peña Nieto. Although President Peña Nieto's government may encounter the same type of legislative opposition to his agenda that President Calderón encountered, he may be able to draw upon the PRI's formidable strength at the state and local level to garner support for his policies. Prior to the 2012 elections, the PRI controlled 19 of 32 governorships in Mexico. As depicted in Figure 2 below, the PRI picked up the governorship of Jalisco and Chiapas, but lost the state of Tabasco. On the contrary, should Peña Nieto's national agenda reform run counter to state interests, he could have to choose between maintaining party unity and challenging PRI governors. Mexico has an unusually long five-month transition period from one presidency to the next, which can prove awkward for the outgoing and incoming Administrations. Between September and November 2012, however, there appeared to be some communication between the outgoing Calderón government and Enrique Peña Nieto's transition team. Outgoing President Calderón introduced labor reform legislation that the Mexican Congress approved under new fast-track provisions in November 2012, which had also been endorsed by President-elect Peña Nieto. On December 1, 2012, President Peña Nieto took office for a six-year presidential term. Upon his inauguration, Peña Nieto announced a reform agenda with specific proposals under five broad pillars: reducing violence; combating poverty; boosting economic growth; reforming education; and fostering social responsibility. Somewhat surprisingly, leaders from the conservative PAN and leftist PRD signed on to President Peña Nieto's "Pact for Mexico" agreement containing legislative proposals for advancing that reform agenda. While some opposition legislators have since balked at their leaders' decisions to endorse the PRI-led pact, the Congress already approved an education reform bill, one of the 13 proposals based on the pact that Peña Nieto had identified as short-term priorities. Drug Trafficking and Heightened Violence and Crime in Mexico9 Mexico is a major producer and supplier to the U.S. market of heroin, methamphetamine, and marijuana and the major transit country for more than 95% of the cocaine sold in the United States. Mexico is also a consumer of illicit drugs, particularly in northern states where criminal organizations have been paying their workers in product rather than in cash. The prevalence of illicit drug use in Mexico increased from 2002 to 2008, and then remained relatively level from 2008 to 2011. According to the 2011 National Drug Threat Assessment , Mexican drug trafficking organizations (DTOs) and their affiliates "dominate the supply and wholesale distribution of most illicit drugs in the United States." In the past few years, the violence and brutality of the Mexican DTOs have escalated as they have battled for control of lucrative drug trafficking routes into the United States and local drug distribution networks in Mexico. U.S. and Mexican officials now often refer to the DTOs as transnational criminal organizations (TCOs) since they have increasingly branched out into other criminal activities, including human trafficking, kidnapping, armed robbery, and extortion. From 2007-2011, kidnapping and violent vehicular thefts increased at even faster annual rates than overall homicides in Mexico. The expanding techniques used by the DTOs, which have included the use of car bombs and grenades have led some scholars to liken DTOs' tactics to those of armed insurgencies. The Calderón Administration made combating drug trafficking and organized crime its top domestic priority. Government enforcement efforts, many of which were led by Mexican military forces, took down leaders from all of the major DTOs, either through arrests or deaths during operations to detain them. The pace of those takedowns accelerated beginning in late 2009, partly due to increased intelligence-sharing between the U.S. and Mexican governments. In 2009, the Mexican government identified the country's 37 most wanted criminals, and by October 2012, at least 25 of those alleged criminals had been captured or killed, including the head of the Gulf DTO and of Los Zetas. The Calderón government extradited record numbers of criminals to the United States, including 93 in 2011; however no top DTO leaders captured were tried and convicted in Mexican courts. The government's focus on dismantling the leadership of the major criminal organizations contributed to brutal succession struggles, shifting alliances among the DTOs, and the replacement of existing groups with ones that were even more violent. Analysts estimate that drug trafficking-related violence in Mexico may have resulted in some 60,000 deaths over the course of the last six years; another 25,000 individuals reportedly went missing over that period. Several sources have reported that violence peaked in 2011, before falling in 2012, perhaps by as much as 20%. Although the violence has primarily taken place in contested drug production and transit zones, the regions of the country most affected by the violence have shifted over time, to include large cities (such as Monterrey, Nuevo León) and tourist zones (Acapulco, Guerrero). Still, there have been incidents of violence across the country, with the security situation in particular areas sometimes changing rapidly. A State Department Travel Warning cited security concerns in parts of 19 of Mexico's 32 states and urged U.S. citizens to "defer non-essential travel" to Chihuahua, Coahuila, Durango, and Tamaulipas. On December 17, 2012, President Peña Nieto outlined a strategy that aims to achieve a "Mexico in Peace" where human rights are respected and protected by implementing a "state" security policy that involves binding commitments from all levels of government and civic participation. The six pillars of the strategy include: 1) planning; 2) prevention; 3) protection and respect of human rights; 4) coordination; 5) institutional transformation; and 6) monitoring and evaluation. Although President Peña Nieto has told U.S. media outlets that his government will not abandon the fight against organized crime, the primary goal of his security strategy is to improve security conditions inside Mexico. Its success will be measured in reductions in homicides and other crimes, rather than in drugs seized or kingpins arrested. Economic Conditions21 In the late 1980s, Mexico began to restructure its economy through a series of measures that included liberalizing its highly protective trade regime. The transformation to an open market economy accelerated after Mexico entered into the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1994. Through NAFTA, the United States, Mexico, and Canada form the world's largest free trade area, with about one-third of the world's total Gross Domestic Product (GDP). Since NAFTA, the Mexican economy has increasingly become a manufacturing-for-export nation, with exports representing 32% of Mexico's GDP, up from 10% twenty years ago. Mexico remains a major U.S. crude oil supplier, but its top exports to the United States have diversified to include automobiles and auto parts, television receivers, and other manufacturing goods. Overall, Mexico has entered into 12 free trade agreements (FTAs) involving 44 countries. Despite attempts to diversify its economic ties and build its domestic economy, Mexico continues to remain heavily dependent on the United States as an export market (79% of Mexico's exports in 2011 were U.S.-bound), and as a source of tourism revenues, remittances, and investment. Economic conditions in Mexico tend to follow economic patterns in the United States. When the U.S. economy is expanding, the Mexican economy tends to grow as well. However, when the U.S. economy stagnates or is in decline, the Mexican economy tends to decline as well, often by a higher degree. In 2009, for example, GDP growth in the United States fell by 2.5% and Mexico's GDP declined by 6.5%, the worst decline in decades. The Calderón government has been praised for maintaining macroeconomic stability in the face of the global economic crisis and U.S. recession, a 2009 H1N1 swine flu epidemic that damaged the tourism industry, and declining oil production. The government used billions in its international reserves to shore up the peso, and the Mexican central bank established a temporary reciprocal currency sway line with the U.S. Federal Reserve. The government also hedged its oil exports in an effort to protect the economy from a decline in oil prices. The central government increased liquidity in the banking system. It also increased its credit lines with the World Bank, International Monetary Fund (IMF), and Inter-American Development Bank. In 2009, Mexico's fiscal stimulus amounted to 2.5% of GDP and included infrastructure spending and subsidies for key household budget items. Government programs to support small and medium-sized businesses, worker training, job creation, and social safety nets were maintained and, in some cases, expanded. Since late 2009, the Mexican economy has rebounded, partially as a result of a resumption in U.S. demand for Mexican manufacturing exports. Mexico's GDP grew by 5.5% in 2010 and 3.9% in 2011. As the economy has recovered, the Mexican government has gradually rolled backed stimulus measures and increased taxes, but has also extended its credit line with the IMF and continued to hedge its oil exports. The Calderón government took steps to try to boost consumer spending and housing construction so that, in the event that the U.S. and/or global economies contract, Mexico's domestic economy would remain as strong as possible. The Mexican economy grew by a healthy 4% in 2012. While encouraged by Mexico's rapid recovery, analysts have identified some challenges that could constrain the country's long-term growth potential. Economists have warned that continued sluggish growth in the U.S. economy could be a "material drag" on economic growth in Mexico. And, although the government can point to positive overall investment trends as evidence to the contrary, some studies maintain that organized crime-related violence has hurt Mexico's competitiveness by raising the costs of doing business in the country. Still others have identified Mexico's low tax base and over-reliance on declining oil revenues, rigid labor market, weak education system, and lack of competition in some sectors as obstacles to more robust economic growth. Recently enacted labor and education reforms could help address two of those obstacles. Social Conditions Over the 12 years of PAN rule, Mexico experienced macroeconomic stability and low inflation and unemployment, but continued to post relatively high rates of poverty and inequality. As elsewhere in Latin America, the 2009 economic downturn in Mexico had a negative impact on the country's recent progress in reducing poverty. With a population of 114.7 million (July 2012), Mexico is classified by the World Bank as an upper-middle-income developing country, with a per capita income level of $10,064 (2012). According to the U.N. Economic Commission for Latin America and the Caribbean, the percentage of Mexicans living in poverty fell between 2000 and 2006, but rose again between 2006 and 2008 to include almost 45% of the population. The percentage of Mexicans living in poverty increased again between 2008 and 2010 to include 46.2% of the population, or roughly 52 million people, according to Mexican government data. This increase in poverty occurred despite successful government efforts to expand access to health care, social security, and housing. Rural poverty may have further worsened since 2010 as subsistence farmers have been hit hard by the effects of a drought that began in May 2011 and has affected more than half of the country. The Mexican government set aside at least $2.5 billion for drought relief, including support for infrastructure to provide drinking water and emergency food aid to affected communities. As Mexico's crop yields shrunk, the government purchased massive amounts of U.S. corn in an effort to stave off further price increases for a key food staple. Mexican officials have predicted that it may take years for the country's cattle industry to recover from the drought. Mexico's main poverty reduction program is Oportunidades (Opportunities). The program, formerly known as Progresa (Progress), began under President Ernesto Zedillo (1994-2000) and has since expanded to benefit 5.8 million Mexican families (34 million individuals) mostly in rural areas. Oportunidades seeks not only to alleviate the immediate effects of poverty through cash and in-kind transfers, but to break the cycle of poverty by improving nutrition, health standards, and educational attainment. It provides cash transfers to families in poverty who demonstrate that they regularly attend medical appointments and can certify that their children are attending school. While some have praised Oportunidades for its positive effects on educational and nutritional outcomes, others have criticized it for creating dependency on government handouts. In 2010, the Calderón government established a new program within Oportunidades for families in urban areas such as Ciudad Juárez and began providing grants to secondary school students in some rural areas. After two years, high school enrollment had increased by 85% in rural areas where teenagers had been participating in the program. Another key aspect of Mexico's recent social policy efforts has been to expand access to health insurance for people who are not covered by the country's social security system under a program known as Seguro Popular (Popular Health Insurance). In 2003, the Mexican Congress passed a law establishing a system by which public funding for health care would be gradually increased over seven years to achieve universal health insurance. By 2012, more than 52 million previously uninsured people received full or supplementary insurance through Seguro Popular . While many experts have praised Seguro Popular for expanding low-income Mexicans' access to medication and health care, some have criticized it for being inefficient and for not reaching the poorest communities. Foreign Policy While the bilateral relationship with the United States has continued to dominate Mexican foreign policy, President Calderón, like his predecessor Vicente Fox, sought to strengthen Mexico's ties with Latin America. Calderón regularly met with former Colombian President Álvaro Uribe and with the government of Juan Manuel Santos, with whom he signed a series of agreements, including an extradition treaty. In June 2012, Mexico signed an agreement with Colombia, Peru, and Chile formally establishing an economic block known as the Pacific Alliance to promote regional integration and trade with Asia. Calderón supported the Central American Security Strategy adopted in June 2011, signed a free trade agreement (FTA) with Central America (excluding Panama), and offered $160 million to set up an infrastructure fund for the sub-region. The Calderón government also explored the possibility of forming a Brazil-Mexico FTA, as well as developing greater energy cooperation between PEMEX and Petrobras, Brazil's state oil company. President Calderón also tried to mend relations with Cuba and Venezuela, which had become tense during the Fox Administration. Mexico also took an active role with respect to global issues. Calderón played a lead role in global climate change negotiations, with Mexico hosting the U.N. Climate Change Conference in Cancún in late 2010. At the Asia-Pacific Economic Cooperation (APEC) Forum in November 2011, the Mexican government announced that it would seek consultations with partner countries about joining the negotiations for a Trans-Pacific Partnership (TPP) Agreement. On June 18, 2012, President Obama announced that the nine countries involved in the TPP negotiations had extended an invitation to Mexico. As rotating head of the G20 nations, Mexico hosted the G20 Summit in June 2012. Although euro-zone debt problems dominated the discussions, Mexican officials also reportedly sought to focus attention on food security issues. This umbrella topic included concerns regarding sustainability, supporting small-scale farmers, and diversifying bio-fuels production to minimize its impact on global food supplies. Mexican-U.S. Relations: Issues for Congress Until the early 1980s, Mexico had a closed and statist economy and its independent foreign policy was often at odds with the United States. Those policies began to shift, however, under President Miguel de la Madrid (1982-1988), and changed even more dramatically under President Carlos Salinas de Gortari (1988-1994) and President Ernesto Zedillo (1994-2000). President Salinas opened Mexico's economy to trade and investment, while President Zedillo adopted electoral reforms that leveled the playing field for opposition parties and increased cooperation with the United States on drug control and border issues. President Fox (2000-2006) encouraged strong relations with the United States, and called for greater cooperation under NAFTA and for a bilateral migration agreement that would regularize the status of undocumented Mexicans in the United States. In the aftermath of the September 2001 terrorist attacks in the United States, the focus of relations shifted to border security issues as the United States became increasingly concerned about homeland security. Relations became strained during the debate on immigration reform in the United States. After then-President George W. Bush approved the Secure Fence Act of 2006, Mexico, with the support of 27 other nations, denounced the proposed border fence at the Organization of American States. Under the Calderón government, security cooperation, rather than immigration or trade, dominated the U.S.-Mexican relationship. During then-President Bush's March 2007 visit to Mexico, President Calderón called for U.S. assistance in combating drug and weapons trafficking. Calderón's willingness to increase narcotics cooperation with the United States led to the development of the Mérida Initiative, a multi-year U.S. assistance effort announced in October 2007 to help Mexico and Central America combat drug trafficking and crime. The Mérida Initiative signaled a major diplomatic step forward for bilateral counterdrug cooperation as the Mexican government put sovereignty concerns aside to allow extensive U.S. involvement in its domestic security policies. U.S.-Mexican relations continued to be close under the first Obama Administration, with security cooperation intensifying under a new Mérida Initiative strategy that encompassed institution-building, border issues, and development in Mexico. In January 2009, President Calderón visited then President-elect Obama in Washington, DC. That pre-inaugural meeting, which has become somewhat of a tradition for recent U.S. Presidents, demonstrated the importance of strong relations with Mexico. President Obama met frequently with President Calderón throughout his first term, both on a bilateral basis and at trilateral North American Leaders' Summits convened with Canadian Prime Minister Stephen Harper. Although security issues frequently dominated these discussions, enhancing North American competitiveness and energy cooperation also figured prominently. U.S.-Mexican presidential summits were reinforced by frequent cabinet-level meetings between the two governments, as well as the creation of bilateral working groups formed to address specific topics. On September 18, 2012, U.S. and Mexican cabinet-level officials met for the fourth time to review the results of five years of Mérida cooperation, reaffirm their commitment to its strategic framework, and pledge to deepen the cooperation the Mérida Initiative has established. U.S.-Mexican security cooperation continued even as tension emerged in bilateral relations, including after the resignation of the U.S. Ambassador to Mexico in March 2011 and two incidents in which U.S. agents were shot while working in Mexico. As Mexico is experiencing a domestic shift in power from PAN to PRI rule, U.S.-Mexican relations could also be in for some changes. 2013 marks the first time in 12 years that U.S. and Mexican presidential terms are beginning at roughly the same time. While President Obama and President Peña Nieto both face a full slate of domestic challenges, analysts have urged both leaders to work together on issues that are of critical importance to both countries, particularly those aimed at boosting trade and job creation. At a pre-inaugural meeting in late November 2012, President Obama embraced Peña Nieto's desire to bolster economic ties and to focus on a broad array of bilateral issues rather than focusing predominantly on security issues. U.S. Assistance to Mexico Merida Initiative45 In recent years, Congress has played an increasingly active role in shaping U.S.-Mexican relations through funding and overseeing the Mérida Initiative, an anticrime and counterdrug assistance package that began in FY2008. Prior to that time, Mexico, a middle income country, had not been a major recipient of U.S. foreign assistance. As a result of the Mérida Initiative, U.S. assistance to Mexico rose from $65 million in FY2007 to $406 million in FY2008. Table 1 below provides an overview of U.S. assistance to Mexico funded through the State Department. From FY2008-FY2012, Congress appropriated $1.9 billion in Mérida assistance for Mexico (see Table 2 below), roughly $1.1 billion of which had been delivered as of November 2012. Mérida Initiative assistance has flowed through the International Narcotics Control and Law Enforcement (INCLE), Economic Support Fund (ESF), and, until recently, Foreign Military Financing (FMF) accounts. Whereas Mérida assistance initially focused on training and equipping Mexican counterdrug forces, it now aims to address the weak institutions and underlying societal problems—including corruption and impunity—that have allowed the drug trade to flourish in Mexico. The updated Mérida strategy, announced in March 2010, focuses on four pillars: (1) disrupting organized criminal groups, (2) institutionalizing the rule of law, (3) building a 21 st century border, and (4) building strong and resilient communities. The bulk of U.S. assistance under Mérida is supporting training and technical assistance programs for Mexico's justice sector under pillar two of the Mérida strategy. U.S. assistance has shifted from only supporting the Mexican federal government to assisting certain key states with police and judicial reform efforts, as well as community-based crime prevention programs. Congress has played a major role in determining the level and composition of Mérida funding for Mexico. In the beginning, Congress included funding for Mexico in supplemental appropriations measures in an attempt to hasten the delivery of certain equipment. Congress has also earmarked funds for specific purposes in order to ensure that certain programs are prioritized, such as efforts to support institutional reform in Mexico. Finally, Congress has sought to influence human rights conditions and encourage efforts to combat abuses and impunity in Mexico by placing conditions on Mérida-related assistance (see " Human Rights " below). There appears to be strong support in both the Senate and House for maintaining U.S. support to Mexico provided through Mérida Initiative accounts. The Administration's FY2013 budget request asked for $234 million in Mérida assistance for Mexico: $199 million in the International Narcotics and Law Enforcement (INCLE) account and $35 million in the Economic Support Fund (ESF) account. The Senate Appropriations Committee's version of the FY2013 foreign operations appropriations measure, S. 3241 ( S.Rept. 112-172 ), would have met the request for INCLE and provided $10 million in additional ESF for economic development projects in the border region. S. 3241 included restrictions on aid to the Mexican military and police. The House Appropriations Committee's version of the bill, H.R. 5857 ( H.Rept. 112-494 ), would have increased INCLE funding by $49 million to match the FY2012 enacted level for that account and met the request for ESF. In the absence of a final FY2013 foreign appropriations measure, Congress passed a continuing resolution, H.J.Res. 117 , to fund most foreign aid programs—including assistance to Mexico—at FY2012 levels plus 0.6% through March 27, 2013. Non-Merida Assistance Programs Apart from Mérida-related funding, Congress doubled development assistance (DA) to Mexico from FY2010 to FY2011, and increased it again to $33 million in FY2012. The U.S. Agency for International Development (USAID) uses DA to support programs aimed at boosting private sector competitiveness, promoting sustainable energy development, and forming partnerships with faculty and students from Mexican universities to address climate change and rule of law issues. Assistance provided through the Global Health and Child Survival (GHCS) that has helped the Mexican government both prevent and treat HIV/AIDS and other infectious diseases ended in FY2012. Mexico also benefits from military training programs funded through the State Department's International Military Education and Training Account (IMET), as well as counterterrorism assistance provided through the Non-proliferation, Anti-terrorism and Related Programs (NADR) account. Department of Defense Support to Mexico Apart from the Mérida Initiative, DOD has its own legislative authorities to provide certain counterdrug assistance. DOD programs in Mexico are overseen by the U.S. Northern Command (NORTHCOM), which is located at Peterson Air Force Base in Colorado. DOD can provide counterdrug assistance under guidelines outlined in Section 1004 of P.L. 101-510 , as amended through FY2014, and can provide additional assistance to certain countries as provided for in Section 1033 of P.L. 105-85 , as amended through FY2013. DOD counternarcotics support to Mexico totaled roughly $34.2 million in FY2009, $89.7 million in FY2010, and $84.7 million in FY2011. DOD is using some $50 million in FY2011 per Section1033 of P.L. 105-85 funds to improve security along the Mexico-Guatemala-Belize border. Total DOD support to Mexico in stood at $100.4 million in FY2012 and may exceed $75.3 million in FY2013. Bilateral Cooperation on Counternarcotics and Security Efforts In the 1980s and 1990s, U.S.-Mexican counternarcotics efforts were often marked by mistrust, especially following the 1985 killing of DEA Special Agent Enrique Camarena in Mexico. Beginning in 1986, when the U.S. President was required to certify whether drug-producing countries and drug-transit countries were cooperating fully with the United States, Mexico often was criticized for its lack of effort, which in turn led to Mexican government criticism of the U.S. assessment. Reforms to the U.S. drug certification process enacted in September 2002 ( P.L. 107-228 ) essentially eliminated the annual drug certification requirement, and instead required the President to designate and withhold assistance from countries that had "failed demonstrably" to make substantial counternarcotics efforts. In the aftermath of this legislative change, antidrug cooperation with Mexico improved considerably during the Fox administration (2000-2006). Over the last five years, U.S.-Mexican security cooperation has intensified significantly as a result of the Mérida Initiative. U.S.-Mexican cooperation has evolved to the point where it is able to continue even amidst serious strain caused by sometimes unforeseen events. For example, bilateral efforts against weapons trafficking continued even after the failed Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) operation dubbed "Fast and Furious" resulted in firearms being trafficked into Mexico. U.S. training and law enforcement support efforts have advanced even as U.S. personnel have been injured and even killed while working in Mexico. The U.S. government has helped Mexican government investigate the circumstances under which two U.S. Central Intelligence Agency (CIA) employees were wounded on August 24, 2012, as their vehicle came under heavy fire from Mexican Federal Police. In the 2007 U.S.-Mexico joint statement announcing the Mérida Initiative, the U.S. government pledged to "intensify its efforts to address all aspects of drug trafficking (including demand-related portions) and continue to combat trafficking of weapons and bulk currency to Mexico." Although not funded through the Mérida Initiative, the U.S. government has made efforts to address each of these issues, with efforts to combat weapons trafficking and, to a lesser extent, money laundering having received congressional scrutiny. Overview of Related Southwest Border Initiatives49 The increase in drug trafficking-related violence between and among DTOs in Mexico has generated concern among U.S. policy makers that the violence in Mexico might spill over into the United States. U.S. federal officials have denied that the recent increase in violence in Mexico has resulted in a spillover into the United States, but acknowledged that the prospect is a serious concern. In March 2009, Secretary of Homeland Security Janet Napolitano announced a set of Southwest border initiatives aimed at (1) guarding against violent crime spillover into the United States; (2) supporting Mexico's crackdown campaign against drug cartels in Mexico; and (3) reducing the movement of contraband in both directions across the border. The Obama Administration authorized the deployment of 1,200 National Guard troops to the U.S.-Mexico border in July 2010 to support counternarcotics enforcement efforts. In December 2011, DOD and the Department of Homeland Security (DHS) announced that the National Guard would shift from the use of ground troops in law enforcement support roles to an emphasis on providing aerial surveillance support for the Border Patrol. That mission is continuing in 2013. Escalating violence in Mexico has focused congressional concern on the efficacy of these efforts to secure the Southwest border. The 112 th Congress held hearings on the adequacy of DHS and other federal agencies' efforts to secure the border and enacted legislation to further bolster those efforts. P.L. 112-93 increases penalties for aviation smuggling and P.L. 112-127 tightens sentencing guidelines for building border tunnels. Components of DHS are providing significant assistance to secure the Southwest border. Immigration and Customs Enforcement (ICE) has created 21 Border Enforcement Security Task Forces (BESTs) since 2006, including 12 on the Southwest border and 1 in Mexico City. The task forces serve as platforms for cooperation among local, state, and federal agencies as well as a point of cooperation with Mexico's Secretary of Public Security (SSP). The 112 th Congress enacted P.L. 112-205 , which provides statutory authority for the BEST program. ICE has also set up a Transnational Criminal Investigative Unit (TCIU) in Mexico that works with ICE special agents on criminal investigations and prosecutions. ICE, Customs and Border Protection (CBP), and the U.S. Coast Guard have long-standing relationships with their Mexican counterparts to jointly disrupt the activities of DTOS. CBP and Mexican Customs now coordinate southbound inspections in search of bulk cash and weapons. DHS has also provided funds to reimburse Southwest border states for border-security related expenses through Operation Stonegarden. In March 2009, the Department of Justice (DOJ) announced increased efforts to combat Mexican drug cartels in the United States and to help Mexican law enforcement battle the cartels in their own country. DOJ components involved in the increased efforts include the FBI; Drug Enforcement Administration (DEA); ATF; U.S. Marshals Service (USM); the department's Criminal Division; and the Office of Justice Programs. By mid-2011, large-scale investigative operations against Mexican DTOs and their affiliates in the United States had led to the arrest of more than 5,500 suspects and the seizure of more than $300 million in illicit funds. DOJ's Criminal Division has created a team focused on investigating and prosecuting cases against Mexican DTOs within its Asset Forfeiture and Money Laundering Section. DOJ is also pursuing increased extraditions from Mexico. Money Laundering and Bulk Cash Smuggling It is estimated that between $19 billion and $29 billion in illicit proceeds flow from the United States to drug trafficking organizations and other organized criminal groups in Mexico each year. Much of the money is generated from the illegal sale of drugs in the United States and is laundered to Mexico through mechanisms such as bulk cash smuggling. While bulk cash smuggling has been a prominent means by which criminals move illegal profits from the United States into Mexico, they have increasingly turned to stored value cards to move money. With these cards, criminals are able to avoid the reporting requirement under which they would have to declare any amount over $10,000 in cash moving across the border. Current federal regulations regarding international transportation only apply to monetary instruments as defined under the Bank Secrecy Act. Of note, stored value cards are not considered monetary instruments under current law. The Financial Crimes Enforcement Network (FinCEN) has issued a final rule, defining "stored value" as "prepaid access" and implementing regulations regarding the recordkeeping and suspicious activity reporting requirements for prepaid access products and services. This rule does not, however, directly address whether stored value or prepaid access cards would be subject to current regulations regarding the international transportation of monetary instruments. A separate proposed rule would amend the definition of "monetary instrument," for the purposes of BSA international monetary transport regulations, to include prepaid access devices. Even if FinCEN were to issue a final rule and implement regulations requiring individuals leaving the United States to declare stored value, the GAO has identified several challenges that would remain. These challenges relate to law enforcement's ability to detect the actual cards and to differentiate legitimate from illegitimate stored value on cards; travelers' abilities to remember the amount of stored value on any given card; and law enforcement's ability to determine where illegitimate stored value is physically held and subsequently freeze and seize the assets. Aside from bulk cash smuggling and stored-value cards, Mexican traffickers move and launder money by using digital currency accounts, e-businesses that facilitate money transfers via the Internet, online role-playing games or virtual worlds that enable the exchange of game-based currencies for real currency, and mobile banking wherein traffickers have remote access—via cell phones—to bank and credit card accounts as well as prepaid cards. The proceeds may then be used by DTOs and other criminal groups to acquire weapons in the United States and to corrupt law enforcement and other public officials. Countering financial crimes—including money laundering and bulk cash smuggling—is one effort outlined by the National Southwest Border Counternarcotics Strategy (SWBCS). To curb the southbound flow of money from the sale of illicit drugs in the United States, the SWBCS includes several goals: stemming the flow of southbound bulk cash smuggling, prosecuting the illegal use of MSBs and electronic payment devices, increasing targeted financial sanctions, enhancing multilateral/bi-national collaboration, and empirically assessing the money laundering threat. In 2005, ICE and CBP launched a program known as "Operation Firewall," which increased operations against bulk cash smuggling in the U.S.-Mexico border region. This operation was re-initiated in January 2010, and between January 2010 and April 2011, Operation Firewall resulted in eight arrests and the seizure of $6 million in U.S. currency. U.S. efforts against money laundering and bulk cash smuggling are increasingly moving beyond the federal level as well, as experts have recommended. In December 2009, for example, ICE opened a bulk cash smuggling center to assist U.S. federal, state, and local law enforcement agencies track and disrupt illicit funding flows. Still, the GAO has identified several ways in which CBP outbound inspections and other U.S. efforts against bulk cash smuggling, particularly those aimed at combating the use of stored value cards, might be improved. The United States and Mexico have created a Bilateral Money Laundering Working Group to coordinate the investigation and prosecution of money laundering and bulk cash smuggling. A recent Bi-national Criminal Proceeds Study revealed that some of the major points along the Southwest border where bulk cash is smuggled include San Ysidro, CA; Nogales, AZ; and Laredo, McAllen, and Brownsville, TX. Information provided from studies such as these may help inform policy makers and federal law enforcement personnel and assist in their decisions regarding where to direct future efforts against money laundering. Despite these efforts, the 112 th Congress held hearings, issued reports, and introduced legislation on how current money laundering efforts could be bolstered. Firearms Trafficking68 Illegal firearms trafficking from the United States has been cited as a significant factor in the drug trafficking-related violence in Mexico. To address this issue, the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) stepped up enforcement of domestic gun control laws in the four Southwest border states under an agency-wide program known as "Project Gunrunner." ATF has also trained Mexican law enforcement officials to use its electronic tracing (eTrace) program, through which investigators are sometimes able to trace the commercial trail and origin of recovered firearms. In the past, ATF has periodically released data on firearms traces performed for Mexican authorities. Although substantive methodological limitations preclude using trace data as a proxy for the larger population of "crime guns" in Mexico or the United States, trace data have proven to be a useful indicator of trafficking trends and patterns. In June 2009, GAO recommended to the Attorney General that he should direct ATF to update regularly its reporting on aggregate firearms trace data and trends. For the last two years, however, ATF has only released limited and arguably selected amounts of trace data. In February 2011, ATF came under intense congressional scrutiny for a Phoenix, AZ-based Project Gunrunner investigation known as Operation Fast and Furious, when ATF whistleblowers reported that suspected straw purchasers had been allowed to acquire relatively large quantities of firearms as part of long-term gun trafficking investigations. Some of these firearms are alleged to have "walked," or been trafficked to gunrunners and other criminals, before ATF moved to arrest the suspects and seize all of their contraband firearms. Two of those firearms were reportedly found at the scene of a shootout near the U.S.-Mexico border where U.S. Border Patrol Agent Brian Terry was shot to death. Questions have also been raised about whether a firearm that was reportedly used to murder ICE Special Agent Jamie Zapata and wound Special Agent Victor Avila in Mexico on February 15, 2011, was initially trafficked by a subject of a Houston, TX-based Project Gunrunner investigation. While it remains an open question whether ATF or other federal agents were in a position to interdict the firearms used in these deadly attacks before they were smuggled into Mexico, neither DOJ nor ATF informed their Mexican counterparts about these investigations and the possibility that some of these firearms could be reaching Mexico. Legislators in both the United States and Mexico have voiced ongoing concerns about Operation Fast and Furious. Repeated Congressional inquiries prompted U.S. Attorney General Eric Holder to direct his Inspector General to conduct a third evaluation of Project Gunrunner, which was delivered to Congress in September 2012. In addition, in July 2011, the Office of Management and Budget (OMB) approved an ATF multiple rifle sales reporting requirement for a three-year period. Under this reporting requirement, federally licensed gun dealers in Southwest border states are required to report to ATF whenever they make multiple sales or other dispositions of more than one rifle within five consecutive business days to an unlicensed person. Alien Smuggling and Human Trafficking As bilateral efforts under the Mérida Initiative and U.S. domestic efforts to combat illicit flows related to the drug trade have intensified, Mexican DTOs, particularly Los Zetas, have branched out into other illicit activities, including alien smuggling and human trafficking. Alien smuggling involves people who pay to be illegally transported from or through Mexico into the United States. Some of the smugglers who profit from this activity have ties to DTOs and have kidnapped, extorted, and killed migrants. U.S. and Mexican officials share security concerns about the increasing involvement of organized crime groups in alien smuggling. Human trafficking refers to cases in which individuals are coerced into sexual exploitation or forced labor; some migrants who contract with smugglers eventually become victims of human trafficking. Undocumented migrants, along with women, children, and indigenous persons, have been identified as groups that are particularly vulnerable to human trafficking in Mexico. Mexican and U.S. law enforcement agencies collaborate to combat alien smuggling and human trafficking. For example, through the Operation Against Smuggling Initiative on Safety and Security (OASISS), Mexican alien smugglers apprehended in the United States can be prosecuted in Mexico. From the time of its inception in 2005 through the end of FY2011, OASISS referred 2,617 cases to Mexican authorities. Mexican and bilateral investigations and prosecutions against human trafficking have intensified since Mexico reformed its federal criminal procedure code to criminalize trafficking in late 2007. All of Mexico's states have enacted code reforms that criminalize at least some forms of human trafficking. Since 2007, the State Department has removed Mexico from its human trafficking watch list and ranked it as a "Tier 2" country (the second-best out of four categories) in its annual Trafficking in Persons (TIP) reports, reflecting this progress. According to the State Department's TIP report covering 2011, Mexico convicted 14 sex traffickers in 2011, but did not report any convictions for forced labor. Observers maintain that the number of prosecutions recorded is low relative to the scale of the human trafficking problem in Mexico. The Mexican Congress recently approved a new law against trafficking that amends the 2007 federal anti-TIP law and includes prison sentences of up to 40 years for people convicted of sexual exploitation. Yet the Congress also cut funding for anti-TIP efforts and for the Attorney General's Office in 2012. Many Mexican law enforcement activities with respect to combating alien smuggling and human trafficking receive some degree of U.S. financial support. One way to increase Mexico's role in migration enforcement may be for Congress to consider additional investments in these programs. The United States also could include migration control as an explicit priority within other existing programs, such as the Mérida Initiative. On the other hand, Mexico is already among the largest recipients of U.S. anti-TIP assistance in the Western Hemisphere, and some Members of Congress may be reluctant to invest more resources in such programs. Human Rights Conditions and Mexican Efforts to Improve The State Department has long documented concerns about human rights conditions in Mexico. Mexican and international human rights groups have presented evidence that human rights conditions in the country have deteriorated as a result of the brutal violence perpetrated by organized crime groups and the government's response to that violence. Although human rights issues related to the Mexican government's struggle against organized crime have received the most attention in recent years, other societal abuses have continued to be observed. Those include domestic violence and femicide; trafficking in persons; and abuses against migrants transiting Mexico, particularly undocumented migrants from Central America. There have been ongoing concerns about the human rights records of Mexico's federal, state, and municipal police. For the past several years, State Department's human rights reports covering Mexico have cited credible reports of police involvement in extrajudicial killings, kidnappings for ransom, and torture. While abuses are most common at the municipal and state level, where corruption and police collaboration with criminal groups often occurs, federal forces—including the Federal Police—have also committed serious abuses. Individuals are most vulnerable to police abuses after they have been arbitrarily detained and before they are transferred to the custody of prosecutors, or while they are being held in preventive detention. Some 43% of Mexican inmates are reportedly in pre-trial detention. The Calderón government sought to combat police corruption and human rights abuses through increased vetting of federal forces; the creation of a national police registry to prevent corrupt police from being re-hired; the use of internal affairs units; and the provision of human rights training. In 2012, the government also announced new protocols on the use of force and how detentions are to be handled that were designed to prevent abuses. A January 2009 public security law codified vetting requirements and professional standards for state police to be met by 2013, but progress toward meeting those standards has been uneven. With a few exceptions, efforts to reform municipal police forces have lagged behind. There has also been increasing concern that the Mexican military, which is less accountable to civilian authorities than the police, is committing more human rights abuses since it is has been tasked with carrying out public security functions. A November 2011 Human Rights Watch (HRW) report maintains that cases of torture, enforced disappearances, and extrajudicial killings have increased significantly in states where federal authorities have been deployed to fight organized crime. According to Mexico's Human Rights Commission (CNDH), the number of complaints of human rights abuses by Mexico's National Defense Secretariat (SEDENA) increased from 182 in 2006 to a peak of 1800 in 2009 before falling slightly to 1,695 in 2011. The Trans-Border Institute has found that the number of abuses by SEDENA forces that have been investigated and documented by CNDH has also declined since 2008-2009, particularly in areas where large-scale deployments have been scaled back. In contrast, complaints of abuses against the Secretariat of the Navy (SEMAR) reported to CNDH increased by 150% from 2010 to 2011 as its forces became more heavily involved in anti-DTO efforts. While troubling, only a small percentage of those allegations have resulted in the CNDH issuing recommendations for corrective action to SEDENA or SEMAR, which those agencies say they have largely accepted and acted upon. A June 2011 constitutional amendment gave CNDH the authority to force entities that refuse to respond to its recommendations to appear before the Mexican Congress. In addition to expressing concerns about current human rights abuses, Mexican and international human rights groups have criticized the Mexican government for failing to hold military and police officials accountable for past abuses. In addition to taking steps to reform the police and judiciary, the Calderón government took some steps to comply with rulings by the Inter-American Court of Human Rights (IACHR) that cases of military abuses against civilians should be tried in civilian courts. While a few dozen cases were transferred to civilian jurisdiction and former President Calderón asked SEDENA and SEMAR to work with the Attorney General to accelerate transfers, most cases were still processed in the military justice system. Military prosecutors have opened thousands of investigations into allegations of human rights abuses as a result of complaints filed with the CNDH, with few having resulted in convictions. A reform of Article 57 of the military justice code was submitted by then-President Calderón in October 2010 mandating that at least certain human rights violations be investigated and prosecuted in civilian courts. A more comprehensive proposal that required that all cases of alleged military human rights violations be transferred to the civilian justice system was approved by the Mexican Senate's Justice Commission in April 2012; however, the bill was subsequently blocked from coming to a vote. In September 2012, another proposal to reform Article 57 was presented in the Mexican Senate, but not enacted. Enacting a reform of Article 57 of the military justice code may become more urgent now for the Peña Nieto Administration now that Mexico's Supreme Court is in the process of establishing binding legal precedent for determining jurisdiction in cases involving alleged military human rights violations against civilians. Human rights defenders and journalists have been particularly vulnerable to abuses by organized crime, sometimes acting in collusion with corrupt government authorities. Recently, several prominent human rights defenders have been harassed, attacked, and even killed, including members of the high-profile Movement for Peace with Justice and Dignity led by Javier Sicilia. Increasing violent crimes targeting journalists, combined with high levels of impunity for the perpetrators of those crimes, have made Mexico the most dangerous country in the Western Hemisphere for journalists. Crimes against journalists range from harassment, to extortion, to kidnapping and murder. The Committee to Protect Journalists (CPJ) has documented 58 murders of journalists and at least 10 cases of journalists disappearing in Mexico since 2000. Threats from organized crime groups have made journalists and editors fearful of covering crime-related stories, and in some areas coverage of the DTOs' activities have been shut down. The Calderón government and the Mexican Congress took some steps to better protect human rights defenders and journalists, but many human rights organizations have called upon the Peña Nieto Administration to do more. The Calderón government established a special prosecutor within the Attorney General's Office to attend to crimes against freedom of expression and created mechanisms to provide increased protection for journalists and human rights defenders. Those mechanisms have yet to be effectively implemented. The Mexican Congress enacted a law to make crimes against journalists a federal offense and a law to require the federal government to provide protection to journalists and human rights defenders who are "at risk" of being victimized and to their families. Another law approved by the Congress in 2012, but not promulgated by the Calderón government, would require the state to track victims of organized crime and provide assistance to victims and their families. Human rights organizations expressed satisfaction after President Peña Nieto signed that law, commonly referred to as the "victims' law," in January 2013, but said that the real test of his government's commitment to human rights will be in how that and other laws are implemented. Human Rights Conditions on U.S. Assistance to Mexico In 2008, Congress debated whether human rights conditions should be placed on Mérida assistance beyond the requirements in §620J of the Foreign Assistance Act (FAA) of 1961. That section was re-designated as §620M and amended by the Consolidated Appropriations Act of 2012 ( P.L. 112-74 ). It states that an individual or unit of a foreign country's security forces is prohibited from receiving assistance if the Secretary of State receives "credible evidence" that an individual or unit has committed "a gross violation of human rights." The FY2008 Supplemental Appropriations Act ( P.L. 110-252 ), which provided the first tranche of Mérida funding, had less stringent human rights conditions than had been proposed earlier, largely due to Mexico's concerns that some of the conditions would violate its national sovereignty. The conditions required that 15% of INCLE and Foreign Military Financing (FMF) assistance be withheld until the Secretary of State reports in writing that Mexico is taking action in four human rights areas: 1. improving transparency and accountability of federal police forces; 2. establishing a mechanism for regular consultations among relevant Mexican government authorities, Mexican human rights organizations, and other relevant Mexican civil society organizations, to make consultations concerning implementation of the Mérida Initiative in accordance with Mexican and international law; 3. ensuring that civilian prosecutors and judicial authorities are investigating and prosecuting, in accordance with Mexican and international law, members of the federal police and military forces who have been credibly alleged to have committed violations of human rights, and the federal police and military forces are fully cooperating with the investigations; and 4. enforcing the prohibition, in accordance with Mexican and international law, on the use of testimony obtained through torture or other ill-treatment. Similar human rights conditions were included in FY2009-FY2011 appropriations measures that funded the Mérida Initiative. However, the first two conditions are not included in the 15% withholding requirement in the FY2012 Consolidated Appropriations Act ( P.L. 112-74 ). As previously mentioned, Congress has yet to pass a final FY2013 appropriations measure. It remains to be seen whether an omnibus bill would include the conditions on aid to Mexico that are in the Senate Appropriations Committee's version of the FY2013 foreign operations appropriations measure S. 3241 ( S.Rept. 112-172 ). Those conditions would retain the condition related to torture, as well as require the State Department to report that Mexico has reformed its military justice code and is requiring police and military officials to immediately transfer detainees to civilian judicial authorities. Thus far, the State Department has submitted three 15% progress reports on Mexico to congressional appropriators (in August 2009, September 2010, and August 2012) that have met the statutory requirements for FY2008-FY2012 Mérida funds that had been on hold to be released. Nevertheless, the State Department has twice elected to hold back some funding pending further progress in key areas of concern. In the September 2010 report, for example, the State Department elected to hold back $26 million in FY2010 supplemental funds as a matter of policy until further progress was made in the areas of transparency and combating impunity. Those funds were not obligated until the fall of 2011. In the August 2012 report, the State Department again decided to hold back all of the FY2012 funding that would have been subject to the conditions (roughly $18 million) as a matter of policy until it can work with Mexican authorities to determine steps to address key human rights challenges. Those include: improving the ability of Mexico's civilian institutions to investigate and prosecute cases of human rights abuses; enhancing enforcement of prohibitions against torture and other mistreatment; and strengthening protection for human rights defenders. The State Department has established a high-level human rights dialogue with Mexico, provided human rights training for Mexican security forces (at least eight hours for every course offered), and implemented a number of human rights-related programs. For example, USAID has provided $1.3 million to the U.N. Office of the High Commissioner for Human Rights to help civil society groups monitor abuses by security forces and to improve how security agencies respond to those abuses. In 2011, USAID launched a $5 million program being implemented by Freedom House to improve protections for Mexican journalists and human rights defenders. Congress may choose to augment Mérida Initiative funding for human rights programs, such as ongoing human rights training programs for military and police, or newer efforts, such as support for human rights organizations through ESF funds. Human rights conditions in Mexico, as well as compliance with conditions on Mérida assistance, are also likely to continue to be important oversight issues as well. Policy makers may closely follow how the Peña Nieto moves to punish past human rights abuses and prevent new abuses from occurring. Migration98 Trends in Mexican Immigration to the United States Mexico is the leading country of origin among U.S. legal permanent residents (LPRs) and among unauthorized immigrants in the United States, according to the Department of Homeland Security Office of Immigration Statistics (OIS). While the Immigration and Nationality Act (INA) sets a ceiling on immigration from any one country at 7%, most Mexican immigrants are exempt from the statutory numerical limits because they enter as immediate relatives of U.S. citizens. Mexicans made up 62% of the unauthorized aliens living in the United States in 2010 according to estimates based upon the American Community Survey (ACS) of the U.S. Census Bureau. OIS demographers estimated from the ACS that there were 6.7 million Mexican nationals among the estimated 10.8 million unauthorized resident population in 2010. Mexican migration flows, particularly unauthorized flows, began to decline in mid-2006 and have continued on a downward trajectory since that time. In fact, data from multiple sources estimate that the net rate of unauthorized migration from Mexico to the United States is fluctuating somewhere near zero. Researchers have variously attributed this declining emigration to the U.S. recession, to stepped up U.S. border security that has made the journey more hazardous, to increasing abuses of migrants by smugglers and criminal organizations, and to expanding job opportunities in Mexico. Emigration flows may increase again once economic growth picks up in the United States. However, future flows may be smaller than in the past because young Mexicans may feel less pressure than previous generations to emigrate in order to find work. Mexico's Immigration Policies Mexico is in a unique position in the international migration system because in addition to its role as a source of international emigrants, it is also an important country of transit and, to a lesser extent, a destination country for transnational migrants. Most transit migration though Mexico consists of unauthorized migration of U.S.-bound Central American migrants. Unauthorized flows peaked in 2005, when there were roughly 430,000 illegal crossings into Mexico from Central America, before falling to an estimated 140,000 crossings in 2010. Flows have declined for many of the same reasons that Mexico-U.S. emigration has declined, but particularly due to the fears that potential Central American migrants now have about being victimized by organized criminal groups in Mexico. Until recently, Mexico lacked a cohesive migration policy, and successive Mexican governments appeared to express little concern about the number of Mexican citizens leaving for the United States without proper documents and often at great personal risk. Beginning in the late 1990s, however, increasing emigrant deaths along the U.S.-Mexico border and the precarious situation of unauthorized Mexican migrants in the United States led the Mexican government to take a more active and comprehensive approach to migration issues, including through greater engagement with the United States and reforms to its own migration policy. The "Whole Enchilada" Framework Vicente Fox's election in 2000 ended 71 years of one-party rule and his government made reaching a U.S.-Mexico immigration agreement a top priority. Fox and President George W. Bush met five times during the first nine months of 2001, and on September 6, 2001, the two presidents announced a framework agreement to negotiate a major bilateral migration accord. Although the possibility of a U.S.-Mexico migration accord faded after the 9/11 terrorist attacks, the Mexican government supported efforts to enact comprehensive immigration reform in the United States. In February 2006, for example, the Mexican Congress passed a Concurrent Resolution on Migration acknowledging Mexico's shared responsibility to enforce legal emigration, increase security along its northern and southern borders, and create opportunities for workers in Mexico so that fewer individuals would emigrate. In exchange for these commitments, the resolution called for the development of a U.S. guest worker program. Recent Migratory Reforms and 2011 Immigration Law Between 2006 and 2011, the Calderón Administration and the Mexican Congress took significant steps to overhaul Mexico's migration policies, although the implementation of recent reforms remains a work in progress. Previously, Mexico's primary immigration law, the General Population Act of 1974, limited legal immigration and restricted the rights of foreigners in Mexico, with unauthorized migrants subject to criminal penalties. A 2007 law made human trafficking a criminal offense at the federal level, and by 2010, all 32 Mexican states had enacted some form of anti-trafficking reform. In 2008, the Mexican Congress reformed the General Population Act to decriminalize simple migration offenses, making unauthorized migrants subject to fines and voluntary repatriation or deportation, but no longer subject to imprisonment. That year the Calderón government also announced a new strategy and more than $200 million in new investments to improve security conditions, modernize customs and immigration installations, and promote development in Mexico's southern border region. In 2010, Mexico's Congress passed a law stiffening penalties for alien smuggling, particularly abuses committed by public officials. Efforts to identify and punish corrupt officials who may have abused migrants have advanced a bit further at the federal level than in most states and municipalities. The long-term results of Mexico's recent migratory reform efforts are likely to hinge on how well the Mexican government is able to implement a new immigration law that was unanimously approved by the Mexican Congress and signed by President Calderón in May 2011. Some of the main objectives of the law are to (1) guarantee the rights and protection of all migrants who transit Mexican territory; (2) simplify the procedures governing migration in Mexico to facilitate legal immigration; (3) establish the principles of family reunification and humanitarian protection as key elements of the country's immigration policy; and, (4) delineate the roles of each entity responsible for aspects of migration policy so as to improve migration management and reduce abuses of migrants by public officials. The first and fourth objectives most directly respond to the criticisms that have been leveled against the Mexican government for failing to adequately prevent, investigate, and punish abuses of migrants by public officials and organized crime groups. Within the first objective, the law guarantees all migrants access to education, justice, and healthcare services and reduces the time that unauthorized migrants can be held in detention centers to 15 working days. The law also gives legal status to special government "Beta Groups" that assist migrants in distress and establishes special procedures for how children and other vulnerable groups should be treated. Under the fourth objective, the law gives INM legal authority to enforce immigration policy and stipulates that only federal immigration officials can ask for documents to verify a migrant's status. Efforts to Enact Immigration Reform in the United States As previously stated, since the mid-2000s, the Mexican government has supported efforts to enact comprehensive immigration reform in the United States. Comprehensive bills have generally addressed border security, enforcement of immigration laws within the United States, employment eligibility verification, temporary worker programs, permanent admissions and, most controversially, unauthorized aliens in the United States. Despite President Obama's stated commitment to pursue comprehensive immigration reform, immigration was not a front-burner issue for the 112 th Congress. A comprehensive immigration reform bill ( S. 1258 ) and DREAM Act bills ( S. 952 , H.R. 1842 , and H.R. 3823 ) were introduced in the 112 th Congress, but not considered. The 112 th Congress did take legislative action on some measures containing provisions on a range of immigration-related topics. On June 15, 2012, the Obama Administration announced that certain individuals who were brought to the United States as children and meet other criteria similar to those included in DREAM Act bills would be considered for relief from removal. Under a memorandum issued by Secretary of Homeland Security Janet Napolitano on that date, these individuals would be eligible for deferred action for two years, subject to renewal, and could apply for employment authorization. The deferred action process set forth in the June 15, 2012, memorandum, however, would not grant eligible individuals a legal immigration status. Former President Calderón did not promise Mexicans that he could affect immigration reform efforts in the U.S. Congress or reach a bilateral accord with the Obama Administration. He saw how former President Vicente Fox's failure to secure a bilateral immigration accord with the United States in 2001 proved to be a major blow to his administration. Incoming President Peña Nieto has pledged his full support for President Obama's pledge to introduce comprehensive reform, and is likely to continue Mexico's efforts to improve border security, enforce its migration policies in a humane way, and create jobs in order to discourage illegal emigration. His government is also likely to continue protesting the excessive use of force by U.S. agents on the border; defending the rights of Mexican migrants in the United States, regardless of their status; and challenging state laws against illegal immigration. Energy and Environmental Issues Oil Production in Mexico and Efforts to Reform PEMEX The future of oil and gas production in Mexico is of great importance for Mexico's economic stability and for U.S. energy security; Mexico is consistently a top U.S. crude oil supplier. Mexico's state oil company, PEMEX, established in 1938 as the world's first major national oil company, remains an important source of government revenue, but is struggling to counter the country's declining oil production. Production reached a peak of 3.48 million barrels per day in 2004 and has been declining since then, falling to 2.96 million barrels per day in 2011. Policy experts have long urged Mexico to reduce the heavy fiscal burdens on PEMEX and to reform the constitution to enable PEMEX to pursue joint ventures with foreign oil companies that have the technological experience and capital required for oil and gas exploration and production. However, numerous stakeholders in Mexico are concerned that increasing private involvement in PEMEX could threaten Mexico's constitutionally protected control over its natural resources. Legislators from the left and center have derailed most oil and gas sector reform efforts introduced, despite limited reforms being enacted by the Calderón Administration in 2008. Those reforms brought private sector experts into PEMEX's management structure, created an independent board to advise the company, and added greater flexibility to its procurement and investment processes. Most significantly, the 2008 reforms permit PEMEX to create incentive-based service contracts with private companies. Many analysts contend, however, that the reforms did not go far enough and that they do little to help the PEMEX address its major challenges. Most experts contend that PEMEX only has the capacity to extract oil or gas in shallow waters and needs to bring in new technologies and know-how through private investment to allow the company to successfully explore and produce in the deep waters in the Gulf of Mexico. The lack of further reforms is keeping Mexico from allowing much-needed foreign investment in oil exploration. Though the performance-based contracts are expected to increase production and reserves, PEMEX faces serious challenges in finding new, productive wells and engineering capacity. Enacting energy reforms is a task which President Peña Nieto has said will be a top priority for his administration in 2013. However, constitutional reforms require a two thirds vote in the Mexican Congress. The PRI-led coalition's failure to capture a majority in either chamber of the Congress may mean that Peña Nieto will encounter the same type of opposition to his reformist agenda that Calderón has experienced, unless he is able to reach agreements with the PAN. The PRD and portions of the PRI remain opposed to increasing private involvement in PEMEX. Some predict that Peña Nieto may move to implement reforms that have broad based support, such as making PEMEX's budget more independent and reducing its tax burden as part of a larger fiscal reform effort, before pushing for greater private cooperation with PEMEX. U.S.-Mexican Energy and Environmental Cooperation The United States and Mexico have been collaborating on geothermal energy projects since the 1970s, but the possibility of expanding joint efforts to produce renewable energy sources has just recently returned to the bilateral agenda. On April 16, 2009, President Obama and Mexican President Calderón announced the Bilateral Framework on Clean Energy and Climate Change to jointly develop clean energy sources and encourage investment in climate-friendly technologies. Among others, its goals include enhancing renewable energy, combating climate change, and strengthening the reliability of cross-border electricity grids. Bilateral meetings to advance the Framework were held in January 2010, May 2011, and May 2012. There is particular interest on both sides in ensuring that Mexico is able to develop unconventional energy sources in an environmentally responsible way and in overseeing 10 new projects related to wind and solar energy that the North American Development Bank has helped finance. USAID and Mexico have also signed a memorandum of understanding to strengthen and expand cooperation on environmental issues with the Mexico Global Climate Change (GCC) Program , a five-year, approximately $70 million, program. Part of the program seeks to reduce emissions from the energy sector and will assist Mexico's long-term, low emissions development planning. United States-Mexico Trans-Boundary Hydrocarbons Agreement119 Estimates that a marine area straddling the U.S.-Mexico border held billions of barrels of crude oil prompted discussions between the United States and Mexico starting in the 1970s on how to manage exploration. These resource estimates have continued to drive negotiations focused on jointly managing ocean areas in the Gulf of Mexico beyond the two nation's respective exclusive economic zones (EEZs). In 2001, the marine area was delimited by both countries and they agreed that a moratorium on exploration and drilling would be in effect for approximately 10 years in a "buffer zone" marking the area at the border of each country's marine boundary. The stated purpose of the moratorium was to grant time for each country to learn more about the geology and geophysical characteristics of the area and to determine how to best address managing trans-boundary resources once the moratorium was lifted. During the early years that the moratorium was in effect, both countries studied the area and considered options for managing oil and gas reserves in the border area. In May 2010, the United States and Mexico jointly announced their intention to work toward replacing the moratorium with a mutual plan for developing trans-boundary resources. On February 20, 2012, the governments of the United States and Mexico announced the Trans-boundary Hydrocarbons Agreement. The agreement is a step toward clarifying relations between the two countries with respect to managing resources in portions of the Gulf of Mexico that straddle their international marine border. Former Secretary of State Hillary Clinton referred to the Trans-boundary agreement as an example of recent U.S.-Mexican efforts to develop a sustainable energy trading relationship. Before the agreement can take effect, both countries must review and accept it. The Mexican Senate approved the agreement on April 12, 2012, and the Mexican Presidency completed all other domestic requirements to implement the agreement on May 22, 2012. Steps toward U.S. review and acceptance are currently underway with the Department of State taking lead responsibility for addressing questions about the agreement during this process. A procedural question has emerged with respect to what actions are needed for the agreement to be accepted in the United States. At issue is whether the agreement should be entered in the form of a treaty (in which case it would need to be submitted to the Senate and approved by a two-thirds majority) or a Congressional-Executive Agreement (in which case congressional authorization would take the form of a statute passed by a majority of both Houses). The 113 th Congress may soon be called upon to decide what, if any, implications might stem from the United States accepting this agreement. Accordingly, the following questions arise with respect to how the agreement might affect U.S. interests: (1) Would the agreement lead to any new legal or regulatory obligations for U.S. interests? (2) Would existing environmental laws or existing lease terms and conditions in effect in the Gulf of Mexico be affected by the agreement?, and (3) What, if any, fiscal implications (gains or losses) might result from accepting the agreement and carrying out collaborative projects in the boundary area? Trade Issues126 The bilateral trade relationship with Mexico is of key interest to Congress because of Mexico's proximity, the high volume of trade with Mexico, and the strong cultural and economic ties between the two countries. The United States and Mexico have strong economic ties through the North American Free Trade Agreement (NAFTA), which has been in effect since 1994. Since the implementation of NAFTA, U.S.-Mexico trade has quadrupled, with the value of total bilateral trade reaching some $460 billion in 2011. Mexico ranks third as a source of U.S. imports, after China and Canada, and second, after Canada, as an export market for U.S. goods and services. The value of U.S. foreign direct investment (FDI) in Mexico rose from $17 billion in 1994 to $91.4 billion in 2011, a 440% increase. Most studies show that the net economic effects of NAFTA on both the U.S. and Mexican economies have been small but positive, though there have been adjustment costs to some sectors within both countries. Congress has monitored the implementation of NAFTA, the effects of NAFTA on the U.S. and Mexican economies, and the resolution of NAFTA-related trade disputes. Mexico's accession to negotiations for a Trans-Pacific Partnership (TPP) trade agreement is likely to generate congressional interest. Functioning of NAFTA Institutions Several NAFTA institutions mandated by the agreements have been functioning since 1994. The tripartite Commission on Environmental Cooperation (CEC) was established in Montreal, Canada; and the Commission for Labor Cooperation (CLC) was established in Dallas, TX. In addition, the bilateral Border Environment Cooperation Commission (BECC), located in Ciudad Juárez, Mexico, and the North American Development Bank (NADBank), headquartered in San Antonio, TX, were created to promote and finance environment projects along the U.S.-Mexico border. The NAFTA institutions have operated to encourage cooperation on trade, environmental and labor issues, and to consider nongovernmental petitions under the labor and environmental side agreements. Following up on a March 2002 agreement by Presidents Bush and Fox in Monterrey, Mexico, to broaden the mandate of the NADBank, Congress agreed in March 2004 to permit the NADBank to make grants and nonmarket rate loans for environmental infrastructure along the border. In the fall of 2011, the NADBank's mandate was broadened to include projects aimed at developing clean energy. Some U.S. and Mexican policymakers have supported broadening the functions of NADBank further to include other types of infrastructure development; this would likely require approval by both Congresses. Trade Disputes and Emerging Trade Issues Trucking129 Since 2005, the implementation of NAFTA trucking provisions has periodically been in dispute. In March 2009, Congress included a provision in P.L. 111-8 , the FY2009 Omnibus Appropriations Act, to terminate a pilot program that had allowed Mexican-registered trucks to operate beyond the 25-mile border commercial zone inside the United States. This move prompted Mexico to impose retaliatory tariffs on over 90 U.S. agricultural and industrial products. The goods accounted for a value of $2.4 billion in U.S. exports to Mexico in 2007. The FY2010 Consolidated Appropriations Act ( P.L. 111-117 ) and FY2011 Full-Year Continuing Appropriations Act ( P.L. 112-10 ) did not include language that was in P.L. 111-8 prohibiting the Department of Transportation from funding a pilot project for Mexican-registered trucks to operate in the United States. In 2011, the United States and Mexico finally resolved the long-standing NAFTA trucking dispute. In January 2011, the Obama Administration released a concept document for a proposed program to implement the trucking provisions. The Mexican government agreed to phase out the retaliatory tariffs it had imposed once the plan was finalized and to end all retaliatory tariffs once the first Mexican carrier was certified to operate in the United States. On July 6, 2011, the Department of Transportation signed a formal agreement with Mexico establishing a pilot trucking program and ending 50% of the retaliatory tariffs that had been imposed on U.S. exports to Mexico. The first Mexican truck entered the United States under the program on October 21, 2011. Mexico then ended the rest of the retaliatory tariffs it had imposed on the United States. Some Members of Congress continue to oppose the implementation of the trucking provisions because they remain concerned about the safety of Mexican trucks operating in the United States. Others support a resolution to the issue and contend that Mexico's retaliatory tariffs have had strong negative effects on local U.S. industries and jobs. Tuna On tuna issues, the Clinton Administration lifted the embargo on Mexican tuna in April 2000 under relaxed standards for a dolphin-safe label in accordance with internationally agreed procedures and U.S. legislation passed in 1997 that encouraged the unharmed release of dolphins from nets. However, a federal judge in San Francisco ruled that the standards of the law had not been met, and the Federal Appeals Court in San Francisco sustained the ruling in July 2001. Under the Bush Administration, the Commerce Department ruled on December 31, 2002, that the dolphin-safe label may be applied if qualified observers certify that no dolphins were killed or seriously injured in the netting process, but Earth Island Institute and other environmental groups filed suit to block the modification. On April 10, 2003, the U.S. District Court for the Northern District of California enjoined the Commerce Department from modifying the standards for the dolphin-safe label. On August 9, 2004, the federal district court ruled against the Bush Administration's modification of the dolphin-safe standards, and reinstated the original standards in the 1990 Dolphin Protection Consumer Information Act. That decision was appealed to the U.S. Ninth Circuit Court of Appeals, which ruled against the Administration in April 2007, finding that the Department of Commerce did not base its determination on scientific studies of the effects of Mexican tuna fishing on dolphins. In late October 2008, Mexico initiated World Trade Organization (WTO) dispute proceedings against the United States, maintaining that the documentary evidence required for meeting U.S. "dolphin-safe" standards unfairly discriminated against Mexican tuna exporters. In April 2009, the WTO agreed to set up a dispute panel to rule on Mexico's complaint. In September 2011, the panel ruled that U.S. standards were "more trade restrictive than necessary," but not discriminatory toward Mexico. The U.S government must respond to the ruling by July 2013. Separately, in September 2010, the U.S. government requested that a dispute resolution panel be convened under the auspices of the NAFTA agreement rather than through the WTO. The NAFTA panel proceedings have made little progress. During 2012, another potential trade issue emerged over the bilateral tomato trade. In late September 2012, the U.S. Department of Commerce announced a preliminary decision to end a suspension agreement with Mexican tomato growers that has been in place since 1996. The agreement has allowed Mexican growers to sell to the U.S. market as long as they have agreed not to sell their tomatoes below a reference price. Should a final decision definitively end the agreement, U.S. tomato growers would then be able to file complaints against Mexican producers for unfair trade practices that could result in antidumping tariffs on Mexican tomato exports, which in turn could lead to Mexican retaliation. Negotiators are trying to work out a revised suspension agreement that would comply with U.S. antidumping laws that are meant to protect U.S. producers from unfair competition. Proposed Trans-Pacific Partnership (TPP) Agreement132 On June 18, 2012, President Obama announced that the nine countries involved in the negotiations of the proposed Trans-Pacific Partnership (TPP) had extended an invitation to Mexico to join negotiations for the proposed regional free trade agreement. The announcement that Canada has also been invited to join the negotiations came on June 19, 2012. The original countries involved in the negotiations included the United States, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. U.S. negotiators and others describe and envision the TPP as a "comprehensive and high-standard" FTA, presumably because they hope it will liberalize trade in nearly all goods and services and include commitments beyond those currently established in the World Trade Organization (WTO). The broad outline of an agreement was announced on the sidelines of the Asia-Pacific Economic Cooperation (APEC) ministerial in November 2011 in Honolulu, HI. If implemented, the TPP potentially could eliminate tariff and non-tariff barriers to trade and investment among the parties and could serve as a template for a future trade pact among APEC members and potentially other countries. Congress has a direct interest in the negotiations, both through influencing U.S. negotiating positions with the executive branch, and by passing legislation to implement any resulting agreement. The proposed TPP would likely enhance the trade links Mexico already has with the United States and Canada under NAFTA. This could include further reduction of barriers to trade and the negotiation of key issues in areas such as agriculture, intellectual property rights protection, government procurement, regulatory cohesion, investment issues, and others. The Mexican government agreed to several conditions that TPP countries had placed on its entry into the negotiations, including a commitment to "high standards." The conditions included that Mexico would not be able to reopen any existing agreements that were already made by the current TPP partners, unless they agreed to revisit something previously agreed upon. Thus far, TPP partners have only closed out one chapter of the agreement, which is predicted to have 26 chapters in total. Legislation Enacted in the 112th Congress133 P.L. 112-10 ( H.R. 1473 ), Department of Defense and Full-Year Continuing Appropriations Act, FY2011. Signed into law April 15, 2011, the measure funded government programs, including foreign assistance to Mexico, at reduced levels for the remainder of FY2011. The measure contained the same human rights conditions as in P.L. 111-8 . P.L. 112-55 ( H.R. 2112 ), Consolidated and Further Continuing Appropriations Act, 2012. Signed into law November 18, 2011, the measure funded government programs through December 16, 2011. S.Amdt. 738 (Cornyn) prohibited funding for Operation "Fast and Furious" or any other similar programs. P.L. 112-74 ( H.R. 2055 ), Consolidated Appropriations Act, 2012. Signed into law December 23, 2011, the measure funds government programs, including foreign aid to Mexico, for the remainder of FY2012. The act does not include a final funding level for Mexico, but does make 15% of assistance provided to the Mexican military and police subject to human right conditions that are slightly different than previous Mérida appropriations. The conditions require the Secretary of State to report that the Mexican government is taking steps to investigate human rights abuses by military and police forces in civilian courts and prohibiting the use of evidence gathered through torture. The restrictions do not apply to assistance to promote transparency, anti-corruption, and the rule of law within the military and police forces. In the report ( H.Rept. 112-331 ) accompanying the act, the conferees express their support for the Obama Administration's request for Mexico, including the $282 million requested for the Mérida Initiative. The conferees also direct the Secretary of State to provide a report within 90 days of the enactment of the act detailing how U.S. programs are helping to achieve judicial and police reform in Mexico. They also call upon the State Department to develop and implement a border security strategy with Mexico. The act also contains a number of border security provisions. P.L. 112-81 ( H.R. 1540 ), National Defense Authorization Act for FY2012. Signed into law December 31, 2011, the measure authorizes the Department of Defense to continue providing support for counter-drug activities in Mexico through FY2014. P.L. 112-87 ( H.R. 1892 ), Intelligence Authorization Act for FY2012. Signed into law January 3, 2012, the measure requires the Secretary of Homeland Security to submit a report to the congressional intelligence and homeland security committees within 90 days of the enactment of the act on whether restrictions on the use of airspace are inhibiting the use of unmanned aerial vehicles by DHS along the U.S.-Mexico border. P.L. 112-93 ( H.R. 3801 ), Ultralight Aircraft Smuggling Prevention Act of 2012 . Signed into law February 10, 2012, the measure amends the Tariff Code of 1930 with respect to aviation smuggling to extend its coverage of aircraft to ultralight vehicles or any other contrivance used to fly in the air. P.L. 112-127 ( H.R. 4119 ), Border Tunnel Prevention Act of 2012 . Signed into law June 5, 2012, the measure tightens sentencing and prosecution regulations for those who conspire to build trans-border smuggling tunnels. P.L. 112-205 ( H.R. 915 ), Jaime Zapata Border Enforcement Security Task Force Act. Signed into law December 7, 2012, the measure provides statutory authority for the Border Enforcement Security Task Force (BEST) program within ICE, and authorizes funding for the program for FY2012-FY2016. P.L. 112-220 ( H.R. 3783 ), Countering Iran in the Western Hemisphere Act of 2012 . Signed into law January 18, 2012, the measure requires the State Department to submit a comprehensive strategy to counter Iran's presence in the Western Hemisphere, including in Mexico and along the U.S.-Mexico border. H.J.Res. 117 ( Rogers ), Continuing Appropriations Resolution, FY2013. Introduced September 10, 2012; House approved September 14, 2012. Senate approved September 22, 2012. Funds government programs through March 27, 2013.

The United States and Mexico have a close and complex bilateral relationship as neighbors and partners under the North American Free Trade Agreement (NAFTA). Although security issues have recently dominated the U.S. relationship with Mexico, analysts predict that bilateral relations may shift toward economic matters now that President Enrique Peña Nieto has taken office. Peña Nieto of the Institutional Revolutionary Party (PRI) defeated leftist Party of the Democratic Revolution (PRD) candidate Andrés Manuel López Obrador and Josefina Vázquez Mota of the conservative National Action Party (PAN) in Mexico's July 1, 2012 presidential election. As a result, the PRI, which controlled Mexico from 1929 to 2000, retook the presidency on December 1, 2012. Some analysts have raised concerns regarding the PRI's return to power, but President Peña Nieto has pledged to govern democratically and to forge cross-party alliances. The outgoing PAN government of Felipe Calderón pursued an aggressive anticrime strategy and increased security cooperation with the United States. Those efforts helped Mexico arrest or kill record numbers of drug kingpins, but 60,000 people may have died as a result of organized crime-related violence during the Calderón Administration. Mexico's ongoing security challenges overshadowed some of the Calderón government's achievements, including its successful economic stewardship during and after the global financial crisis. U.S. Policy In recent years, U.S. policy toward Mexico has been framed by security cooperation under the Mérida Initiative. Congress has provided more than $1.9 billion in Mérida aid since FY2008 to support Mexico's efforts against drug trafficking and organized crime. Whereas U.S. assistance initially focused on training and equipping Mexican counterdrug forces, it now prioritizes strengthening the rule of law. Along the border, U.S. policymakers have sought to balance security and commercial concerns. The U.S. and Mexican governments resolved a long-standing trade dispute in 2011 involving NAFTA trucking provisions and have sought to improve competitiveness through regulatory cooperation. Bilateral trade surpassed $460 billion in 2011.The February 2012 signing of a Trans-Boundary Hydrocarbons Agreement for managing oil resources in the Gulf of Mexico could create new opportunities for energy cooperation. Legislative Action The 112th Congress maintained an active interest in Mexico. The Obama Administration asked for $269.5 million in assistance for Mexico in its FY2013 budget request. The Senate and House Appropriations Committees' versions of the FY2013 foreign aid measure, S. 3241 and H.R. 5857, each recommend increases in aid to Mexico, with human rights conditions similar to P.L. 112-74. Congress held oversight hearings, issued reports, and introduced legislation on how to bolster the Mérida Initiative and on related U.S. domestic efforts to combat gun trafficking, money laundering, and drug demand. Violence in northern Mexico has kept border security on the agenda, with P.L. 112-93 increasing penalties for aviation smuggling, P.L. 112-127 tightening sentencing guidelines for building border tunnels, and P.L. 112-205 providing statutory authority for the bilateral Border Enforcement Security Task Force (BEST) program. Mexico's recent accession to negotiations for a Trans-Pacific Partnership (TPP) trade agreement generated congressional interest. Congressional consideration of the Trans-boundary Hydrocarbons Agreement did not occur. This report reflects legislative developments during the 112th Congress. It will not be updated. Also see: CRS Report R42917, Mexico's New Administration: Priorities and Key Issues in U.S.-Mexican Relations, by [author name scrubbed]; CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and Beyond, by [author name scrubbed] and Kristin M. Finklea; and CRS Report RL32934, U.S.-Mexico Economic Relations: Trends, Issues, and Implications, by [author name scrubbed].

Most Recent Developments In August 2005, Pakistan held two-phase municipal-level elections in 110 districts. Althoughthe exercise ostensibly was a non-party affair, officials from the opposition Pakistan People's Partycomplained in July that President Musharraf was violating the code of conduct by urging voters tocast ballots for candidates favored by the ruling Pakistan Muslim League. Then, in a blow to thehopes of Islamist sympathizers, the Pakistan Supreme Court ruled that candidates with religiouseducation were ineligible to run in municipal elections unless they have studied English, Pakistanstudies, and Urdu. Islamist leaders criticized the ruling. (1) During the polling, tens of thousands of troops were deployed forsecurity purposes, yet scores of Pakistanis were killed and as many as 1,000 were injured inpoll-related violence around the country. Claims of widespread vote-rigging and women beingbarred from polling stations in the Frontier Province spurred Pakistan's major opposition parties --both secular and Islamist -- to issue a joint call for a national strike to protest President Musharraf's"military takeover," "dictatorial behavior," and "blatant rigging." Ensuing protests were onlymoderate in scale (with Quetta being an exception) and Information Minister Rashid called the strike"a total failure." (2) Candidates favored by Pakistan's ruling party appear to have fared quite well in all fourprovinces, and Muslim League gains were seen as a major boost for President Musharraf, who mayhave to rely on the ruling party to win the presidency in 2007. Musharraf expressed satisfaction with"a victory for the moderates" and "a defeat for the extremists." However, one Pakistani analystopined that the outcome would be unlikely to yield political harmony and had only exacerbated thesense of bitterness and alienation felt among opposition parties. Others warn that apparentirregularities could in fact harm Musharraf's image; a former Pakistani ambassador called the processa "typically vice-regal electoral exercise." Still, many non-Pakistani observers, especially those frominternational aid organizations such as the Asian Development Bank, see the local governancesystem as a bright spot in otherwise faltering efforts at Pakistani democratization. (3) In June 2005, the U.S. State Department's lead official for South Asia, Christina Rocca,reiterated for the House International Relations Committee the important role Pakistan continues toplay in assisting U.S.-led efforts to defeat terrorism, stabilize neighboring Afghanistan, and end thetransfer of nuclear weapons material and technologies. She noted that "Pakistan's government hastaken steps necessary ... to set it on the path of becoming a modern, prosperous, and democraticstate," but conceded "there's still a way to go" toward that goal. Calling democratization a "centralfocus" and one of the "top priorities" in U.S.-Pakistan relations, Secretary Rocca expressed a U.S.expectation that Pakistan's 2005 local and 2007 general elections "be free and fair throughout theentire process. ... [W]e believe that democracy, freedom, and rule of law are the best counters tohatred, extremism, and terrorism" (the State Department did not comment on ensuing reports ofirregularities in the August 2005 elections). Some Members in attendance expressed skepticismabout Pakistan's democratization under Musharraf, with one calling the country a "poster child forthe President's forward strategy of freedom." (4) On the political front, Pakistan's moderate, secular parties continued to face governmentalrepression. In April, in an effort to block a rally planned to welcome the return to Lahore of AsifZardari, the husband of former Prime Minister Benazir Bhutto, police arrested thousands of activistsof the opposition Pakistan People's Party (PPP) and some senior party leaders, and blocked travelroutes around the city. When Zardari arrived in Lahore, he was placed in "protective custody" byauthorities (PPP members said he had been arrested). New York-based Human Rights Watch laterappealed to the Pakistani government to release the "thousands" of opposition PPP supporters whohad been arrested in nation-wide sweeps. (5) Meanwhile, the Islamist political coalition saw thousands of their supporters arrested duringlarge street protests and strikes against the Musharraf government; tens of thousands rallied inKarachi and Lahore in late March. Religious parties and others in Pakistan also were disturbed bya May story in Newsweek magazine report alleging that a copy of the Koran had been desecrated atthe U.S. facility at Guantanamo Bay. The Islamabad government expressed "serious concern" toU.S. officials about the allegations and the U.S. State Department called any such desecration"deplorable and entirely inconsistent with American values of religious freedom and tolerance." Pakistan's National Assembly passed a resolution condemning the alleged desecration. (6) U.S. Interests and Policy Discussion U.S. Interests U.S. Policy. Pakistan, a strategically importantcountry that is home to one of the world's largest Muslim populations, has been a key cooperatingnation in U.S.-led counterterrorism efforts in South Asia. (7) On October 12, 1999, Pakistan's Chief of Army Staff (COAS) Gen.Pervez Musharraf replaced Prime Minister Nawaz Sharif in a bloodless coup. In the wake of themilitary overthrow of the elected government, Islamabad faced considerable internationalopprobrium and was subjected to automatic coup-related U.S. sanctions under section 508 of theannual foreign assistance appropriations act. The September 2001 terrorist attacks on the UnitedStates and Musharraf's ensuing withdrawal of support for the Afghan Taliban regime, however, hadthe effect of greatly reducing Pakistan's international isolation. Congress temporarily removedrestrictions, and large-scale U.S. aid to the country resumed, in the final months of 2001(coup-related sanctions are still in place; since March 2003 President Bush has exercised annuallythe one-year waiver authority on coup-related sanctions granted to him by Congress). The State Department's Country Reports on Terrorism 2004 characterized Pakistan as oneof the most important U.S. partners in the war on terrorism. While top-tier U.S. emphases in theregion after September 2001 have remained combating religious extremism and ending illicit nuclearweapons proliferation, the United States expresses a strong interest in the improvement of Pakistan'shuman rights situation, especially as regards the restoration and strengthening of the country'scivilian democratic institutions. There exists a debate among analysts over the exigency of thisissue. Some observers urge patience, contending that a "true" democratic system will require timeand that "military-guided" governance is required in an unstable setting and to deter extremistpolitical influences. Others argue that Pakistan's underdeveloped democracy and rule of law arethemselves a central cause of the country's instability. Some believe that Pakistan's Islamist forcesare manipulated by and at times in collusion with the military as it manages skewed civil-militaryrelations wherein moderate political parties play a decreasing role. A number of top U.S. diplomats,along with many in Congress, have called for more and accelerated development of Pakistanidemocracy. Some sections of legislation passed by the 108th Congress addressed this concern andpending legislation in the 109th Congress ( S. 12 ) contains Pakistan-specific languageregarding that country's governmental system. The United States now considers Pakistan to be a vital ally in the international anti-terrorismcoalition. The Bush Administration has refrained from expressing any strong public criticisms ofPakistan's internal political practices, while still asserting that the strengthening of civilian politicalinstitutions in Islamabad is "a requirement for the development of a stable, moderate Islamic state." The State Department and the U.S. Agency for International Development have identified"democratic stability in South Asia's frontline states" of Pakistan and Afghanistan as one of elevenkey democracy and human rights-related initiatives for the world in FY2006. (8) According to U.S.Ambassador to Pakistan Nancy Powell in August 2004, America wants to see strong Pakistani democraticinstitutions and practices, including a National Assembly, Senate, and Provincial Assemblies thatplay a vigorous and positive role in governance and an independent judiciary that promotes the ruleof law. We also would like to see Pakistan's civil society play an active role in governance. (9) In March 2005, while unveiling the Bush Administration's "new strategy for South Asia," anunnamed senior State Department official said, The goal, then, has to be a fully democratic,economically promising Pakistan that feels secure and is thus at peace with its neighbors, with thepreviously high tide of anti-Americanism and Islamist extremism gradually receding. (10) Since becoming Secretary of State in early 2005, Condoleezza Rice has made several statementsabout Pakistan's governance system, offering that trends in Pakistan were moving that country "inthe right direction," and insisting that the United States "will continue to press toward eventualelections and a full democratic process in Pakistan." During the lead-up to Pakistan's August 2005municipal elections, Assistant Secretary of State for South Asia Rocca told an interviewer, "A levelplaying field for [Pakistan's] local body elections, as well as for the election in 2007, is critical forthe elections to be free and fair" (the State Department did not comment on ensuing reports ofirregularities in the August 2005 elections). (11) The 9/11 Commission Report and CongressionalAction. The 9/11 Commission Report (released in July 2004) claims that -- evenafter acknowledging problems in U.S.-Pakistan relations and President Musharraf's role in them -- "Musharraf's government is the best hope for stability in Pakistan and Afghanistan." In addition toidentifying Pakistan as a principal transit country for the 9/11 hijackers and naming the westernregions of the country as one of six "actual or potential terrorist sanctuaries" worldwide, theCommission offers a key recommendation for U.S. policy toward Pakistan: If Musharraf stands for enlightened moderation in afight for his life and for the life of his country, the United States should be willing to make hardchoices too, and make the difficult long-term commitment to the future of Pakistan. Sustaining thecurrent scale of aid to Pakistan, the United States should support Pakistan's government in itsstruggle against extremists with a comprehensive effort that extends from military aid to support forbetter education, so long as Pakistan's leaders remain willing to make difficult choices of theirown. (12) In passing the Intelligence Reform and Terrorism Prevention Act of 2004 ( P.L. 108-458 ), the 108thCongress broadly endorsed this recommendation by calling for long-term and comprehensive U.S.support for the government of Pakistan in an effort to ensure a "stable and secure future" for thatcountry. The act expresses the "sense of Congress" that U.S. assistance should in particularencourage and enable Pakistan to make progress in eight specific areas, one of which is "becominga more effective and participatory democracy." Congressional attention to Pakistan's domestic political developments is ongoing. In June2005 ( S.Rept. 109-96 ), the Senate Appropriations Committee recommended approval of theAdministration's request for FY2006 aid to Pakistan while expressing concern with "the slow paceof the democratic development of Pakistan" and an expectation that the State Department andUSAID "continue to make democracy and governance programs a priority." Weeks later, the Housepassed the Foreign Relations Authorization Act, FY2006 and FY2007 ( H.R. 2601 ),which includes a provision requiring the President to report to Congress on the extent to which a"fully functional democracy" has been restored in Pakistan. The Senate-passed version of theForeign Operations FY2006 Appropriations bill ( H.R. 3057 ) would require theSecretary of State report to Congress on steps taken by Pakistan to protect the rights and safety ofPakistani human rights lawyers and journalists. Pending legislation in the 109th Congress (theTargeting Terrorists More Effectively Act of 2005, S. 12 ) includes Pakistan-specificlanguage regarding "a number of critical issues that threaten to disrupt" U.S.-Pakistan relations. Government institutions, democracy, and rule of law are among these. "Enlightened Moderation". The concept of"enlightened moderation," as expounded by Musharraf himself, is a direct response to a growingworld perception that Islam is linked to fundamentalism, and thus to extremism, and thus toterrorism. It is a strategy meant to both shun the militancy that is rooted in "political injustice,denial, and deprivation,"and to bring "socioeconomic uplift"in the Muslim world. Musharraf hascalled upon Muslims to "adopt a path of moderation and a conciliatory approach to fight the commonbelief that Islam is a religion of militancy in conflict with modernization, democracy andsecularism." Pakistan's prime minister, Shaukat Aziz, a close ally of Musharraf and his financeminister since 1999, took office in August 2004 vowing to pursue a policy of "enlightenedmoderation." (13) ManyPakistanis appear to welcome the approach and see religious extremists as the main obstacle. However, one maverick Islamabad politician takes the view that Musharraf's tack was born ofexpediency, not conviction, and only serves to strengthen the perception that neither he nor theUnited States have a genuine interest in Pakistani democracy. (14) The Bush Administrationrejects criticism that it is overly focused on the person of Musharraf and has called the Pakistanipresident "the right man in the right place at the right time for the right job." (15) Policy Discussion U.S. interest in Pakistani democratization exists in tandem (some would say in conflict) withthe perceived need to have a stable and effectively-administered front-line ally in the internationalanti-terrorism coalition. While many observers believe that U.S. interests in combating terrorismand weapons proliferation in South Asia entail a "trade-off" with regard to other concerns, somecontend that the human rights situation in Pakistan may itself be a crucial aspect of the incidence ofterrorism and religious extremism. (16) Congressional oversight of U.S.-Pakistan relations in a March2003 hearing included Member expressions of concern about problems with Pakistanidemocratization and the danger of the United States "giving full recognition to a military takeover"through continuous waivers of coup-related aid restrictions. (17) Pakistan's militarycontinues to dominate the country's centralized decision-making process, and, while in office, PrimeMinister Jamali referred to President Musharraf as being his "boss." (18) The military appears to have increased its control over Pakistan; as articulated by a Pakistaniauthority on civil-military relations, "The corporate interests of the military have expanded so muchunder General Musharraf that the army is now overwhelming all the major sectors of the state, theeconomy, and the society." (19) Military agencies are blamed for abusing human rights and somecritics have suggested that Musharraf's "Faustian bargain" with Islamists serves to strengthen thevery extremism that he publicly opposes. (20) One senior Western observer contends that "the generals cannotgovern Pakistan, but they will not let anyone else govern it;" a Pakistani commentator sees theproblem as "a military that wants to control things without being overtly seen to be doing so." (21) Although a civilianParliament has been seated for three years, most of Islamabad's policy making process is opaque; anabsence of transparency may be most noticeable with Pakistan's defense budget, which appears asa single line in the federal budget. Numerous opposition figures have complained that removing thedetails of military spending from public scrutiny is nondemocratic and allows the country'sintelligence services, in particular, to remain unaccountable to the people. (22) Although it is possible to argue that Pakistan is more democratic since October 2002elections, many analysts note that the country's democratic institutions and processes are inflexibleand unaccommodating of dissent, and they see Pakistan's political parties seriously weakened inrecent years, with the military's influence correspondingly more profound. (23) Moreover, numerouscommentators reject the 9/11 Commission's "best hope" label for Musharraf himself as myopic andrepetitive of past U.S. reliance on Pakistani military regimes, especially in light of signs thatPakistan's seemingly decreasing political stability is rooted in Musharraf's policies and in hispatronage by the United States. (24) The perceived U.S. need for a stable and reliable regional ally in its ongoing counterterrorismefforts in South Asia have some analysts concluding that Musharraf remains in a position to takefurther domestic political advantage of current geopolitical dynamics. Yet, at a July 2004 hearingof the Senate Foreign Relations Committee, there appeared to be consensus among the panel of threeveteran Pakistan watchers about the potential problems inherent in a real or perceived U.S.over-reliance on the individual of Musharraf at the potential cost of more positive development ofPakistan's democratic institutions and civil society. Many commentators believe such developmentis key to the long-term success of stated U.S. policy in the region. Calling Musharraf a "marginalsatisfier" who will do only the minimum expected of him, one hearing witness recommended that,"The United States must alter the impression our support for Pakistan is essentially support forMusharraf." (25) Thisconception is echoed by a Pakistani analyst, who contends that all of Musharraf's major policy shiftsafter September 2001 have come through compulsion by external pressure or events and that, whilethe direction of Pakistan's policy change has been appropriate, "the momentum of change is too slowand awkward and unsure to constitute a critical and irreversible mass." (26) Many Pakistani andWestern commentators insist that only by allowing the country's secular political parties fully intothe system can the country realize stable and enduring democracy. (27) In June 2005 statements before a House panel, one senior U.S. scholar warned Congressabout Pakistan's "dysfunctional social order, its dangerous sectarianism and its distorted politicalsystem," saying the country has achieved "sustainable failure." When asked by members of theHouse International Relations Committee about the country's governance system, this expert opinedthat Pakistan's military has sought to "prevent any of the mainstream parties from emerging as analternative to the military." Yet he finds this strategy harmful to the military's own interests, viewingthe army as demonstrably unable to effectively govern a progressively deteriorating Pakistani system. Thus, "it's in the army's own interest that it retreats from politics [and] allow moderate, centristparties to fill the space." He called Sharif's and Bhutto's return from exile a requirement for trulyfree elections in 2007. However, the Musharraf government has indicated that the two former PrimeMinisters would not be allowed to return to Pakistan before the 2007 elections. (28) Numerous American policymakers believe that U.S. interests are for the time being bestserved by the presence of a strong and secure Islamabad leadership. Thus, while early optimismabout Musharraf's potential as a reformer has waned considerably, there are those who still concludethat the existence of an unstable and possibly Islamicized or failed state between Afghanistan andIndia -- a state in possession of nuclear weapons -- is a far less desirable circumstance than thepresent one in which a powerful and secular military institution maintains a reasonable degree oforder in Pakistan. (29) For some, this argument has become less persuasive as the country's law-and-order situationappeared to deteriorate in 2004-2005 and uncertainty about political succession in Islamabad causestrepidation in numerous world capitals. Pakistan's fragile democratic institutions are undercontinuous threat emanating from the authoritarian influences of the country's powerful military andquasi-feudal economic structures. Given a stated U.S. position that, "Democratic institutions arerequired if Pakistan is to thrive economically and to develop further into an enlightened andmoderate Muslim state," (30) Pakistan's domestic political developments likely will be closelymonitored by the United States. Political Setting Background The history of democracy in Pakistan is a troubled one marked by ongoing tripartite powerstruggles among presidents, prime ministers, and army chiefs. Military regimes have ruled Pakistanfor more than half of the country's 57 years in existence, and most observers agree that Pakistan hasno sustained history of effective constitutionalism or parliamentary democracy. The country has hadfive constitutions, the most recent being ratified in 1973 (and significantly modified several timessince). From the earliest days of independence, the country's armed forces have thought ofthemselves as "saviors of the nation," a perception that has received significant, though limited,public support. The military, usually acting in tandem with the president, has engaged in threeoutright seizures of power from civilian-led governments: Gen. Ayub Khan in 1958, Gen.Zia-ul-Haq in 1977, and Gen. Musharraf in 1999. (31) Since 1970, five successive governments have been voted intopower, but not a single time has a government been voted out of power -- all five were removed bythe army through explicit or implicit presidential orders. Of Pakistan's three most prominent primeministers, one (Z.A. Bhutto) was executed, another (Benazir Bhutto) exiled and her husband jailedon corruption charges, and the last (Nawaz Sharif) remains in exile under threat of life in prison forsimilar abuses should he return. Such long-standing turmoil in the governance system may partiallyexplain why, in a 2004 public opinion survey, nearly two-thirds of Pakistanis were unable to providea meaning for the term "democracy." (32) Major Political Parties and Coalitions Pakistan Muslim League. The Pakistan MuslimLeague (PML) is the country's oldest political party and was the only major party existing at the timeof independence. Long associated with the Quaid-e-Azam (Father of the Nation) Muhammed AliJinnah and his lieutenant, Liaquat Ali Khan, the PML was weakened upon their premature deathsin 1948 and 1951 (Jinnah by natural causes, Khan by assassination). Not until the 1988 elections-- when Nawaz Sharif, who had been Gen. Zia's finance minister, led a PML-Islamist coalition toa strong second-place showing and became Punjab chief minister -- was the party again to be a playeron the national scene. Sharif was elected prime minister in 1990 and, three years later, establishedthe offshoot PML-Nawaz (PML-N), which went on to dominate the 1997 elections. In the lead upto the 2002 elections, most former (but still influential) Sharif loyalists joined the newPML-Quaid-e-Azam (PML-Q), a group seen to enjoy overt support from the military. In May 2004,five PML factions united and named Punjabi politician and industrialist Chaudhry Shujaat Hussainas their leader. Nawaz Sharif and most of his immediate family live in exile in Saudi Arabia. Hisfamily's legal status is unclear, but reports indicate that, shortly after the 1999 coup, the Sharif familyand the Musharraf government concluded an "arrangement" that would bar any family member fromreturning to Pakistan for a period of ten years. The PML's electoral strength typically is found in thedensely populated Punjab province. Pakistan People's Party. The left-leaning PakistanPeople's Party (PPP) was established in 1967 in reaction to the military dictatorship of Gen. AyubKhan. (33) The partyslogan was and remains "Islam is our Faith, Democracy is our Polity, Socialism is our Economy." Under the leadership of Zulfikar Ali Bhutto, who had resigned his position as Khan's foreignminister, the PPP won a majority of West Pakistan's assembly seats in 1970 elections and held powerfrom 1971 until 1977, when Bhutto's government was overthrown by his army chief, Gen.Zia-ul-Haq. Bhutto, who oversaw the establishment of a parliamentary system with the 1973Constitution and who launched Pakistan's nuclear weapons program, was executed by the militarygovernment in 1979. When Zia's ban on political parties was lifted in 1986, Bhutto's daughterBenazir emerged as the PPP leader and won the prime ministership in 1988 and again in 1993. Today, she lives in exile in London and Dubai under threat of imprisonment should she return toPakistan (she has thrice been convicted of corruption in absentia). In an effort to skirt legal barriersto its electoral participation in 2002, the PPP formed a separate entity, the PPP Parliamentarians(PPPP), that pledged to uphold Bhutto's political philosophy. This group is headed by MakhdoomAmin Fahim. The PPP historically has done especially well in the southern Sind province. Muttahida Majlis-e-Amal (United Action Front). The Muttahida Majlis-e-Amal (MMA or United Action Forum) is a loose coalition of six Islamistparties formed for the 2002 elections. (34) Its largest constituent is the Jamaat-i-Islami (JI), founded byMaulana Maududi in 1941 and considered to be Pakistan's best-organized religious party. JI chiefQazi Hussein Ahmed serves as MMA president. Another long-standing Islamist party is the JamiatUlema-i-Islam faction led by Maulana Fazlur Rehman (JUI-F). The JUI is associated with religiousschools that gave rise to the Afghan Taliban movement. In addition to promoting a central role forreligion in Pakistani affairs, Islamists have been opposed to Westernization in both its capitalist andsocialist forms. Although Pakistan's religious parties enjoy considerable "street" power and werestrengthened by Zia's policies of the 1980s, their electoral showing has in the past been quite limited(they won only two parliamentary seats in the 1993 and 1997 elections). Major Developments Under Musharraf Military Rule and Assumption of the Presidency On October 12, 1999, Army Chief Gen. Pervez Musharraf overthrew the elected governmentof Prime Minister Nawaz Sharif, dismissed the National Assembly, and appointed himself "ChiefExecutive." The proximate cause of Musharraf's action appears to have been Sharif's attempt toremove him from his Army leadership position and prevent his return from abroad, but widespreaddissatisfaction with Sharif's authoritarian and allegedly corrupt regime -- both within the Pakistanimilitary and among the general public -- are believed to have been important broader factors. Undera "Provisional Constitution Order" (PCO), Musharraf declared a state of emergency, suspended theConstitution, and, by special decree, ensured that his actions could not be challenged by any court. He promised to end corruption and revive "genuine democracy." In January 2000, members ofPakistan's Supreme Court were required to take an oath promising to uphold the PCO; six jurists,including the Chief Justice, refused and stood retired. Five months later, the new Supreme Courtissued a sweeping validation of Musharraf's actions, including the PCO and the dissolution of thenational and provincial assemblies, but it also ordered that elections to reseat these bodies be heldno later than three years from the date of the coup (i.e., by October 12, 2002). These developmentsleft Pakistan with a "seemingly benign, but nonetheless very real, military dictatorship." (35) General Musharraf's October 1999 seizure of power initially was met with widespreadapproval among the Pakistani people, many of whom considered the Sharif government to beincorrigibly corrupt. Even many of the country's more liberal-minded opinion-makers acquiescedwith the hope that Musharraf might succeed in improving Pakistan's lot where civilian-ledgovernments had failed, and/or because they believed that a military-led government was the onlyremaining alternative to a radical Islamic regime in Islamabad. (36) Yet Musharraf'ssubsequent actions became widely interpreted as indicating his intention to impose a more or lesspermanent authoritarian rule over the country, and they thus alienated many of the early optimists. While maintaining his promise to hold national elections in October 2002, Musharraf spent ensuingyears taking actions that bolstered his ruling position and that of the military. Proponents ofMusharraf's political choices since 1999 insist that the country is becoming more stable, and lesscorrupt and personality-centered through "military-guided" administration. (37) In June 2001, President Mohammad Rafiq Tarar was forced to resign under the PCO and wasreplaced by Gen. Musharraf. Musharraf later sought to legitimize his status as president with anApril 2002 referendum. Islamabad reported resounding public approval for Musharraf's continuedrule in the results of this exercise, with 98% of votes cast in favor. Yet opposition parties hadboycotted the vote, and charges of widespread coercion and fraud marred the outcome. Musharraflater apologized for "irregularities" in the process. (38) Constitutional Changes In August 2002, President Musharraf took unilateral action in announcing a "LegalFramework Order" (LFO) of constitutional changes. The most important of these provide greatlyenhanced powers to the Pakistani President. Musharraf maintained that the amendments werenecessary to bring "true" and stable democracy to the country. Critics contended that Musharraf(who retained his position as Army Chief) was seeking to legitimize the military'sextra-constitutional role in governance, as well as ensure his own continued power in contraventionof democratic principles. The key constitutional change was a provision allowing the President todismiss the National Assembly. (39) Other controversial clauses called for presidential appointmentsof military chiefs and creation of a military-dominated National Security Council (NSC) authorizedto oversee the country's security policies, as well as monitor the process of democracy andgovernance in the country. (40) Many saw the NSC providing Pakistan's armed forces with apermanent and unprecedented institutional role in the country's governance. Pakistan's majoropposition parties decried Musharraf's action as illegal, claiming that only Parliament has the powerto amend the constitution. For numerous critics, the proposed changes harked back to Zia-ul-Haq'scontinuous and years-long efforts to avoid any form of electoral or judicial challenge to his rule. Inresponse to Musharraf's LFO announcement, the United States indicated that full U.S. support forthe Pakistani President would continue, even if some of the changes "could make it more difficultto build strong, democratic institutions in Pakistan." (41) The 2002 National Election Following the October 1999 coup, the Pakistani Supreme Court ordered that nationalelections be held within a period of no more than three years, and President Musharraf set and heldto a poll date of October 10, 2002. Given the country's poor historical record with democraticprocesses, many observers lauded Musharraf for the mere act of holding elections as promised. However, and despite the government's insistence that the exercise was free and fair, oppositionparties and numerous independent observers called the election deeply flawed. Widely asserted wasthat the military regime's machinations substantively weakened the main secular oppositionparties. (42) Voter turnoutwas estimated by the Pakistan Election Commission to have been above 40%, but still lower thanany previous Pakistani national election. Major parties offer even lower estimates, with most fallingbetween 20% and 30%. The PML-Q -- also called the "king's party" due to its perceived pro-military bent -- won 118of the total 342 parliamentary seats, almost all of them from Punjab, and the affiliated NationalAlliance won 16 more. (43) This number gave the pro-Musharraf parties a plurality in theNational Assembly, but fell well short of the majority representation needed to control the bodyoutright. The PPP won the largest number of votes overall, but Pakistan's electoral rules awardedit runner-up status only, with a total of 81 national seats. Perhaps the most surprising outcome ofthe elections was the strong third-place showing of the MMA Islamist coalition that now controlsthe provincial assembly of the North West Frontier Province (NWFP) and leads a coalition in thatof Baluchistan, as well as seating 68 legislators in the National Assembly (up from two previously)-- about 20% of the total. (44) Coalition-Building and Deadlock The new National Assembly sat in November 2002. The three leading national parties -- thePML-Q, PPP, and MMA -- had engaged in convoluted and ultimately failed coalition-buildingnegotiations. Both the secular opposition PPP and the Islamist parties maintained a strident rejectionof the Legal Framework Order changes to the Constitution. A PPP-Islamist alliance would have setthe pro-military parties in opposition, a possibility that reportedly sent the Musharraf regime into"panic." (45) Signals thata PML-Q-Islamist alliance was in the offing ended when President Musharraf refused to acceptMMA demands that he resign his position as Army Chief. Some political analysts opined that anoutcome in which no party secured a majority served President Musharraf's interests by allowing himto retain preeminent power, and such an outcome may well have been his intent. (46) In an unexpected circumstance, the pro-Musharraf parties succeeded in forming a thinworking coalition without the participation of either the PPP or the MMA, a development madepossible by the defection of several PPP members, some of whom were rewarded with high-profileministerships of their own. (This group of PPP "Patriots" has continued to be stronglypro-Musharraf.) In November 2002, PML-Q favorite and former Baluchistan Chief Minister MirZafarullah Jamali was elected to serve as Prime Minister. (47) Speculation abounded over whether or not the PakistaniPresident intended for the Islamist coalition to make as strong a showing as it did; Benazir Bhutto,for one, suggested that Musharraf "handed over the areas bordering Afghanistan to religious parties"in an effort to ensure continued U.S. support while simultaneously placating domesticopponents. (48) Althougha full National Assembly was seated, the body remained stalled on procedural issues for more thanone year; only a single piece of legislation (a budget) was passed in that time. In July 2003, morethan 20 groups representing nearly all of Pakistan's non-Islamist opposition parties issued a jointrejection of the LFO and called for Musharraf's resignation. Shortly after, the MMA announced its"final" refusal to accept the LFO and Musharraf's status as Army Chief. (49) Musharraf-MMA Accommodation The fractious 14-month-long dispute between President Musharraf's allies and oppositionparties in the National Assembly came to an end with a surprise December 2003 deal betweenMusharraf and the Islamist MMA. Under the arrangement, Musharraf pledged to resign his militarycommission by the end of 2004. He also agreed to put a slightly altered version of the LFO beforeParliament. It was passed and, on the final day of 2003, became the 17th Amendment to theConstitution. (50) Finally,Musharraf submitted to a vote of confidence by Pakistan's Electoral College (comprised of themembership of all national and provincial legislatures). On January 1, 2004, Musharraf's presidencythrough 2007 was legitimized when he won about 60% of the total vote. (51) Officials in Islamabadcontended that the developments augured well for Pakistani democracy and stability, butnon-Islamist opposition parties unified under the Alliance for the Restoration of Democracy (ARD)accused the MMA of betrayal and insisted that the new arrangement merely institutionalized militaryrule in Pakistan. (52) Creation of a National Security Council When the 17th Amendment to the Constitution was passed in December 2003, one of the keychanges to President Musharraf's original August 2002 LFO proposal was the removal of the NationalSecurity Council. In something of a concession, Musharraf and the military allowed the NSC to becreated through a legislative rather than constitutional process, meaning that Parliament will have at leastnominal power to alter or dissolve the body. Draft legislation was completed in January 2004. Secularand Islamist opposition parties vowed to oppose the bill, saying an NSC would curtail Parliament'spowers, but their vehement protest failed to sway the ruling party and they boycotted voting when thebill passed in April. The first formal meeting of the NSC took place in June and focused on Pakistan'sdeteriorating law-and-order situation. (53) Notably absent was Maulana Fazlur Rehman, whose status as Leaderof the Opposition provides an NSC seat. Musharraf reportedly was unhappy with the Islamist'sboycotting of the inaugural session. (54) Musharraf and his supporters in Parliament insist that the NSC willreduce the likelihood of future military coups by providing a "safety valve" -- a forum in which the armycan play a role short of dissolving the National Assembly. Opponents still contend that amilitary-dominated body headed by the President will only undercut the already tenuous power ofParliament. (55) Marginalization of the Non-Islamist Opposition The Pakistani military and intelligence services have a long history of involving themselvesin and even manipulating their country's political system, oftentimes to the benefit of Islamist forcesand at significant cost to more moderate, secular interests. (56) Pakistan's non-Islamistparties unified under the Alliance for the Restoration of Democracy consider themselves to be thecountry's "true" opposition, given past MMA accommodation with the ruling party. People's Partyleaders and loyalists of Nawaz Sharif's PML-N warn the United States that military dictators are notreliable over time and that Pakistan's civilian political forces may soon become so marginalized asto become ineffective. (57) The October 2003 arrest of opposition political figure Makhdoom Javed Hashmi spurred some toidentify renewed governmental repression. Hashmi, leader of the ARD, was jailed after hepublicized a letter allegedly written by an army officer criticizing President Musharraf's policies. In April 2004, Hashmi was sentenced 23 years in prison for sedition, mutiny, and forgery. TheUnited States expressed regret at the "closed nature of the proceedings" against Hashmi and calledon Pakistan to administer justice fairly and in a transparent manner in his case. Islamabad respondedby accusing the United States of "unwarranted and misplaced" interference in its internalaffairs. (58) In May 2004, Shabaz Sharif, a former Punjab Chief Minister and the brother of deposed PMNawaz Sharif, attempted to return to Pakistan from exile, but was "dragged away by commandos"and deported to Saudi Arabia after less than two hours in Lahore in what some termed a "massiveover-reaction" by authorities. Police arrested as many as 2,200 supporters from Sharif's PML-Nparty who had gathered to welcome him. The events were widely viewed as indicating that themilitary intends to maintain its hold on civil society. (59) Furthermore, the May elevation of Jamiat-Ulema-Islami chiefMaulana Fazlur Rehman to the position of Leader of the Opposition in Parliament spurredcommentary that the "mullah-military alliance" had become a "Musharraf-Maulana alliance," furthermarginalizing Pakistan's more secular opposition parties. (60) There also are reports of other more subtle forms of harassmentand suppression of opposition political figures. (61) Late 2004 saw reports that President Musharraf and the Pakistan Muslim League werepreparing the ground for a reconciliation with the country's non-Islamist opposition. In November2004, Asif Zardari -- the husband of former PM Benazir Bhutto and political figure in his own rightwho had been imprisoned for eight years without conviction -- was released on bail after a SupremeCourt ruling. Zardari, who still faces legal action in eight pending criminal cases, later receivedpermission to leave the country to visit his wife. The developments fueled talk of a pending dealbetween Musharraf and the PPP. Information beyond rumor was sparse, but there have been reliablereports of ongoing communication between government officials and the top leadership of both thePPP and the PML-N, contacts that many believed were preliminary efforts at "deal-making." (62) A major development came with the February 2005 meeting in Saudi Arabia of former PrimeMinisters Nawaz Sharif and Benazir Bhutto. The two top opposition leaders, both living in exile,are longtime rivals, but appear to have set aside their differences in the interest of establishing a"minimum program for the restoration of democracy" in Pakistan. Both parties vowed to worktogether to achieve this "sacred goal." Bhutto was accompanied to the meeting by her husband, AsifZardari. Some analysts saw Zardari's release from prison in November 2004 -- and the apparentlyoverdue December elevation of PPP Senator Raza Rabbani as Leader of the Opposition inparliament's upper house -- as part of an effort by Musharraf to seek reconciliation with Pakistan'smoderate political parties, perhaps to dilute international and domestic criticism of his decision toretain dual offices. (63) However, PPP leaders continue to flatly reject an accommodation with the Musharraf government. "Shuffling" of Prime Ministers At the time of this writing, Pakistan has its third prime minster since the October 2002elections. There were in 2004 increasing indications that Musharraf was unhappy with PrimeMinister Jamali's perceived ineffectiveness and lack of enthusiasm on key issues such as the NSCand Musharraf's possible continuation as Army Chief. (64) On June 26, 2004, Jamali announced his resignation at therequest of President Musharraf. Opposition parties and independent analysts called Jamali's "smoothsacking" further evidence of the military's supreme power. (65) Jamali nominated PMLpresident and Parliament Speaker Chaudhry Shujaat Hussain as his successor. However, Shujaat'stenure was meant to be transitional only, as the person called "Musharraf's favorite candidate,"Senator and Finance Minister Shaukat Aziz, was constitutionally obligated to win a seat in theNational Assembly to be eligible for the prime ministership. After he did so, opposition partiesnominated jailed political figure Javed Hashmi as their candidate for the position. However, theAssembly Speaker ruled that Hashmi could not attend the vote, and Aziz won 192 of 342 ballots,with the opposition boycotting the process as "sham democracy." (66) The choice of Aziz appears to fit with the military's preference for a "task-orientedtechnocrat" who approaches economic development and governance as a "mechanical process." (67) Aziz's elevation was seenas being less about the will of the electorate than about the will of President Musharraf, who is seenas seeking to secure his grip on the civilian components of his regime by installing a prime ministerwho will have little real power over most domestic and international political matters. (68) Musharraf's Retention of Status as Army Chief As was noted above, a central complaint of Pakistan's opposition parties has been Musharraf'sconcurrent standing as both President and Chief of Army Staff, a circumstance they believe violatesthe Constitution and perpetuates overt military rule. Despite apparent legal proscriptions set forthin the 17th Amendment, (69) and his own nationally televised promise to resign hiscommission before January 2005, there were in 2004 increasing signs that Musharraf would chooseto retain dual offices in what often was described as the "national interest." Musharraf's lieutenantsand party supporters spent months urging him to stay on so as to maintain "political stability" inPakistan, and their outspokenness peaked in September 2004. Among independent observers, sucha decision came to be expected and for some was viewed as an expression of Musharraf'sinsecurity. (70) TheUnited States responded by stating that it expected to see continuing progress toward the goal of"fully functioning democracy" in Pakistan and that it continued to view Musharraf's planned militaryretirement as "progress in this general direction." (71) The British Commonwealth, which in May 2004 lifted afour-year suspension of Pakistan, had insisted that Musharraf stand by his pledge to resign from themilitary or risk further opprobrium. (72) In October 2004, the ruling PML-Q party -- ostensibly acting to "bring stability and ensurea smooth continuation of democracy" -- pushed through the National Assembly a bill that wouldallow President Musharraf to remain in uniform for the remainder of his tenure as president. Themove brought waves of criticism from opposition parties that saw it as yet another undemocraticpractice; they disrupted parliamentary proceedings in protest. The debate further widened the alreadyconsiderable government-opposition rift. (73) The United States responded to the parliamentary act by againexpressing the expectation that Pakistan continue transition to fully functioning democracy andrepeating the opinion that Musharraf's retirement from the army would be a "good thing," but wasa decision internal to Musharraf and Pakistan. When pressed to state whether or not retirement wasa fundamental step toward democracy, a U.S. State Department spokesman would say only that"steps toward democracy are good and we will continue to urge them." A top BritishCommonwealth diplomat said the move would be democratic if approved by Parliament, then"clarified" that it would not meet Commonwealth expectations. (74) In November, thechairman of the Pakistani Senate signed the "dual role" bill into law as acting president whileMusharraf was out of the country. In December 2004, Musharraf announced his widely expected decision to retain his army postin what was described as being the interest of domestic political and economic stability. Oppositionparties, which Musharraf called "a threat to democracy," vowed to launch a national "agitation" inprotest of Musharraf's continued rule. Ensuing anti-Musharraf rallies were only modest in size (atleast partly due to inclement weather) and the Pakistan People's Party declined to enter into analliance with the Islamists in the effort. (75) Both the Western and Pakistani press were generally critical ofMusharraf's decision, with some observers expressing new concerns that the United States is "givinga pass" to Musharraf on nuclear proliferation and human rights concerns in exchange for Pakistan'scontinued cooperation with U.S.-led anti-terrorism efforts. (76) The Bush Administration, which earlier had called Musharraf's planned retirement from themilitary a "good thing" in the context of movement toward democracy, declined to directly criticizeMusharraf's reversal, but reiterated a U.S. expectation that Pakistan continue to make progresstoward the goal of a "fully functioning and stable democracy." (77) When Musharraf paid aDecember visit to Washington, DC, President Bush expressed his support and lauded the PakistaniPresident for "very strong" cooperation with the United States and "focused efforts" to combatterrorism. The issues of Pakistani democracy and governance were not raised during a brief jointpress conference held by the leaders, but an unnamed senior Bush Administration official laterinsisted that Pakistan's democratic institutions were strong and that Musharraf was making themstronger. Musharraf told an American television interviewer that "democracy is fully restored" inPakistan. Musharraf later averred that President Bush has never raised the uniform issue indiscussions between the two leaders. (78) The 2005 Municipal Elections In August 2000, the Musharraf government announced a Local Government Plan to reinstateelected local governance bodies, with Musharraf saying "genuine democracy starts from thegrassroots upward ..." (79) Previous Pakistani military rulers, beginning with Gen. Ayub Khan in 1958, had employed likeefforts as part of their political reforms. According to one report, "Local governments have provedto be key instruments in the military's manipulation of the Pakistani polity to ensure regimesurvival." (80) Musharraf's plan was similar to that of former ruler Gen. Zia in calling for a three-tiered system atthe union, tehsil (town), and zila (district) levels, each with its own nazim (mayor) and naib (deputy) nazim . Notably, nazims were given nominally full administrative autonomy, thus bypassingprovincial governments, and the elections were held on a non-party basis. The first such polling tookplace in early 2001. While noting that the devolution plan did provide some benefits -- includinggreater attention to local needs and more facile public access to government officials -- analysts havebeen skeptical of the system's susceptibility to rigging, a lack of democratic accountability (there isno direct election of district nazims ), and an apparent absence of genuine fiscal and administrativeautonomy. Still, many non-Pakistani observers, especially those from international aid organizationssuch as the Asian Development Bank, see the nazim system as a bright spot in otherwise falteringefforts at Pakistani democratization. (81) Although August 2005 municipal elections ostensibly were non-party affairs, officials fromthe opposition PPP complained in July that President Musharraf was violating the code of conductby urging voters to cast ballots for candidates favored by the ruling PML-Q. Then, in a blow to thehopes of Islamist sympathizers, the Pakistan Supreme Court ruled that candidates with religiouseducation were ineligible to run in municipal elections unless they have studied English, Pakistanstudies, and Urdu. Islamist leaders criticized the ruling. (82) The voting for candidates in 110 districts, which came in twophases on August 18 and August 25, involved deployment of tens of thousands of troops for securitypurposes, yet scores of Pakistanis were killed and as many as 1,000 were injured in poll-relatedviolence around the country. Claims of widespread vote-rigging and women being barred frompolling stations in the Frontier Province spurred Pakistan's major opposition parties -- both secularand Islamist -- to issue a joint call for a national strike to protest President Musharraf's "militarytakeover," "dictatorial behavior," and "blatant rigging." Ensuing protests were only moderate inscale (with Quetta being an exception) and Information Minister Rashid called the strike "a totalfailure." (83) Candidates favored by Pakistan's ruling party appear to have fared quite well in all fourprovinces, and PML-Q gains were seen as a major boost for President Musharraf, who may have torely on the ruling party to win the presidency in 2007. Musharraf expressed satisfaction with "avictory for the moderates" and "a defeat for the extremists." However, one Pakistani analyst opinedthat the outcome would be unlikely to yield political harmony and had only exacerbated the senseof bitterness and alienation felt among opposition parties. Others warn that apparent irregularitiescould in fact harm Musharraf's image; a former Pakistani ambassador called the process a "typicallyvice-regal electoral exercise." (84) Human Rights In February 2005, the U.S. State Department released its annual Country Reports on HumanRights Practices , which found that the Pakistan government's human rights record in 2004 "remainedpoor." The discussion of Pakistan, authored by State's Bureau of Democracy, Human Rights, andLabor, does not contain the words "democracy" or "democratic," and notes that the right of citizensto change their government "was restricted in practice." A March 2005 State Department report onhuman rights and democracy claimed that Pakistan's political parties "are generally weak,undemocratic institutions centered on personalities instead of policies. The judiciary is corrupt,inefficient, and malleable to political pressure." In May 2005, the U.S. Commission on InternationalReligious Freedom released an annual report claiming that, "The response of the government ofPakistan to persistent and religiously motivated violence in Pakistan continues to be inadequate" andagain recommending Pakistan be designated a Country of Particular Concern. Islamabad rejects U.S.criticism of its human rights record, saying that "no country is perfect" and insisting that efforts areunderway to improve the situation. (85) Numerous independent observers identify major ongoing problems with Pakistan's humanrights situation in general and lack of full democracy in particular. In its Freedom in the World 2005 report, and for the sixth consecutive year, the often-cited Freedom House rated Pakistan as "not free"in the areas of political rights and civil liberties. Human rights groups have issued reports criticalof the military-dominated Musharraf government for its "violent repression" of opposition politicalrallies, for protecting its "grip" on the country's economic resources, especially land, and for usingPakistan's role in the "war on terrorism" to maintain an oppressive, nondemocratic hold on nationalpower. A coalition of Western human rights groups has chided the United States for providingmilitary aid to "states carrying out persistent human rights violations," including Pakistan. Pakistan'sleading human rights organization holds the government responsible for increasing violations ofbasic human rights and for failing to maintain law and order in the country. (86) Other developments in 2005 spurred Pakistan's secular opposition parties and independenthuman rights groups to accuse the Islamabad government of taking actions that contradict PresidentMusharraf's stated policy of "enlightened moderation." For example, in March, ruling partyparliamentarians allied with Islamists to reject legislation which sought to strengthen national lawsagainst "honor killings" (the murder of women determined to have shamed themselves and their families). Prime Minister Aziz's cabinet later called for a restoration of a religious column onPakistani passports, thus reversing an earlier decision to remove the column (Islamist politicians hadlaunched a campaign to protest the government's decision to exclude the column). (87) In April, police in the eastern city of Gujranwala clashed with Islamist protestors opposedto women's participation in a foot race there. Some 900 Islamist party supporters, reportedly busedinto the area from the North West Frontier Province, had attacked race participants with batons,Molotov cocktails, and other weapons. When a group of human rights activists later staged another"mixed marathon" including both men and women in Lahore, police used force to disperse them, anda former chairwoman of the Human Rights Commission of Pakistan was among those "brutallydragged" into police vans and detained for several hours. Some Pakistani observers saw in thegovernment's actions further evidence that the Islamist parties are able to exert great influence onIslamabad. (88) Also inMay, police in Islamabad and Lahore used batons to break up gatherings of journalists markingWorld Press Freedom Day, injuring nine and detaining 30 more. The arrests came hours afterPakistan's information minister told a seminar that the media were free in Pakistan. (89) The treatment of women in Pakistan has been scrutinized in 2005. During the House hearing,Secretary Rocca expressed dismay at travel restrictions placed on Pakistani gang rape victimMukhtaran Mai, a woman gang-raped at the order of a tribal council as punishment for relativelyminor alleged trespasses by her younger brother. A State Department spokesman later said, "TheUnited States expects Pakistan's leaders to honor their pledge to protect the basic human rights oftheir citizens, including freedom to travel." President Musharraf reportedly said he had imposedtravel restrictions on Mai to protect Pakistan's image from Western nongovernmental organizationswhich are "as bad as the Islamic extremists." A New York Times editorial chided Musharraf for hishandling of the case, which BBC News later called "a public relations disaster" and a leadingPakistani commentator called "a monumental blunder." (90) Facing criticism over this and other high-profile rape cases inhis country, Musharraf came to the U.N. General Assembly gathering in New York in September2005 with repairing Pakistan's image as one of his stated goals. However, his reported comment thatrape in Pakistan was a "money-making concern" brought waves of criticism from both Western andPakistani civil rights groups. (91) Islamization and Anti-American Sentiment Adding to U.S. concerns about Pakistan's domestic political developments are signs of"Islamization" and anti-American sentiment there. Pakistanis are a pious people, many or most ofwhom are unlikely to want separation between Islam and governance: A 2004 survey found nearlytwo-thirds of citizens saying "religion should play a paramount role in politics" and only 6% seeingno role for religion in politics. (92) In June 2003, the Islamist coalition in the conservative NorthWest Frontier Province passed a Shariat bill in the provincial assembly, and the government ofBaluchistan later established an Islamist legal council. In July 2005, the NWFP assembly passed a"Hasba" (accountability) bill that many fear will create a parallel Islamic legal body and be harmfulto human rights. These efforts may seek to replicate in Pakistan the harsh enforcement of Islamiclaw seen in Afghanistan under the Taliban. Such developments alarm Pakistan's moderates andlikely elicited President Musharraf's August 2003 vow to "finish off religious extremism" (a vowrepeated in July 2005). (93) In August 2005, following a request from Musharraf that it rejectthe "Hasba" provisions, the Pakistan Supreme Court ruled that the controversial bill containedseveral unconstitutional clauses and blocked its implementation. Pakistan's Islamists routinely denounce Pakistani military operations in western tribal areas,resist government attempts to reform religious schools that teach militancy, and harshly criticizeIslamabad's cooperation with the U.S. government. One senior MMA leader went so far as tosuggest that Western governments may have "engineered" the 7/7 London bombings. (94) Most analysts contend thattwo December 2003 attempts to assassinate President Musharraf were carried out by Islamicmilitants angered by Pakistan's post-September 2001 policy shift. Yet Islamists' political influencein Pakistan's two western provinces is viewed by many as contingent upon the MMA's continuedbasic acceptance of the current political system. This leads some to a conclusion that the Islamists-- and Fazlur Rehman's JUI-F, in particular -- will not push against the Musharraf regime so far asto lose their own standing. By emitting a consistent message with little regard for the potential tooffend Pakistani government or foreign officials, the Islamists' issues resonate with the conservative,anti-Western sentiments of many Pakistanis. MMA power at the polling booth, however, continuesto be limited. (95) Anti-American sentiment among Pakistani citizens is not limited to Islamic groups: A July2005 Pew Center opinion poll found 51% of Pakistanis expressing confidence in Al Qaeda founderOsama bin Laden to "do the right thing in world affairs." An earlier Pew survey found only 6% ofPakistanis believing the United States was sincere in its efforts to combat terrorism; about halfviewed the United States as seeking to "dominate the world." The Pakistani army, which wassignificantly radicalized by Gen. Zia's policies in the 1980s, continues to be home to Muslimhardliners at the middle and lower ranks. In 2004 testimony before the Senate Foreign RelationsCommittee, one senior expert opined that "Pakistan is probably the most anti-American country inthe world right now, ranging from the radical Islamists on one side to the liberals and Westernizedelites on the other side." Support for this claim came from a June 2005 opinion poll which found23% of Pakistanis expressing a favorable view of the United States, the lowest percentage for anycountry surveyed. (96) The leadership of the MMA's two main constituents -- the Jamaat-i-Islami's (JI) Qazi HusseinAhmed and the Jamiat-Ulema-Islami (JUI)-Fazlur's Maulana Fazlur Rehman -- are notable for theirsometimes virulent anti-American rhetoric; they have at times called for "jihad" against what theyview as the existential threat to Pakistani sovereignty that alliance with Washington entails. (97) In addition to decryingand seeking to end President Musharraf's cooperation with the United States, many clerics also areviewed as opposing the U.S.-supported Kabul government. Despite their sometimes grating rhetoric,Pakistan's Islamists have benefitted greatly from Musharraf's undermining of the country'smainstream parties, and today the MMA can be considered a fairly cohesive political force thatcontinues to present a serious challenge to Musharraf's policies of moderation. (98) Musharraf repeatedly hascalled on Pakistan's Muslim clerics to assist in fighting extremism and improving Pakistan's imageas a moderate and progressive state. (99) Legislation and Issues for Congress U.S. Aid and Aid Restrictions Pakistan is among the world's top recipients of U.S. assistance, with more than $2.6 billionin U.S. aid allocated for FY2002-FY2005, including about $1.1 billion for security-related programs. In June 2003, President Bush hosted President Musharraf at Camp David, Maryland, where hepledged to work with Congress on establishing a five-year, $3 billion aid package for Pakistan tocover FY2005-FY2009. General Musharraf's extra-constitutional seizure of power in October 1999triggered penalties under Section 508 of the annual foreign assistance appropriations act, which bansnon-humanitarian U.S. assistance "to any country whose duly elected head of government is deposedby military coup or decree." (100) In October 2001 ( P.L. 107-57 ), Congress waived coup-relatedaid restrictions for FY2002 and granted the President waiver authority for FY2003. President Bushexercised this in March 2003. A November 2003 emergency supplemental appropriations bill ( P.L.108-106 ) included a provision extending the President's waiver authority through FY2004; this wasexercised in March 2004. In December 2004, Congress extended the President's waiver authoritythrough FY2006 with the passage the Intelligence Reform and Terrorism Prevention Act of 2004( P.L. 108-458 ). (101) Pending legislation in the 109th Congress (the Targeting Terrorists More Effectively Act of 2005, S. 12 ) includes Pakistan-specific language regarding "a number of critical issues thatthreaten to disrupt" U.S.-Pakistan relations. Government institutions, democracy, and rule of laware among these. Since August 2003, Pakistan and the U.S. Agency for International Development (USAID)have been cooperating on a five-year grant program to support more participatory, representative,and accountable democracy in Pakistan. Six "good governance" projects have been funded withmore than $32 million to date; the total over five years is expected to roughly double that amount. Three programs -- Strengthening National and Provincial Legislative Governance in Pakistan,Support Democratic Local Government and Decentralization, and Improve Justice Sector/LegalFramework -- account for the great majority of budgeted funds. According to USAID, the projectsaim to support Pakistan's progress toward more democratic, responsive, and transparent governanceby helping to strengthen legislative bodies, political parties, and civil society. (102) Figure 1. U.S. Assistance to Pakistan, FY2001-FY2005 and 2006Administration Request Sources : U.S. Department of State and U.S. Agency for International Development. Notes: FY2005 amounts are estimates; FY2006 amounts are requested. FY2005 amounts includeEmergency Supplemental Appropriations Act, 2005 ( P.L. 109-13 ) allocations of $150 million inForeign Military Financing and $4 million in additional counternarcotics funding for Pakistan. Succession Issues An acute concern of many U.S. policymakers is the issue of political succession in Pakistan,especially as it relates to potential domestic upheaval and control of that country's nucleararsenal. (103) Theconstitutionally designated successor to the President is the Chairman of the Senate, currently PML-Q member and Musharraf loyalist Muhammadmian Soomro, an international banker from awell-known Sindhi family. It is the President's prerogative to appoint Army Chiefs. The consensusview among analysts has the Pakistani military maintaining its substantive administration of thecountry in the event of President Musharraf's premature removal. The nature of such a potentialremoval likely would influence the scope and intensity of military governance. For example, ifMusharraf were removed through violent means, it is quite possible that the army would declaremartial law and rule directly for a period. In any case, it is widely assumed that the hierarchicalsolidarity and historic professionalism of Pakistan's military would result in its continuedeffectiveness as a stabilizing force, at least in the short- and perhaps middle-term. Despite theapparent sturdiness of the military's command structure, there remains widespread pessimism aboutthe ability of political institutions built by Musharraf to survive his sudden removal, and so doubtsremain about the viability of political succession mechanisms. Moreover, it is not clear thatMusharraf's successor would carry on his strongly pro-U.S. policies: in March 2005, DefenseIntelligence Director Jacoby told a Senate Armed Services Committee panel, "If Musharraf wereassassinated or otherwise replaced, Pakistan's leader would be less pro-U.S." (104) After his September 2001 policy shift, Musharraf moved to purge pro-Taliban Islamists fromthe higher ranks of the military. Vice-Chief of Army Staff (COAS) Gen. Mohammed Yusuf, amoderate, was seen as the most likely successor to the position of COAS, although some observersidentified the Chairman of the Joints Chiefs of Staff Committee, Gen. Mohammad Aziz, as acontender. While considered fully loyal to the army, of Pakistan's 30 highest-ranking officers, Gen.Aziz may have been the only remaining officer with meaningful links to Islamist groups. (105) Both Gen. Yusuf andGen. Aziz retired in October 2004. President Musharraf named two close allies to replace them: Lt. Gen. Ahsan Salim Hayat, the Karachi Corps Commander, is the new Vice-COAS and thesenior-most army officer after Musharraf; ISI chief Lt. Gen. Ehsan ul-Haq, a moderate who oversawthe removal of pro-Taliban officers from Pakistan's intelligence service after September 2001, wasappointed Chairman of the Joints Chiefs of Staff Committee. Gen. Hayat narrowly escapedassassination in a bloody June 2004 attack on his motorcade, an event that appeared to confirm hisstatus as an enemy of Islamic extremists. The newly promoted four-star general is believed to be oneof Musharraf's closest allies in the military and his most likely successor as Army Chief. (106) Outlook and Policy Options Outlook. There continues to be few signs thatthe government of President Musharraf and its supporters in parliament and the military will moveto relinquish power before scheduled 2007 general elections. A continuing lack of unity amongopposition groups remains a serious constraint on their ability to pressure the Musharraf-ledgovernment. Beyond obvious differences over the role religion should play in Pakistan's governance,the MMA and the ARD find themselves with opposing views on such sensitive issues as proposedamendments to the controversial blasphemy law and Hudood Ordinances (related to women's rights),both of which are criticized as unjust and oppressive by human rights groups, but which areconsidered sacrosanct by the Islamists. Some analysts identify less obvious factors behindopposition disunity, including an active campaign of "divide-and-rule" by the military, and previoushints of an accommodation between Musharraf and the ARD have not panned out. There are,however, signs that a below-board accommodation between the Pakistani military and the Islamistparties is disintegrating. (107) Pakistan's unstable and even deteriorating domestic security circumstances -- seen in stilltense relations with Pashtun tribesmen in border regions near Afghanistan, and continuing sectarianviolence and Islamic militancy in urban centers -- can have the effect of improving the army'sstanding among some sectors of the Pakistani public. One U.S. scholar suggests that criticism ofPakistan's apparently slow movement toward democracy is arbitrary and ignores the potential costto U.S. policy interests that faster movement might entail. Such cost could include a moreconstrained Pakistani military and political leaders in Islamabad whose greater responsiveness topublic opinion might mean reduced cooperation with the United States. (108) However, and as notedabove, this view is disputed by numerous observers who insist that the strengthening of Pakistan'sdemocratic institutions and civil society is itself a fundamental requirement for the creation of astable and prosperous Pakistani state. (109) Pakistan has come a long way since the 1990s, when "potential failed state" was not anunusual label for this important country. During President Musharraf's tenure, Pakistan'smacroeconomic indicators are greatly improved and relations with India have warmed. The country'sinternational standing is at least partially rehabilitated, especially with the government's status as akey member of the international anti-terrorism coalition. Even some of Musharraf's most vocalcritics have acknowledged the concrete benefits of his leadership. (110) Yet, despite thepotentially brightened prospects for future civilian governance in Pakistan, military rule substantivelycontinues, and most analysts foresee little or no power being transferred to the country's civilianpolitical leaders in the near- and middle-term. When, in May 2005, Musharraf declared his intention to seek to remain in office beyond2007, many analysts saw him following a nondemocratic path similar to that taken by previousPakistani military rulers. In the same month, a senior Pakistani journalist and editor declared onbehalf of his staff, "We are tired of pious lectures on democracy and constitutionalism" from officialswho pursue neither with sincerity. In addition, fewer and fewer independent onlookers findMusharraf's repeated pledges to defeat Pakistani religious extremism as anything more than"rounding up the usual suspects." (111) Pakistan's foreign and defense ministers have issued separateassurances that President Musharraf will contest 2007 elections as a civilian, but Musharraf himselfhas not ruled out remaining in uniform beyond 2007. (112) So long as the military continues to exert preeminent controlover Pakistan's governance -- and Islamist forces continue to succeed in blocking efforts to altercontroversial civil laws and reform religious schools -- there will be doubt cast on Musharraf's claimsto be pursuing a policy of "enlightened moderation." Policy Options. U.S. policy options regardingPakistan's governance system and civil society can be seen to fall into four broad categories: statusquo, increased pressure, increased incentives, and adjusting emphases of current aid programs. Some of the policies could be employed in tandem. Status quo: At present, the United States provides large-scale assistanceto Pakistan under annual waivers of coup-related sanctions granted by Congress and exercised bythe President. The Bush Administration has not issued strong public criticisms of Pakistan'sapparently halting process of democratization while still encouraging movement towardestablishment of full democracy. No conditions have been placed on U.S. aid to Pakistan. Acontinuation of this policy would seek to prod Pakistan's power brokers in the military to createcircumstances in which fully free and fair national and provincial elections could take place in 2007,at which point the U.S. President might be in a position to determine that Pakistani democracy hadbeen restored and Section 508 aid restrictions could permanently be removed. Continuedmarginalization of Pakistan's moderate opposition parties and controversy over reported irregularitiesin August 2005 municipal polls fuel skepticism that status quo policies areeffective. Increased Pressure: The United States has several options that would seekto increase pressure on the Pakistan government so as to spur more full and rapid movement ondemocratization in Pakistan. These include ending or reducing U.S. aid and/or placing conditionson continued U.S. aid, for instance by setting democracy-related benchmarks. Ending or reducingassistance to a Major Non-NATO Ally at a time when Pakistan plays a key role in U.S.-ledanti-terrorism efforts is likely to be counterproductive in the context of broader U.S. interests, somesay, and sanctions in the recent past resulted in greatly reduced U.S. influence in Islamabad and littlesuccess in attaining U.S. objectives. There are those who argue, however, that without conditionalityon U.S. aid, the Pakistani military will have little motivation to fully remove itself from Pakistan'sgovernance. Increased Incentives: Another option for U.S. policy would involveoffering additional aid to Pakistan linked to that country's progress with its domestic reform agenda(and perhaps also with its cooperation in counterterrorism and nonproliferation). Such incentivescould be for the benefit of the country generally or for the military in particular (many saw the March2005 decision by President Bush to resume F-16 sales to Pakistan as a "reward" for the Musharrafgovernment's cooperation on counterterrorism). For example, the future sale of major U.S. weaponsplatforms to Pakistan could be offered as a "bonus" that would follow successful implementation offull democracy in Islamabad or, short of that, for certain substantive actions on the path to that goal(e.g., the return to Pakistan of exiled opposition figures). This form of positive reenforcement couldbe employed in tandem with a policy of negative conditionality noted above. Adjusting Emphases of Current Aid Programs: President Bush's2005-2009 aid plan for Pakistan calls for a 50-50 split of funds for economics and funds for militaryfinancing. A policy of continuing current aid allocations while emphasizing economic aid overmilitary aid -- a policy recommended by a Council on Foreign Relations and the Asia Societytaskforce (113) -- couldserve to more effectively bolster Pakistan's social and economic development, and could quicken thepace of democratization and education reform there. Skeptics of this approach emphasize thatongoing security threats, especially as related to instability in neighboring Afghanistan, requireensuring that Pakistan's military feels secure and well-equipped. Given Pakistan's strategic setting, large Muslim population, experience with religiousextremism, weapons proliferation activities, and historical involvement in regional conflict, the levelof stability and quality of governance there are likely to remain of keen interest to most U.S.policymakers. Figure 2. Map of Pakistan

Pakistan is a strategically important country and home to one of the world's largest Muslimpopulations. In October 1999, Pakistan's Chief of Army Staff Gen. Pervez Musharraf replaced PrimeMinister Nawaz Sharif in a bloodless coup. Following the military overthrow of an electedgovernment, Islamabad faced considerable international opprobrium and was subjected to automaticcoup-related U.S. sanctions. The September 2001 terrorist attacks on the United States andMusharraf's ensuing withdrawal of support for the Afghan Taliban regime, however, had the effectof greatly reducing Pakistan's international isolation. Congress temporarily removed restrictions,and large-scale U.S. aid to the country resumed, in late 2001. The United States views Pakistan asa vital ally in the international anti-terrorism coalition. The Bush Administration refrains fromexpressing any significant public criticisms of Pakistan's internal political practices, while stillasserting that the strengthening of civilian political institutions in Islamabad is "a requirement forthe development of a stable, moderate Islamic state." While top-tier U.S. emphases in the region after September 2001 remain combating religiousextremism and ending illicit weapons proliferation, the United States expresses a strong interest inthe improvement of Pakistan's human rights situation, especially as regards the restoration andstrengthening of democratic institutions. There is a debate among analysts over the exigency of thisissue. Some observers urge patience, contending that a "true" democratic system will require timeand that "military-guided" governance is required in an unstable setting and to deter extremistpolitical influences. Others argue that Pakistan's underdeveloped democracy and rule of law arethemselves a central cause of the country's instability. October 2002 general elections nominally fulfilled President Musharraf's promise to restorethe National Assembly that was dissolved after his extra-constitutional seizure of power. Apro-military alliance won a plurality of seats while a coalition of Islamist parties made a surprisinglystrong showing. Yet subsequent developments -- including an agreement between Musharraf andthe Islamist opposition to bring controversial constitutional changes before Parliament, a brokenpromise from Musharraf to resign his military commission before 2005, and widespread accusationsof rigging in August 2005 municipal elections -- have fueled concerns that Pakistan's civiliandemocratic institutions are being weakened. National and provincial level elections are to take placein 2007. The 9/11 Commission Report called Musharraf's government the "best hope" for stability inPakistan and Afghanistan, and recommended the provision of long-term and comprehensive supportto Pakistan so long as its government remains committed to combating extremism and to a policyof "enlightened moderation." In passing the Intelligence Reform and Terrorism Prevention Act of2004 ( P.L. 108-458 ), Congress broadly endorsed this recommendation and sought to encouragePakistan's transition to full democracy. The act also extended the President's authority to waivecoup-related sanctions on Pakistan through FY2006. See also CRS Issue Brief IB94041, Pakistan-U.S. Relations and CRS Report RL32259 , Terrorism in South Asia . This report will beupdated periodically.

Sanctions in Place Today Effective September 21, 2004, when the President ended the national emergency between theUnited States and Libya, most economic sanctions that impeded trade and travel were lifted. Whatremains are restrictions mostly related to the United States having found that Libya is a state sponsorof acts of international terrorism, or that Libya does not cooperate fully with U.S. antiterrorismefforts: the United States requires a validated license to export certain goods or technology to Libya; the United States generally prohibits the export of defense articles and defenseservices to Libya; the United States generally denies Libya non-humanitarian foreign assistance,non-emergency agricultural aid, Peace Corps programs, or Export-Import Banksupport; the U.S. Executive Director in each international financial institution isinstructed to oppose loans or other funding to Libya; and certain contracts awarded by the State Department for diplomatic securityconstruction may not be awarded to any person "doing business with Libya." Background Until recently, the United States has maintained a fairly comprehensive range of economicsanctions on Libya. Muammar al-Qadhafi rose to power, as part of a military overthrow of apro-Western king, in 1969. Early in his tenure, Qadhafi was drawn into the Soviet camp as animportant regional actor in the Cold War. In response to that alliance, the United States terminatedmilitary sales to Libya in 1973, began to suspend export licenses for dual-use material in 1978, andplaced Libya on the first list denoting state sponsors of international terrorism, issued in 1979. Over the years, Libya's sanctionable adventures, at least from the perspective of U.S. foreignpolicymakers, have run second to none. In the early 1970s, Libya sent military troops and financedextremist Palestinian activities in Lebanon. Later in the decade, Libya sent armed forces into Chadand Uganda. Throughout the 1970s and well into the 1980s, Libya financed or materially supportedrevolutionary efforts in Chad, Corsica, Eritrea, Germany, Iran, Italy, Nicaragua, Northern Ireland,Japan, Lebanon, Philippines, Sardinia, Somalia, Sudan, Syria, Thailand, and Tunisia. Libya wasinvolved in aircraft hijackings, extraterritorial assassinations, bombings at European airports, andthe 1986 bombing of a Berlin nightclub popular with American Armed Forces. (1) Libya gave safe haven toBlack September, the Palestinian terrorists that seized Israeli athlete as hostages at the 1972Olympics in Munich. (2) Libya was found to have a central role in orchestrating and financing the in-air bombing of Pan Amflight 103 over Lockerbie, Scotland on December 21, 1988, killing 270, and the bombing of FrenchUTA flight 772, in flight from Niger to Paris, in September 1989, killing 177. In March 1992, after the United States, France, and the United Kingdom began legalproceedings against Libyan intelligence officers, in absentia , for their role in the two airlinebombings, the United Nations Security Council, in 1992 and 1993, agreed to resolutions to condemnthe terrorist acts, impose an arms and air traffic embargo, prohibit trade in Libyan oil, and freezeLibya's assets. (3) Thesesanctions were lifted on September 12, 2003, after Libya took responsibility for the destruction ofthe two planes and agreed to pay a financial settlement to the families of those killed on PanAm 103and UTA 772. (4) Recent Events(5) On December 19, 2003, Libya's Foreign Ministry released a statement declaring that,following extended discussions with the United States and the United Kingdom in which it wasrevealed that Libya had the materials and the means to produce weapons of mass destruction andrelated delivery systems, Libya had "decided of its free will to get rid of these materials, equipmentand programs, and to become totally free of internationally banned weapons." Libya further statedits intention to comply with the Missile Technology Control Regime (MTCR), the nuclearNonproliferation Treaty (NPT), and international biological and chemical weapons treaties andagreements, and to open itself to inspections in all these areas. Libya "... is convinced that the armsrace is neither in its interest or in that of the region and goes against its strong desire for a worldenjoying security and peace and wants all states to follow suit, starting with the Middle East regionwithout exception." (6) Both President Bush and Prime Minister Blair issued statements of cautious optimism,assuring that vigilance would guide any efforts to remove economic and diplomatic sanctions --imposed not only for arms control violations but also for Libya's support of international terrorismand revolutionary separatist movements. On April 23, 2004, President Bush announced that "Libya has set a standard that we hopeother nations will emulate in rejecting weapons of mass destruction and in working withinternational organizations to halt the proliferation of the world's most dangerous systems." Hedetermined that Libya had met the terms required of it in United Nations Security Councilresolutions adopted in the aftermath of the destruction of PanAm Flight 103 over Lockerbie,Scotland in 1991. Thus, restrictions under the Iran and Libya Sanctions Act were removed, andsome restrictions on licensing and transactions were eased. (7) The President also announced that the United States would (1) liftits objection to Libya's accession to the World Trade Organization; (8) (2) work toward resuming fulldiplomatic ties; and (3) pursue educational exchanges between the two countries. (9) To reward Libya for its changed stance on settling the PanAm103 and UTA 772 complaints,and for its new pronouncements to turn away from the pursuit of nuclear weapons capability, onFebruary 23, 2004, the Secretary of State removed restrictions on the use of U.S. passports in, to, orthrough Libya. And on June 28, 2004, the State Department announced it was opening a U.S.Liaison Office in Libya's capitol, to replace the Interests Section in the Embassy of Belgium that hadfilled the 24-year gap while the U.S. Embassy was shuttered. (10) On September 10, 2004, the President determined that (1) Libya had violated terms of theArms Export Control Act by receiving nuclear enrichment equipment, material, or technology fromKhan Laboratories in Pakistan, but that (2) implementation of the sanctions required under the ArmsExport Control Act "would have a serious adverse effect on vital United States interests." ThePresident, further, determined that new restrictions on Export-Import Bank support to U.S. exporterspursuing business in Libya were not in the national interest of the United States. (11) A spokesperson for theExport-Import Bank pointed out that the new sanctions imposed and immediately waived onSeptember 10th did not affect other restrictions on Bank activity in effect because of Libya's placeon the list of state sponsors of international terrorism. (12) Effective September 21, 2004, President Bush, citing Libya's commitments and actions toeliminate its weapons of mass destruction programs and related missiles, revoked four ExecutiveOrders that had restricted nearly all trade with Libya since 1985: (13) Executive Order 12538, issued November 15, 1985, pursuant to sec. 504 of theInternational Security and Development Cooperation Act of 1985, which prohibited the importationof petroleum products from Libya; Executive Order 12543, issued January 7, 1986, pursuant to the NationalEmergencies Act (NEA) and International Emergency Economic Powers Act (IEEPA), whichdeclared that a national emergency existed, and prohibited imports, exports, transactions related totransportation, the provision of transportation, purchase of Libyan products via a third country,performance of contracts, or extension of credit or loans; Executive Order 12544, issued January 8, 1986, also under the authority ofNEA and IEEPA, which blocked all property, assets, and interests held by Libya in the jurisdictionof the United States; and Executive Order 12801, issued April 15, 1992, under the authority of NEA andIEEPA, which prohibited the landing or taking off in U.S. airspace of aircraft coming from or goingto Libya. Libya remains listed as a state sponsor of international terrorism. As such, it is ineligible formost foreign assistance, trade in defense articles and defense services, support in the internationalfinancial institutions, and some commercial transactions involving dual-use or high technologycontinue to be limited. Restrictions Imposed for Support of International Terrorism Libya is considered a state sponsor of international terrorism pursuant to Section 6(j) of theExport Administration Act of 1979 (50 U.S.C. app. 2405(j)) (hereafter "EAA"). (14) Under terms of thatsection, exports to Libya of goods or technology require a validated license, and there is otherwisea presumption of denial of licenses for items that the Secretary of State determines could make asignificant contribution to the country's military potential or could enhance the country's ability tosupport acts of international terrorism. The Secretary is further required to notify Congress inadvance of issuing any validated license. Section 6(j)(4) states that the Secretary's designation maynot be rescinded unless the President submits to Congress one of two possible reports. The firstwould certify that (I) there has been a fundamental change in the leadership and policies of thegovernment; (ii) the government is not supporting acts of international terrorism; and (iii) thegovernment has provided assurances that it will not support acts of international terrorism in thefuture. The second option available to the President would be to certify, at least 45 days before theproposed rescission would take effect, that (I) the government concerned has not provided anysupport for international terrorism during the preceding six-month period; and (ii) the governmentconcerned has provided assurances that it will not support acts of international terrorism in thefuture. Similar language is contained in Section 40 of the Arms Export Control Act (22 U.S.C.2780) (hereafter "AECA"), and the list maintained by the Secretary of State under Section 6(j) of theEAA is generally understood to apply to both sections of law. The AECA states the terms underwhich government-to-government and commercial sales or transactions of defense articles anddefense services may be conducted. Unlike Section 6(j), however, Section 40(f)(2)(B) states a meansfor Congress to block a rescission of the sanction if it chooses to keep sanctions in place. Alsounlike the EAA, Section 40(g) authorizes the President to waive the prohibitions with respect to aspecific transaction if "(1) the President determines that the transaction is essential to the nationalsecurity interests of the United States; and (2) not less than 15 days prior to the proposed transaction,the President...." consults with Congress and submits a report detailing the proposedtransaction. (15) Section 40A of the Arms Export Control Act (22 U.S.C. 2781) prohibits the providing ofdefense articles and defense services to a "foreign country that the President determines and certifiesto Congress...is not cooperating fully with United States antiterrorism efforts." Section 40A requiresan annual country list, on which Libya has been named since the language was first added to theAECA in 1996. (16) ThePresident may waive application of Section 40A "with respect to a specific transaction if thePresident determines that the transaction is important to the national interests of the United States." If Libya were removed from the lists required under Section 6(j), EAA and Section 40A,AECA, a substantial body of economic sanctions imposed against that country could then beaddressed. Being named to the Section 6(j) list triggers other restrictions, either through legislationthat directly cites Section 6(j), or through legislation that denies aid or trade to a supporter ofinternational terrorism without specifically citing Section 6(j). For example, Section 620A of theForeign Assistance Act of 1961 (22 U.S.C. 2371) prohibits the provision of aid under the ForeignAssistance Act of 1961, the Agricultural Trade Development and Assistance Act of 1954, the PeaceCorps Act, or the Export-Import Bank Act of 1945 "to any country if the Secretary of Statedetermines that the government of that country has repeatedly provided support for acts ofinternational terrorism." The restriction may be rescinded in a manner identical to that in the EAA. The President has waiver authority, however, if he "determines that national security interests orhumanitarian reasons justify a waiver...." The waiver under "humanitarian reasons" is somewhatlimited, and the waiver authority may not be used on either basis to provide assistance that is alsorestricted under Section 40 of the AECA. The Trade Sanctions Reform and Export Enhancement Act of 2000 (114 Stat. 1549A-67through 1549A-72) restricts the export of agricultural commodities, medicine, and medical devicesto any country that the Secretary of State has designated as a state sponsor of international terrorismunder the above-cited laws. While such exports are allowed, licenses to export are limited toone-year issuances, and government financing or underwriting of such exports is substantiallydenied. Section 908(a) of that act, however, authorizes the President to waive the restrictions onfinancing if he finds it in the national security interest to do so. The President waived restrictionson financing for Libya on September 20, 2004. (17) The one-year licensing limitation still holds. The President is also granted authority to restrict trade or transactions with state supportersof international terrorism under the following laws: Section 2(b)(1)(B) of the Export-Import Bank Act of 1945 (12 U.S.C. 635(b)(1)(B)) provides that only where the President, after consultation with Congress, determines that Ex-Imfinancing "would be in the national interest where such action would clearly and importantly advanceUnited States policy in such areas as international terrorism... [and] nuclear proliferation... shouldthe Export-Import Bank deny applications for credit for nonfinancial or noncommercialconsiderations." Considering that the President found, on September 10, 2004, "that it is in thenational interest for the Export-Import Bank to guarantee, insure, or extend credit, or participate inthe extension of credit in support of United States exports to Libya" to meet the requirements ofanother subsection of Sec. 2, any new determination to block Ex-Im Bank funding is unlikely. (18) It continues to be blocked,nonetheless, pursuant to the requirements of Sec. 620A of the Foreign Assistance Act of 1961. Section 1621 of the International Financial Institutions Act (22 U.S.C. 262p-4q) requiresthe Secretary of the Treasury to instruct the U.S. executive director in each international financialinstitution to "use the voice and vote of the United States to oppose any loan or other use of funds... for a country for which the Secretary of State has made a determination under section 6(j) of theExport Administration Act of 1979 ... or section 620A of the Foreign Assistance Act of 1961...." This section contains no waiver authority. Section 6 of the Bretton Woods Agreements Act Amendments of 1978 (22 U.S.C.286e-11) similarly prohibits U.S. support in the International Monetary Fund for loans to statessupporting international terrorism, and provides no waiver authority. Section 527 of the Foreign Operations, Export Financing, and Related ProgramsAppropriations Act, 2006 ( P.L. 109-102 ; 119 Stat. 2205) prohibits bilateral assistance to anycountry found by the President to be harboring international terrorists or otherwise supportinginternational terrorism. The President may waive the application of Section 527 if he finds thatnational security or humanitarian reasons justify the waiver. Other Libya-Specific Legislative Restrictions Section 307 of the Foreign Assistance Act of 1961 (22 U.S.C. 2227) prohibits foreignassistance designated for International Organizations and Programs from being made available forthe U.S. proportionate share for programs that fund efforts in Libya and other countries. Thisrestriction does not apply to programs of the International Atomic Energy Agency (IAEA) or theUnited Nations Children's Fund (UNICEF). The section contains no waiver. Section 507 of the Foreign Operations, Export Financing, and Related ProgramsAppropriations Act, 2006, prohibits direct assistance or reparations to Libya and other countries. This language has been included in annual foreign operations appropriations since Fiscal Year 1974,and Libya was added to the list of prohibited states in Fiscal Year 1982. (19) In FY2006, however, thesection allowed: Provided further, That for purposes of this section, theprohibition shall not include activities of the Overseas Private Investment Corporation in Libya: Provided further, That the prohibition shall not include direct loans, credits, insurance andguarantees made available by the Export-Import Bank or its agents for or inLibya. Despite this language, neither the Overseas Private Investment Corporation nor the Export-ImportBank have extended their programs to investment in Libya, still restricted due to its designation asa supporter of international terrorism. Section 406 of the Omnibus Diplomatic Security and Antiterrorism Act of 1986 (22U.S.C. 4856) authorizes the Director of the Office of Foreign Buildings, Department of State, toestablish a contract system for the construction of new diplomatic facilities in light of rising concernsabout terrorist attacks and the security of U.S. missions abroad. Section 406(c), however, prohibitsany "person doing business with Libya" from being awarded any contract pursuant to this act. Thesection contains no waiver. This was enacted on the heels of the President's declaration that a U.S.national emergency existed because of Libya's terrorist activities, in January 1986, and the April1986 Berlin nightclub bombing. (20) Exemptions to Legislative Restrictions As noted above, most of the sanctions may be lifted if Libya is removed from the terroristlist, or if the President finds it in the national interest to waive the particular restriction. It shouldalso be noted that several assistance programs are exempted from strict adherence to the sanctionsregime. Emergency food assistance under the Agricultural Trade Development Assistance Act of1954 (PL 480, title II), development assistance and Economic Support Funds for health and diseaseprevention, assistance to respond to "unanticipated contingencies," international narcotics control,international disaster assistance, development assistance in response to a country's improved humanrights record, Trade and Development Agency funding (though TDA does not have projects inLibya), and debt-for-nature swaps are all stated in such a way in authorizing legislation thatassistance in those areas may continue despite the imposition of economic sanctions. In the same vein, the current foreign operations appropriations, in funding nonproliferation,anti-terrorism, demining and related programs, includes a "Notwithstanding" clause that could allowfor assistance despite the sanctions regime currently in place against Libya (title II of P.L. 109-102 ;119 Stat. 2189). Section 614 of the Foreign Assistance Act of 1961 (22 U.S.C. 2364) authorizes thePresident to furnish assistance "without regard to any provision of this act, the Arms Export ControlAct, any law relating to receipts and credits accruing to the United States, and any Act authorizingor appropriating funds for use under this act, in furtherance of any of the purposes of this act, whenthe President determines, and so notifies in writing the Speaker of the House of Representatives andthe chairman of the Committee on Foreign Relations of the Senate, that to do so is important to thesecurity interests of the United States." The section has limits on amounts of assistance that may bemade available in any given fiscal year, and the President is required to consult with Congress beforeaid is provided. Other Legislation No Longer In Force Against Libya The Iran and Libya Sanctions Act ( P.L. 104-172 ; 50 U.S.C. 1701 note), particularlySections 5 and 6 , (ILSA) had authorized the President to impose two or more sanctions on a personor corporation found to have invested above a certain amount in Libya's oil resources. On April 23,2004, President Bush determined that Libya had met the terms required of it in United NationsSecurity Council Resolutions adopted in the aftermath of the destruction of PanAm Flight 103 overLockerbie, Scotland in 1991. Thus, restrictions under the Iran and Libya Sanctions Act areremoved. (21) Section 504 of the International Security and Development Cooperation Act of 1985 authorizes the President to prohibit imports from, or exports to, Libya. No waiver authority isrequired, as the authority to impose rests entirely with the President. On November 15, 1985, thePresident, citing this provision, issued Executive Order 12538 (50 F.R. 47527; 19 U.S.C. 1862 note),ordering that no petroleum products refined in Libya may be imported into the United States. ThePresident revoked E.O. 12538, effective September 21, 2004. The U.S. government had restricted the use of U.S. passports to travel to or through Libyasince 1981, pursuant to authority granted the Secretary of State in the act of July 3, 1926 (22 U.S.C.211a) . On February 23, 2004, the Secretary of State removed this restriction. (22) Section 505 of the International Security and Development Cooperation Act of 1985 (22U.S.C. 2349aa-9) authorizes the President to ban the importation of any goods and services fromany country that supports terrorism or terrorist organizations or harbors the same. Because theauthority rests with the President to impose, it may be assumed that the authority to lift restrictionsalso rests with the President; the law includes no explicit waiver or means of lifting restrictions. Although Section 505 is not cited in the President's Executive Order of September 20, 2004, and notmentioned in accompanying statements issued by the State Department, because all other restrictionson imports and exports are lifted, one may assume that application of this section on Libya isrescinded. Table 1. Libya: Economic Sanctions Imposed in Furtherance of U.S. Foreign Policy or National Security Objectives

This report discusses U.S. laws and executive orders that impose economic sanctionscurrently in place against Libya, including whether they can be changed by executive action, andexemptions to the sanctions that could make foreign assistance available. This report will be updatedas events warrant.

Introduction Background on Retiree Health Benefits Employee benefits for retired workers are of particular interest to policy makers because of the large number of retired and retiring baby-boomers. Nevertheless, fewer firms offered health insurance for retired workers, their surviving spouses, and dependents in the recent past than they did 20 years ago, leading to concerns about the health insurance coverage and ultimate health status of retirees. The increasing cost (to firms and workers) of health insurance has undoubtedly had something to do with this decline in benefits offering. Retiree health insurance is fundamentally different from private pensions and other annuities because firms do not have to "prefund" its expenses. The law requires firms to put away funds owed to the employees on retirement for pensions and other annuities. On the other hand, if a firm promises current employees that they will receive health benefits upon future retirement, the firm is not required to have funds available when the employees retire. Typically, ongoing retiree health insurance is paid for using general funds. In other words, there is no requirement for a company to set aside any money for its future retirees' health insurance. In addition, many firms are free to revise their retiree health benefit policy; in times of financial hardship, firms might decide to eliminate these benefits altogether. Overview of Report Voluntary Employees' Beneficiary Associations (VEBAs) are trust funds created to finance many aspects of employee benefits. VEBAs are tax-exempt entities defined under Internal Revenue Code (IRC) Section 501(c)(9). By law, the tax benefits of VEBAs are greater if they were created as part of a collectively bargained agreement between representatives of the firm's union and management. VEBAs can be dedicated to life insurance, accident benefits, child care facilities, disaster loans or grants, supplemental unemployment insurance, education and training, severance benefits, and retiree health benefits. Money in a VEBA may not be used for anything except the stated purpose of the VEBA. In addition, VEBAs may not be used to pay for pensions and annuities at retirement. This report focuses on the effect of VEBAs on funding retiree health insurance. The abbreviation VEBA is used differently by different authors. Some consider a VEBA the association and its members, who go on to open a trust, leading to the phrase "VEBA trust." This report, however, subsumes the trust into the word VEBA, making a single word encompass a group of employees and its associated trust fund. The report shows that, under some circumstances, using VEBAs to fund retiree health insurance may benefit both firms and workers. A unionized firm can use VEBA contributions to reduce or eliminate its retiree health insurance liabilities. The unionized workforce will be able to afford at least some retiree health benefits, because once the firm has contributed funds into the VEBA, the funds can never revert back to the firm. The funds always remain with the workers, even if the firm enters bankruptcy. On the other hand, a VEBA without sufficient funding offers few benefits to the workers. The individual negotiations between General Motors (GM), Ford, and Chrysler (together known as the Detroit 3) and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW), together with the retiree health VEBAs that became the source of the UAW's retiree health funding on January 1, 2010, illustrate many aspects of VEBA implementation. The terms governing these VEBAs were agreed upon during the 2007 contract negotiations and were then revised during 2009, when first Chrysler and then GM entered chapter 11 bankruptcy. The next section of this report covers the funding of retiree health insurance from the perspective of the firm, the workers, and the VEBA. The third section discusses the role of VEBAs in chapter 11 bankruptcy reorganization, and the fourth section provides an overview of the benefits and risks associated with VEBAs in unionized firms. The fifth section discusses legislative issues. The Detroit 3 VEBAs serve as examples throughout the report. GM receives a special emphasis in the report because, as a public company, its financial information is more readily available than Chrysler's financial information. Although Ford is not emphasized in the report because it did not enter bankruptcy proceedings, it too renegotiated its 2007 retiree health VEBA with the UAW in 2009. The Mechanics of VEBAs VEBAs historically belonged to a single firm. More recently, however, some VEBAs are structured as a trust independent of the firm. These trusts are sometimes termed independent VEBAs, new VEBAs or stand-alone VEBAs. An independent VEBA must be controlled by its membership, by independent trustees, or by other fiduciaries designated by the membership. Trustees chosen by a collective bargaining agreement are considered designated by the membership. In all cases, the trust acts in the interest of the workers. The Detroit 3 VEBA is an independent VEBA. The automobile companies have had no say in its operation since it became the active source of retiree health funding for the three firms on January 1, 2010. Like many independent VEBAs, the specific details of the Detroit 3 VEBA were negotiated between the firms and the union. Beginning with GM, UAW and management representatives bargained over the amount of funding needed to pay for health insurance for all (eligible) present and future retirees, their spouses, and their dependents for the remainder of their lifetimes. The parties also bargained over the sources of the funding. Retiree Health Insurance: The Firm As mentioned above, the firm does not have to prefund retiree health insurance in the same way it must prefund pensions. Indeed, the firm may not want to tie up large amounts of money for many years. Perhaps as a consequence, the recent unfunded liabilities for post-retirement health care have been quite large. A commonly cited Credit Suisse/First Boston study estimated that the total unfunded post-retirement benefits liability (excluding pensions) of the Standard & Poor's 500 companies was $336 billion at the end of 2005. VEBAs, as tax-exempt instruments, provide the firm incentives to prefund health benefits. More specifically, contributions to the VEBA are tax deductible, and the investment income grows tax-free. Tax law regulations, however, impose several constraints on funding levels associated with most VEBAs : In calculating expected expenditures over the life of the VEBA, no allowance can be made for medical inflation (i.e., future medical inflation must be assumed equal to zero). The levels to which certain VEBAs may be funded are limited. If these levels are exceeded, the VEBA must pay the Unrelated Business Income Tax (UBIT) on the amount over the limit. Nevertheless, these constraints to tax deductibility do not apply to VEBAs created by a collectively bargained agreement. In this case, VEBA fund managers use the actuarially standard level of medical inflation rather than assume no medical inflation; this distinction is especially important when forecasting the value of future claims to a retiree health VEBA. In addition, the UBIT is never owed, and VEBAs used to fund retiree health insurance do not have deductibility limits. These differences make the tax advantages of retiree health insurance VEBAs in unionized workplaces far greater than the tax advantages of some other types of VEBAs. The remainder of this report is restricted to VEBAs in unionized firms. In addition to these tax advantages, VEBAs can improve a firm's financial position. Firms are required by the Financial Accounting Standards Board (FASB, which establishes financial and reporting standards for private-sector U.S. firms) to use accrual accounting when calculating liabilities for retirement health; in other words, the liability increases as the number of employees eligible for benefits along with the expected amount of these benefits increases. This liability must be reported on the firm's balance sheet, where a particularly large value can depress the firm's market value. Transferring the firm's liability for current and future benefits to a VEBA can sometimes increase the market value of the firm. Retiree Health Insurance: The Workers Historically, employees participating in a VEBA have worked for the same firm. Nevertheless, employees can work for different firms, as long as they share a "common bond," or an employment-related characteristic that unites the group. For example, the automotive industry retiree health VEBA negotiated by the UAW includes workers from each of the Detroit 3. The workers may be active workers or retirees; their spouses and dependents may also have their health insurance funded by the VEBA. A primary advantage of a VEBA to the worker is a reduction in the risk associated with actually receiving promised current and future retiree benefits. If the firm has already deposited funds into a dedicated retiree health VEBA, these funds must go to their intended recipients. They may never revert back to the firm. In many instances without a VEBA, the workers have no recourse if the firm lacks the funds to pay for promised retiree health benefits. If the firm falls short, or simply decides to place its money elsewhere, no law or regulation compels the firm to honor past promises. The presence of a VEBA, however, does not automatically remove the risk associated with the worker, because the VEBA itself must have money. For current and future retirees to receive promised benefits, there must be sufficient money in the VEBA to cover the benefits' costs. A VEBA that contains sufficient funds to cover the expected costs of the retiree benefits is known as a fully funded VEBA. Finally, VEBAs offer tax advantages to the workers. As with conventional employer-sponsored health insurance, the firm's contributions to a retiree health VEBA are not included in the worker's gross income. Generally, benefits from VEBAs are taxed when distributed; health insurance benefits, however, are not taxed provided they are used for tax-qualified medical care. VEBAs: Implementation Internal Revenue Service Approval Internal Revenue Service (IRS) approval is required in order to implement a (tax-exempt) VEBA. More specifically, an IRS 501(c)(9) determination letter must be obtained within 15 months after the trust documents have been executed. To receive the determination, IRS Form 1024 (Application for Recognition of Exemption Under Section 501(a)) and several other documents must be filed. Combining VEBAs The VEBAs negotiated by the union with individual firms may be combined. After the UAW had reached separate agreements with GM, Ford, and Chrysler, it had the choice of managing three individual VEBAs, or combining the three into one larger VEBA. The VEBA's 11 trustees chose to combine the VEBAs from each firm, perhaps realizing savings from the financial institutions that would rather hold one larger VEBA than three smaller ones. Although there is only one VEBA, the monies deposited for each of the firms are not combined. Funding VEBAs The amount of money necessary to fully fund the VEBA cannot be calculated easily. For illustrative purposes, consider a firm that wanted to cover retiree health insurance for the 10,000 employees who were actively working on December 1, 2009, plus their surviving spouses and dependents. The actuarial calculation of the level of funding needed to meet such a guarantee typically involves forecasting the following variables: the expected date of retirement for each employee working on December 1, 2009; each worker's (and his or her covered family's) life expectancy; each worker's (and his or her covered family's) health care utilization over time; the rate of medical inflation over time; the return on the VEBA trust's assets over time; and changes in the tax code that would affect the value of the VEBA. If any of these forecasts prove to be incorrect, then the amount of money needed to fully fund the VEBA over the course of its lifetime will be calculated incorrectly. In addition, the calculation becomes more complicated if future workers (i.e., those who are not yet hired) are eligible for retiree health benefits funded from the VEBA. The number of such workers, together with the years in which they will start work and ultimately retire, must also be estimated. Calculating the fully funded level for a liquidated firm, which will never hire additional employees, is therefore easier than calculating the fully funded level for a financially healthy firm. VEBAs can be funded in a variety of ways, with both firms and workers (through their unions) often footing some of the bill. Contributions are sometimes spread over many years. For example, both GM and the UAW contributed money to the retiree health VEBA. Active workers gave up a 3% wage increase and a 6% cost of living adjustment. GM contributed the funds in their existing General Motors Welfare Trust VEBA. GM also agreed to contribute combinations of convertible notes, cash, second-lien notes, and contingent (or backstop) payments. Note that the actual value of a few of these financial instruments depends on the underlying value of the firm (as indicated by the firm's stock price). In any case, there is no legal requirement that VEBAs be fully funded. In fact, GM and the UAW bargained over the percentage of the fully funded level for which GM would be responsible. These negotiations are like any other in a collective bargaining setting, with the union arguing for a higher percentage of the fully funded level, and the firm arguing for a lower percentage of the fully funded level. Choosing Health Insurance Plans The trustees of the VEBA do more than manage the funding; they also determine the choice of the health insurance plans. In some cases, union contracts require that the existing plans continue until some specified date. Once the trustees are free to change plans, however, they are solely in charge of selecting the plans and terms that are most favorable to the VEBA beneficiaries. The ability of the VEBA to fund retiree health insurance depends on the trustees' success in plan choice; the more cost-effective the trustees' choice, the more financially viable the VEBA. VEBAs and Firm Bankruptcy Although unionized employees and retirees may experience reduced retirement health benefits during a chapter 11 reorganization, benefits do not automatically end when a company files for bankruptcy. The court may approve modifications to existing retiree health benefits, but may only do so after it has determined that the company has met the requirements for negotiating with an authorized representative of the affected retirees; the authorized representative has, without good cause, rejected the proposal made by the company; and the proposed modifications are necessary for successful reorganization; the treatment of all affected parties, including creditors and the company, is fair and equitable; and the balance of equities clearly favors the modification. Thus, modification of retiree health benefits under chapter 11 is possible but is neither automatic nor easy. A strong protection for retiree health benefits, even in a financially troubled firm, is therefore a funded VEBA. Although funds pledged for contribution by the firm to the VEBA can be reduced in bankruptcy, funds that are already in the VEBA are beyond the reach of the firm's creditors. VEBAs in Unionized Firms Forming and funding a VEBA can benefit both the firm and its workers. The firm improves its financial statements by reducing an unfunded liability. The worker receives a guarantee that he or she will get (at least some percentage of) promised benefits, even if the firm enters bankruptcy. It is not often that a financial instrument may improve the position of both the firm and its workers at the same time. Any such improvement, however, is inherently risky in that the level of funding available in each year in the VEBAs cannot be predicted with certainty. For example, if technological innovations in the product being produced increase the stock price of the producing firms, the value of the VEBA will increase with the stock price. On the other hand, if consumer demand for the product dries up, the value of the VEBA will decrease with the stock price (assuming some of the VEBA's assets are in company stock). Even if the revenue and expenditure forecasts are perfect, the collective bargaining process ultimately determines the VEBA's funding level. The current and future retirees can never be sure that the VEBA will have enough money to fund their expected benefits over the lifetime of the VEBA. It is also important to remember that the firms must have the money to contribute to the VEBA. The various collective bargaining agreements dictate what contributions are required and how much flexibility the firms have in the payment schedule. At the same time, the firms cannot contribute money they do not have. Another source of uncertainty concerns tradeoffs for retirees between the next few years and the distant future. For example, the automotive VEBA was intended to last 80 years. The money currently in the VEBA will likely be able to pay for retiree health benefits in the near future. At some point before 80 years, however, the funds will probably dry up, given that the VEBA is not fully funded. This situation sets the stage for conflicts between current retirees, who will receive benefits, and future retirees, who are contractually obligated to receive benefits, but for whom there may be no funding. The VEBA trustees must then decide how to raise additional funding and, if desired or necessary, how to reduce the cost of the benefit package. Legislation Dealing with VEBAs As part of their financial restructuring, GM and Chrysler together received more than $80 billion in assistance from the Troubled Asset Relief Program. The Department of the Treasury now owns nearly 61% of the new GM and nearly 10% of the new Chrysler. The federal government therefore has joint roles as a monitor of TARP funding in GM and Chrysler and as part owner of GM and Chrysler. Some observers consider these joint roles to be an inherent conflict of interest. The following legislation regarding VEBAs has been introduced to the 111 th Congress. Representative Tim Ryan introduced H.R. 3455 on July 31, 2009, and Senator Sherrod Brown introduced S. 1663 on September 11, 2009. These identical bills would provide up to $3 billion from the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) to fund a VEBA for former employees of the Delphi Corporation. Representative John Boehner introduced H.Res. 591 on June 26, 2009. Among other provisions, this resolution would request that President Obama transmit to the House of Representatives details of the role of the Presidential Task Force on the Auto Industry in any aspect relating to the levels of and reductions in the benefits of GM's employees and retirees. Conclusion In theory, establishing a VEBA to fund retiree health insurance gives workers more control over both health insurance funding and plan design. The success or failure of the VEBA, however, can only be measured years after its implementation. Many factors influence whether the workers in fact end up better off. The financial health of the firm influences whether it makes the agreed upon deposits into the fund. The ability of the VEBA trustees to invest the funds for maximum interest affects the available monies. The trustees also must select cost-effective health insurance plans for the retirees.

Voluntary Employees' Beneficiary Associations (VEBAs) are tax-advantaged trust funds created to finance many aspects of employee welfare, including retiree health insurance benefits. This report shows that, under some circumstances, using VEBAs to fund retiree health insurance can benefit both firms and workers. Because the tax treatment of VEBAs is most favorable when the VEBA has been created under a collective bargaining agreement, a unionized firm can use VEBA contributions to reduce or eliminate its retiree health insurance liabilities. The unionized workforce will be able to afford at least some retiree health benefits, because once the firm has contributed funds into the VEBA, the funds can never revert back to the firm. The funds always remain with the workers, even if the firm enters bankruptcy. However, if the firm is not in a financial position to contribute to the VEBA, the workers will not benefit. The negotiations between each of General Motors, Ford, and Chrysler and the International Union, United Automobile, Aerospace & Agricultural Implement Workers of America (UAW) between 2007 and 2009, together with the retiree health VEBAs that became the source of the UAW members' retirement funding on January 1, 2010, illustrate many of the issues associated with implementing VEBAs. In particular, these VEBAs were first negotiated as part of a collective bargaining agreement and then modified during bankruptcy proceedings. They were funded by contributions from both the automobile companies and the UAW. It is, however, too soon to see whether the final automotive VEBAs will be successful in delivering health insurance benefits for all eligible beneficiaries.

Puerto Rico's Fiscal Emergency The government of Puerto Rico currently faces a serious fiscal emergency that is the culmination of long-standing budgetary, economic, and financial challenges. While Puerto Rico has made a number of structural reforms and has increased tax rates in the past few years, it had been unable to head off increasingly urgent fiscal challenges. Recent projections estimate the island's economy will shrink by about 1.2% in FY2016 (which ends June 30, 2016) and by about 2% in FY2017. Defaults on bonds issued by some components of the Puerto Rican government have already occurred, and credit rating agencies expect others to follow. In August 2015, debt service on bonds issued by the Public Finance Corporation, an arm of the Government Development Bank (GDB), was not paid in full. The Puerto Rico Infrastructure Financing Authority (PRIFA) did pay interest in full on certain bonds due on January 1, 2016. The GDB itself did not pay principal due on May 1, 2016, as described in the next section. The Puerto Rican government's fiscal situation, according to emergency legislation (Act 21 of 2016) enacted on April 6, 2016, "is more dire than at any other point in its history" and "depleted resources and strained liquidity threaten to bind the Commonwealth to a choice between honoring its commitments to bondholders or continuing to provide the residents of Puerto Rico with essential services." A federal district judge in late March 2016 held in a case involving the tax treatment of Walmart that the government of Puerto Rico "is insolvent and no longer able to pay its debts as they become due." The Governor of Puerto Rico, Alejandro García Padilla, while signing the emergency act, was quoted as stating that "Puerto Rico is insolvent." The Puerto Rican government has slowed some tax refunds and supplier payments to bolster its liquidity. Emergency Moratorium and Financial Rehabilitation Act The Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (PREMFRA; Act 21 of 2016) empowers the governor of Puerto Rico to declare a fiscal state of emergency and a moratorium on certain debt service payments that would extend to January 2017. That emergency legislation, according to its preamble, was prompted by impending debt service payments. On May 1, 2016, Governor García Padilla issued an order to declare a moratorium on certain debt payments by the Government Development Bank (GDB), the government's fiscal agent, which was due to make a debt service payment of $423 million on that date. GDB did pay interest and was able to refinance $33 million of that debt, leaving a payment shortfall of about $367 million. The Commonwealth government has stated that even after recapturing or "clawing back" revenues from other parts of the public sector that it "will not have sufficient resources to meet the entire debt service obligation on the Commonwealth's general obligations bonds due on July 1, 2016." On that date, the Commonwealth government is due to pay about $1.9 billion, of which, about $800 million are for general obligation debts. Restructuring the Government Development Bank The GDB has faced serious liquidity issues in recent years. According to documents released in the Walmart case, a local banking regulator, the Puerto Rico Commissioner of Financial Institutions, found that the GDB was insolvent in 2015. Senior GDB officials, however, contested some claims of the Commissioner. Many, however, had considered it likely that a receiver could take control of the GDB, which could complicate financial operations of the Commonwealth. The Puerto Rican government has reportedly moved accounts from the GDB to commercial banks in order to avoid disruptions in public finances. On April 8, Governor García Padilla invoked authorities provided by the act to declare an emergency period for the GDB in order to allow it to continue its operations. PREMFRA also allows the governor, once emergency powers are invoked, to "take any and all actions reasonable and necessary to allow the Bank [GDB or successor bank] to continue performing its operations." The act also modifies legal provisions regarding the receivership of the GDB, and allows for the establishment of a bridge bank that would assume many of the responsibilities and assets of the GDB. A new public corporation, Puerto Rico Fiscal Agency and Financial Advisory Authority, would assume the role of the island's fiscal agent and financial advisor. The act also includes a stay on legal actions against the Puerto Rican government while emergency powers are invoked. A group of GDB bondholders filed a suit on April 4, 2016, in federal district court in Puerto Rico to halt transfers or other actions that would weaken further the financial condition of the GDB. A federal judge declined to issue a temporary restraining order, but required that the GDB respond by April 15. Plaintiffs withdrew the suit on April 13, 2016, after concluding that the April 8 executive order placed sufficiently stringent conditions on withdrawals from GDB accounts. Puerto Rico's Fiscal Strategy The Puerto Rican government has taken several measures over the past three years to address its deteriorating fiscal situation. Those measures, however, appear to have delayed the current fiscal emergency, but have been insufficient to put public finances on a sustainable path. The Puerto Rican government, in formulating its fiscal strategy, has employed several high-profile restructuring experts. Puerto Rican Restructuring Act High costs of debt service and the precarious financial situation of some public corporations prompted Governor García Padilla and the island's legislature to enact a debt restructuring legislation (Act 71) in June 2014 that would have allowed public corporations to file for debt restructuring through legal structures set up within Puerto Rico. A U.S. district court, however, struck down Act 71 in February 2015, holding that a provision in chapter 9 of the U.S. Bankruptcy Code preempts action by Puerto Rico, even though Puerto Rico is currently barred from authorizing its subunits to file under chapter 9. The U.S. Court of Appeals for the First Circuit upheld that decision on July 6, 2015. The U.S. Supreme Court accepted an appeal and heard oral arguments on March 22, 2016. Credit Ratings Downgrades and Loss of Market Access In February 2014, the three major credit ratings agencies downgraded Puerto Rico's public debt to below investment grade. A second round of downgrades followed in late June 2014 after the Puerto Rican government enacted Act 71, which sought to establish a restructuring process for debt issued by the island's public corporations. A further round of downgrades was triggered in late June 2015 when Governor García Padilla said that the island's debts were unpayable. By the spring of 2016, nearly all of the island's public sector debt not covered by bond insurance was rated at levels that indicated a judgement that default is "a virtual certainty." The loss of investor confidence in Puerto Rico's ability to repay its debts cut off access to credit markets, which has intensified financial pressures on the government. Market traded prices for existing Puerto Rican bonds trade well below levels recorded before the current fiscal crisis emerged. Figure 1 shows trading prices for selected Puerto Rican bonds since January 2011. An August 2013 Barron's article highlighted the island's weak fiscal position and high public debt. The first vertical line indicates when the Barron's article appeared, and the second vertical line indicates when Act 71 was enacted. The third vertical line is set at June 29, 2015, when Governor García Padilla stated that "the debt is not payable" (see discussion below). FY2016 Budget The Puerto Rican legislature approved an FY2016 budget, which was then sent to the governor; it reportedly set aside $1.5 billion for debt service costs. The governor signed the measure into law on July 1, 2015. The budget calls for total outlays of $9.8 billion, with $4.2 billion in funding for government operations. Governor García Padilla had submitted a FY2016 budget that called for major decreases in public spending, and aimed at achieving a balanced budget. The island's lower chamber passed a budget on June 22, 2015, and the Senate passed its version on June 25, 2015. A measure reported by a conference committee was approved by both chambers on June 29, 2015. Senate President Eduardo Bhatia was quoted as stating that "it is one of the most difficult budgets in the history of Puerto Rico." Whether the FY2016 budget for Puerto Rico would actually achieve a balanced budget is unclear. The report of the ex-IMF economists stresses that the structural budget deficit, according to their estimates, is larger than other measures of budget balance used by the Puerto Rican government. A structural budget deficit excludes effects of one-time budget adjustments or cyclical economic effects. That report estimates annual interest and principal costs at $2.8 billion. Puerto Rican Governor: Debt Unpayable Puerto Rican policymakers then sought other ways to restructure or renegotiate the island's public debt. On June 29, 2015—a day before the end of Puerto Rico's fiscal year 2015—Governor García Padilla stated during a televised address that "the debt is not payable." The governor said that his administration would seek concessions from the island's creditors as part of a new fiscal strategy. Governor García Padilla described the present fiscal crisis, enumerated structural changes implemented or proposed by his administration, declared his intention to start a negotiating process with creditors, and called on federal policymakers to change laws that treated Puerto Rico differently than state governments. In particular, Governor García Padilla called for a comprehensive restructuring of Puerto Rico's fiscal obligations, arguing that the public debt had grown so large that it was impeding economic growth as well as the island's access to credit markets. The governor outlined a fiscal strategy that included reestablishment of economic growth through legislation to improve competitiveness, a reform of social insurance programs, and investments in infrastructure; a call for a moratorium on debt payments; creation of a working group for economic recovery composed of financial experts and senior island policymakers; and a long-term fiscal adjustment plan, to be developed by the working group by August 30, 2015. The fiscal adjustment plan, according to the governor, would propose reductions in public outlays, improve tax administration, privatize some publicly provided services, improve budgetary execution and controls, and create a nonpartisan fiscal commission, while guaranteeing the provision of essential services. He also stated that new taxes or additional layoffs of public employees were not being contemplated. The plan does include projected revenues from implementation of tax measures already scheduled to go into effect. On the same day, a report by three former International Monetary Fund (IMF) economists was released that described serious problems with Puerto Rico's fiscal situation, budget execution, public administration, and tax structure. Economic and Fiscal Recovery Working Group Plan Governor García Padilla also appointed an Economic and Fiscal Recovery Working Group comprised of senior executive and legislative policymakers. The Working Group issued a framework plan on September 9, 2015, that outlined a strategy for putting the island's finances on a stable basis. The plan also outlined reforms to bolster long-term economic growth. The working group's plan includes various budgetary and structural economic reforms, as well as the establishment of a control board. The proposed control board would be composed of experts from Puerto Rico and elsewhere. Puerto Rico, according to the working group, faces a $27.8 billion financing gap over the next five years that could be reduced to $14 billion through fiscal measures and stronger economic growth. Those gaps, according to the working group, "could severely impair the Commonwealth's ability to provide essential services to its residents." The Working Group issued an updated plan on January 18, 2016, which estimated a five-year (FY2016-FY2020) fiscal gap of $16 billion and a 10-year (FY2016-FY2025) fiscal gap of $23 billion. Implementing recommendations of the working group may present serious challenges. The plan calls on the U.S. Congress to make changes in several policy areas, such as the structure of income support programs, reimbursement policies for federal health programs, federal labor and public housing policies, and tax policy. Proposed reforms that would require approval by the Puerto Rican legislature, such as labor code modifications, may prove controversial. Moreover, austerity measures that may improve medium- or long-term fiscal stability may have adverse short-term macroeconomic consequences. Extraordinary Liquidity Measures Used in Late 2015 and Early 2016 An August 2015 financial liquidity analysis had projected that the government would likely run out of money by November 2015. A number of extraordinary financial measures, however, including delays in tax refunds, contractor payments, changes in pension funding, and "clawbacks" of public corporation funds to the general fund, among others, allowed the government to continue its funding operations. Delayed tax refunds and contractor payments, however, have strained the liquidity of many households and businesses. The Puerto Rican government also sought to delay some bond payments in order to maintain liquidity and ensure continuity of government operations. As of early April 2016, as noted above, the Governor of Puerto Rico and a federal judge both had declared that the island's government was insolvent. First Default in August 2015 The Puerto Rican government at the beginning of August 2015 paid $0.63 million of $58 million in interest and principal due on bonds issued by the Public Finance Corporation, a subsidiary of the island's Government Development Bank. Puerto Rico's failure to make full payment on those bonds, which carried a relatively weak "moral obligation" guarantee, has raised concerns about future payments on bonds backed by general obligation guarantees. Loss of Credit Market Access Prevented Debt Roll-Overs The island's ability to meet debt service payments in recent years had depended in part on the willingness of investors to roll over existing debt. Puerto Rico had planned to issue about $2.9 billion in bonds in 2015, but those plans were put on hold. The García Padilla Administration reportedly wanted to prepare the way for that bond issue with a fiscal package consisting of a tax reform to bolster revenues, a balanced budget for FY2016, and a five-year plan to achieve fiscal sustainability. Once Puerto Rico's government was "virtually shut off from normal [credit] market access" according to ex-IMF economists, funding government operations became increasingly difficult. The Puerto Rican legislature passed a measure to allow certain public corporations to issue revenue bonds, which may provide some measure of liquidity. The governor signed the measure into law on July 3, 2015, clearing the way for the issuance of about $400 million in tax and revenue anticipation notes (TRANs) by three publicly owned insurance corporations. While those notes helped the Puerto Rican government maintain access to liquidity during the first part of the fiscal year, some policymakers expressed concerns that adding exposure of those insurance companies to governmental credit risks could harm their soundness. Constitutional Limits on Borrowing are Close to Binding Constitutional limits on Puerto Rico's borrowing could also present financial hurdles. Puerto Rico's government debt servicing costs—apart from debt servicing costs of public corporations—totaled 13.6% of average annual internal revenues for FY2014 and FY2015, not far below the 15% limit imposed by the Commonwealth's Constitution. If that limit became binding, maintaining operations of the government could then require either further fiscal adjustments or a constitutional amendment, which would require supermajorities in both legislative chambers and a plebiscite. Puerto Rico Faces Severe Challenges in FY2017 Puerto Rico faces severe fiscal challenges in FY2017, which begins on July 1, 2016. As noted above, Puerto Rico is due to pay $1.9 billion in debt service. Both the Puerto Rico government and credit ratings agencies expressed doubts as to whether those payments would be made. In addition, the island government lacks a line of credit that would allow it to manage financing gaps caused by the timing of revenue and outlay cash flows. On May 23, 2016, Governor García Padilla submitted a FY2017 budget, which called for outlays totaling $9.1 billion, approximately $700 million less than recommended the previous year. The budget submission was delayed due to the enactment of an emergency fiscal act in early April 2016 and the possibility of a federal control board, among other uncertainties. The proposed FY2017 budget, submitted on May 23, 2016, comes "at the hour of choice between paying money to the creditors and providing services to our people," according to Governor García Padilla. Proposed payments for debt service in FY2017 are well below amounts due. Structural Initiatives to Address Fiscal Challenges Puerto Rico's government has taken numerous steps over the past few years to realign revenues and outlays, although those efforts have not closed the structural budget deficit. Those measures include cutbacks to public pension systems, tax increases and tax administration reforms, and a reduction in public sector employment. Figure 2 shows trends in public sector employment in Puerto Rico since 1990. Since 2009, public sector employment has dropped by nearly a fifth. Some public employees retired early in 2013 and 2014 in order to mitigate effects of benefit decreases resulting from pension reforms. Other fiscal austerity measures include reorganization of public school teaching staffs and school closings, cancellation or postponement of salary and benefit increases, and reductions in transfers to municipalities. The government has also taken steps to bolster the financial condition of its public corporations. Puerto Rico has modified its pension systems to increase future employee and employer contributions, moved participants from defined benefit to defined contribution plans, and begun a transition to higher retirement ages. The Supreme Court of Puerto Rico held that the government's rationale for the changes was insufficient to justify abrogation of certain contractual rights of existing or retired teachers under the Teachers Retirement System. The court, however, reaffirmed the government's powers to modify certain aspects of pension programs in order to meet pressing fiscal demands. Independent analysts note that funding ratios for the Puerto Rican retirement systems remain low. On May 26, 2015, the Legislative Assembly passed and sent to the governor a measure to raise the sales and use tax rate from 7% to 11.5%, which the governor signed into law on May 29, 2015. Of that rate, 1% is earmarked for local governments. In addition, the measure would establish a Consumption Tax Transformation Alternatives Commission, which would be charged with evaluating further changes in Puerto Rico's tax system, including a possible transition to a value-added tax (VAT). Previously, a proposal to replace certain sales taxes with a value-added tax was voted down on April 30, 2015. Puerto Rico, as noted above, enacted Act 1 on January 15, 2015, which raised petroleum taxes, contingent on implementation of broader tax changes, and took other measures to strengthen the financial condition of the Authority for Highways and Transportation. Fiscal Challenges Have Been Building for Years Puerto Rico has faced fiscal challenges ever since the mid-1970s. The economic effects of the 1973-1974 energy crisis, which caused serious dislocation to the mainland economy, had even more severe consequences for Puerto Rico. Debt Accumulation over Time Once Puerto Rico was able to recommence borrowing in the 1980s, its public debt grew steadily and is now slightly larger than the island's gross national product (GNP). Debt accumulation accelerated in the early 2000s, as expenditure growth outstripped revenues. Figure 3 shows outlays and revenues for Puerto Rico since 1970. Figure 4 shows the accumulation of Puerto Rico's gross public debt in inflation-adjusted terms since 1962. By that measure, total debt levels rose until the mid-1970s, then declined gradually until the mid-1980s, after which they again increased until 2013. Puerto Rico's public sector debt stood at $69.9 billion at the end of September 2015. Figure 4 also indicates that public corporations have accounted for the largest portion of public sector debt in recent decades. Public Corporations Incurred Much of Puerto Rico's Public Debt Public corporations, which have played a prominent role in the Puerto Rican economy since the 1930s, are closely linked to the island's fiscal challenges. Some 50 public corporations serve a variety of purposes, ranging from public infrastructure, banking, real estate, insurance, industrial development, health care, transportation, electric power, broadcasting, education, arts, and tourism, among others. Some public corporations resemble public authorities of state governments, although in some cases, have responsibilities more akin to public agencies. Off-budget debt issued by public corporations, generally not included in the 15% debt servicing limit, has accounted for much of the buildup in Puerto Rico's public debt since 2000 (see Figure 4 ). Moreover, the central government's financial support for public corporations has weakened its own fiscal situation. In particular, credit and liquidity support provided via the GDB to public corporations was a major factor in the insolvency of the GDB, as noted above. Puerto Rico Electric Power Authority The Puerto Rico Electric Power Authority (PREPA), one of Puerto Rico's oldest public corporations, owes over $9 billion—or about one-eighth of Puerto Rico's total public sector debt. PREPA entered into a restructuring and forbearance agreement in August 2014 with major creditors prompted by the need to maintain sufficient financing for fuel purchases. Lisa Donahue, a partner in energy management consultancy, was appointed Chief Restructuring Officer (CRO) in September 2015 as part of that agreement. Forbearance and Revitalization The August 2014 forbearance agreement has been extended numerous times, as negotiations between PREPA and major creditor groups—including mutual funds, bond insurers, hedge funds, and others—have proceeded. PREPA issued a summary of a restructuring plan on June 1, 2015, which calls for $2.3 billion to modernize its operations and stabilize its finances. On September 1, 2015, PREPA announced a preliminary agreement with certain creditors to restructure part of the utility's debt, including bond exchange that would include a 15% writedown of non-insured debt. A tentative agreement was reached in mid-December 2015 between PREPA and holders of about 70% of PREPA's debt. Fulfillment of the agreement was contingent on passage of a PREPA Revitalization Act by the Puerto Rico legislature and participation of additional debtholders. How measures to restructure PREPA's debt and revitalize its operations would affect energy reforms adopted in 2014 (Act 57 of 2014), and the powers of the Energy Commission established as part of those reforms, have raised concerns. Puerto Rico enacted a PREPA Revitalization Act (Act 4 of 2016) on February 16, 2016. The act creates a "transition" surcharge that will be added to consumer bills to help PREPA meet its financial obligations. Financial and Operational Challenges PREPA faces major financial and operational challenges. Chief Restructuring Officer Lisa Donahue testified that PREPA could run out of cash in the summer of 2016, which could lead to operational disruptions. The utility's existing oil- and diesel-fired plants are old, inefficient, and unreliable. PREPA also buys some power from one private generation firm that uses coal and from another that uses natural gas. While Caribbean electrical systems typically depend on oil-based power generation, the lack of sufficient modern gas-fired power generation capacity to handle fluctuations in base loads limits the potential of renewable energy on the island. While falling oil prices led to some reductions in PREPA's prices, recent residential electricity prices have been about 50% above average mainland rates, and commercial rates nearly twice as high, which may have hindered economic growth. PREPA's revenues have been reduced by unbilled power generation. In recent years, 14% of power generated by PREPA was classified as lost or unaccounted for. In addition, PREPA had not been billing many municipalities and government offices, in part to offset payments to those entities in lieu of taxation. PREPA has also been mandated to subsidize certain non-profit organization and business sectors. In total, PREPA provided $69 million worth of subsidized power in FY2014, according to press accounts. PREPA has, however, become more aggressive in collecting its accounts receivable. Government Development Bank for Puerto Rico The Government Development Bank for Puerto Rico, one of the oldest public corporations, serves as bank, fiscal agent, and financial advisor to the Commonwealth and other public corporations. The GDB and its subsidiaries are the main source of short-term financing for the Puerto Rican government and its public corporations and municipalities. The GDB also issues loans and guarantees to private entities and has historically played a leading role in strategic economic investments for Puerto Rico. During the 1990s and 2000s, the GDB was used to finance investments and even operating costs of other parts of the Puerto Rican government. By June 2013—the date of the last audited financial statement—the public sector accounted for nearly all of the GDB's loan portfolio, which amounted to 48% of its government-wide assets. Credit rating agencies and government financial reports have warned that the restructuring of Puerto Rico's public debt presents serious financial risks to the GDB. At the beginning of August 2015, Puerto Rico did not make a full interest and principal payment due on bonds issued by the Public Finance Corporation, a subsidiary of the island's GDB. In late March 2016, as noted above, a federal district court judge unveiled a 2015 finding of the Puerto Rico Commissioner of Financial Institutions that the GDB was insolvent in 2015. While GDB officials have disputed some claims of the Commissioner, they have acknowledged the precarious financial situation of the bank. On May 1, 2016, as noted above, Governor García Padilla issued an order to declare a moratorium on certain debt payments by the Government Development Bank (GDB), which is due to pay $423 million in debt service on May 2, 2016. Governor García Padilla was quoted previously as stating that the GDB will be unable to make a full payment on that date. The Puerto Rico government has taken steps, noted in the introduction to this report, to shift responsibilities and assets of the GDB to other institutions in order to avoid the consequences of having the island government's fiscal agent come under the control of a receiver. Other Public Corporations Independent analysts argue that a few other large public corporations are insolvent. Island officials, however, have emphasized that the financial condition of various government entities differs in important ways. Highways and Transportation Authority (HTA) The Highways and Transportation Authority (HTA; or in Spanish, Autoridad de Carreteras y Transportación) has faced serious financial challenges. For instance, cost overruns on the Tren Urbano project in San Juan, constructed between 1996 and 2005, nearly doubled costs (from an initial estimate $1.25 billion to a final $2.4 billion). In addition, HTA has been running operating deficits of about a half a billion dollars in recent years, which has required substantial support from other parts of the Puerto Rico government such as the GDB. At the end of December 2012, HTA owed the GDB $2.2 billion, which it lacked the means to pay. On January 15, 2015, Puerto Rico enacted a tax on petroleum products (Act 1 of 2015) intended to provide HTA with funds to repay its debts, among other aims. Puerto Rico Aqueduct and Sewer Authority (PRASA) The island government has contended that the financial situation of the Puerto Rico Aqueduct & Sewer Authority (PRASA; in Spanish, Autoridad de Acueductos y Alcantarillados or AAA) has improved due to increases in water rates, although investors have remained skeptical. PRASA had planned to issue $750 million in new revenue bonds by the end of August 2015, but those plans were postponed indefinitely once the Puerto Rican governor declared the island's public debts to be unpayable. Issuing those bonds would have helped PRASA pay arrears due contractors and make bond payments to the GDB, along with providing funding for infrastructure improvements, including some mandated by a consent decree with the U.S. Environmental Protection Agency. A revitalization bill (P.C. 2786) for PRASA along the lines of PREPA's revitalization act passed both the Puerto Rican House of Representatives and Senate, which have agreed to conference to resolve differences. The measure would create a customer surcharge to support debt service for three years. A severe drought affecting much of the island in 2015 also affected PRASA operations. Fiscal Strategy and Outmigration The precarious state of Puerto Rico's public finances stems in part from prolonged economic weakness. Economic growth was sluggish even before the 2007-2009 recession, and official forecasts project continued slow growth. Previous economic analyses of Puerto Rico's economy have pointed to low employment and labor participation rates, an economic structure shaped more by tax advantages than comparative advantages, and intensified global competition. Those trends and associated economic challenges have prompted many Puerto Ricans to move to the U.S. mainland, leading to population decline of about 1% per year over the past decade. Figure 5 shows estimated trends for Puerto Rico's resident population since 1950. One study estimated that a third of those born on Puerto Rico now reside on the mainland and found that migrants tended to be younger and less well educated compared to island population averages. Economic growth depends on productivity and the availability of resources such as capital and labor. By reducing the amount of labor available to the island economy, outmigration poses risks to future economic growth. Moreover, outmigration serves as a signal that some island residents perceive that the mainland presents more attractive economic opportunities. Some Puerto Ricans who migrate to the mainland later return to the island. Since the mid-1990s, the number of those moving to the mainland has trended upwards, whereas the number of those returning to Puerto Rico has not shown a distinct trend. Potential Issues for Congress Possible options for Congress to address the fiscal distress faced by the government of Puerto Rico and its constituent public corporations are framed by the island's status as a territory—something different than a state and different from an independent sovereign country. The federal government has generally been reluctant to offer direct financial assistance to individual states in fiscal distress, although Congress at times has adjusted technical parameters of federal programs to provide direct or indirect support for states. The independence of state governments to set their own fiscal paths has been linked to an expectation that those governments take responsibility for the consequences of their fiscal decisions. In some other fiscal systems, a central government's willingness to cover shortfalls by state governments has been seen as having led to less prudent fiscal behavior. Central governments in some federal systems provide subnational governments with more support, but impose more intrusive fiscal controls. The report of the former IMF economists was framed in terms familiar to typical IMF interventions, in which short-term bridge financing is provided conditional on agreements with governments to address structural economic issues over a longer term. Congressional options might thus be divided between strategies to address imminent liquidity challenges, such as providing credit support or altering bankruptcy laws, and strategies intended to promote economic growth over the longer term. Administration Proposals The U.S. Department of the Treasury proposed a framework in October 2015 that called on Congress to pass legislation to "provide the critical tools Puerto Rico needs to restructure its debt, enhance its fiscal governance, fix its healthcare system, and help jumpstart its economy." The Obama Administration had earlier indicated that it is not contemplating a federal bailout of Puerto Rico, but provided technical support and has sought to make existing federal resources available. President Obama's FY2017 budget plan called for a "broad legal framework" that would allow Puerto Rico's public debt to be restructured and would provide for fiscal oversight for the island. Credit Support Central governments and international organizations have at times stepped in to backstop debts of other governments to lower those governments' borrowing costs. Such support typically has been linked to budgetary or structural reform requirements. For example, the European Central Bank in 2011 acted to support debt offered by Eurozone countries, which dramatically lowered borrowing costs of countries that could have faced severe liquidity challenges. The U.S. government provided credit guarantees for the Mexican government in 1994-1995. The U.S. government also provided indirect credit support for many state government agencies through the Depression-era Reconstruction Finance Corporation (RFC). For instance, in 1941 the RFC acted as an intermediary to roll over $136 million in debt for the state of Arkansas. In the early decades of the 20 th century, the U.S. government took an expansive role in addressing debts of Caribbean and Central American countries. Federal Health and Income Support Programs Reimbursement and eligibility rules for federal entitlement programs in Puerto Rico often differ from those in effect on the mainland. For example, funding for the federal portion of Medicaid is capped for U.S. territories, but is open-ended for states. The federal matching rate for Medicaid ranges from 50% for states with the highest per capita income to 74% for the state with the lowest per capita income, while the matching rate for Puerto Rico is set at 55%. Congress could revise Medicaid matching fund formulas or eligibility standards. It could also modify reimbursement rules or enrollment standards under Medicare, or adjust rules governing other federal programs, such as the income support programs. Resident Commissioner Pierluisi introduced several bills ( H.R. 1225 , H.R. 1417 , H.R. 1418 , H.R. 1822 , H.R. 2635 ) in the 114 th Congress to modify federal health and income support programs to provide additional resources to Puerto Rico. Restructuring and Bankruptcy Under current law, Puerto Rico is generally considered a state for most provisions of the Bankruptcy Code; but it is explicitly excluded from that definition for purposes of determining those eligible to file under chapter 9, which sets out a process for consideration of debt relief requests of instrumentalities of state governments. Thus, subunits of Puerto Rico, such as public corporations, are barred from filing under chapter 9. The restructuring law that Puerto Rico enacted in June 2014, which was in part motivated by the financial situation of PREPA and other public corporations, was established with the aim of providing an alternative to processes provided by the Bankruptcy Code. That law, however, was struck down by a U.S. district court. On July 6, 2015, the U.S. Court of Appeals for the First Circuit affirmed the lower court's ruling that federal bankruptcy provisions preempted Puerto Rico's ability to employ its own restructuring law. Congress could amend the Bankruptcy Code to permit Puerto Rico to allow its municipalities (which include instrumentalities and subdivisions of the territory) to enter into chapter 9 and proceed with a well-established process for restructuring public debts. To that end, Resident Commissioner Pierluisi introduced H.R. 870 on March 16, 2015. Senator Blumenthal introduced a similar measure ( S. 1774 ) on July 15, 2015. Representative Pelosi introduced the Puerto Rico Emergency Financial Stability Act of 2015 ( H.R. 4290 ) on December 18, 2015, a measure to stay litigation related to the island's public debts, which could provide further time for negotiations between Puerto Rico and its creditors. Senator Warren introduced a companion measure, the Puerto Rico Emergency Financial Stability Act of 2015 ( S. 2436 ), in the Senate on the same day. On March 14, 2016, Senator Menendez introduced two bills ( S. 2675 , S. 2676 ) that would allow adjustments of Puerto Rico's debt. Governor García Padilla has also called for giving Puerto Rico access to chapter 9. Treasury Secretary Lew has also expressed support for allowing Puerto Rico to access chapter 9. Some hedge funds and other holders of Puerto Rican bonds, however, have opposed including the island in chapter 9. Interests of hedge funds with major holdings of general obligation (GO) bonds, however, may differ from those of funds holding bonds of the island's public corporations that are not secured by a general obligation of the Puerto Rican government. Access to chapter 9 might provide limited relief from debt burdens, as the central government of Puerto Rico—like state governments—would presumably be unable to file for bankruptcy relief itself. As Figure 4 indicates, a substantial portion of the island's debt was issued by the central government. Public corporations issued the bulk of their debt as special revenue bonds, which have been generally considered as protected from adjustment. Federalism, Flexibility, and Fiscal Responsibility Federal systems allow lower level governments to adapt policies to reflect local preferences, while letting the central government focus on programs of national interest and concern. A federal system of government also provides a degree of fiscal insurance to lower-level governments. For example, a central government can respond to mitigate the consequences of disasters or localized economic downturns affecting specific states or regions. The level of support for lower-level governments provided by a central government is typically linked to the stringency of fiscal controls. Federal systems, by and large, can be divided into two types. Some federal governments—such as the United States—allow local governments more autonomy, but maintain an expectation that those governments will manage any budgetary shortfalls largely on their own. Other federal systems provide more extensive support for lower-level governments, but impose more restrictive central control on local decisions. The independence of U.S. state governments to set their own fiscal paths has thus been linked to an expectation that those governments take responsibility for their finances. In some other fiscal systems, the willingness of a central federal government to cover shortfalls by lower-level governments has been seen as having led to fiscal behavior that was less prudent. The U.S. federal system provides substantial implicit fiscal insurance to state and local governments through the automatic stabilization characteristics of income support programs, federal disaster assistance, and by a progressive federal individual income tax. The federal government, however, has been generally reluctant to offer direct financial assistance to states in difficult fiscal situations. Control Board Proposals Some Members have called for some form of control board to oversee Puerto Rico's finances and other aspects of public administration. As noted above, Governor García Padilla has called for establishment of a local control board to oversee fiscal recovery. Representative Jeff Duncan, chairman of the Subcommittee on the Western Hemisphere of the House Foreign Affairs Committee, called for a control board to oversee Puerto Rico's finances along the lines of the financial control board that Congress set up in 1995 to oversee the District of Columbia's government. One federal appeals court judge, however, contended that "instituting direct Congressional control of Puerto Rico's finances through a financial control board would require fundamentally redefining Puerto Rico's relationship to the United States." District of Columbia Control Board and State-Established Control Boards Congress established the District of Columbia Financial Responsibility and Management Assistance Authority, commonly known as the Control Board, by passing the District of Columbia Financial Responsibility and Management Assistance Act of 1995 ( P.L. 104-8 ). That act also created a chief financial officer (CFO) position with authority to administer the District's financial operations. The federal government also assumed certain pension and judicial obligations of the District and reduced the District's share of Medicaid costs. After the District government was able to balance its budget for four years, the Control Board became dormant after September 2001. State governments have also established financial control boards for other municipal governments, such as the cities of Philadelphia, Cleveland, and Detroit. The federal government also extended fiscal assistance directly and indirectly to New York City in 1975. Congressional and Administration Proposals for Fiscal Oversight In October 2015, the U.S. Department of the Treasury set out a reform framework that included a call for fiscal oversight as well as a broad debt restructuring of Puerto Rico's debts. Several congressional proposals have put forth that include some form of control or oversight board. Representative Sean Duffy introduced H.R. 4199 , the Puerto Rico Financial Stability and Debt Restructuring Choice Act on December 9, 2015. Senator Hatch introduced S. 2381 , the Puerto Rico Assistance Act of 2015, on the same day. The House Natural Resources Committee issued a discussion draft on March 29, 2016, of the Puerto Rico Oversight, Management, and Economic Stability Act. PROMESA On April 12, 2016, Representative Duffy introduced the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 4900 ), which would set up an Oversight Board for Puerto Rico and create a process to restructure the island's debts, among other provisions. The House Natural Resources Committee held hearings on H.R. 4900 on April 13, 2016. A markup session was started on the same day to hear opening statements, but a continuation of the markup for the next day was postponed. Representative Duffy introduced H.R. 5278 , a revised version of H.R. 4900 , on May 18, 2016. The House Committee on Natural Resources marked up H.R. 5278 on May 25, 2016. Amendments agreed to include technical corrections, extensions of certain studies on the Puerto Rico government and economy, among others. The major provisions of the bill, however, were unaffected. The committee approved the measure on a 29-10 vote. The Congressional Budget Office (CBO) judged that the Oversight Board that H.R. 5278 would establish should be considered part of the federal budget according to the "unified budget concept" set forth in the 1967 President's Commission on Budget Concepts. CBO estimated that operating the Oversight Board for Puerto Rico would cost $370 million over the period FY2017-FY2022. Section 107 of H.R. 5278 mandates that the territory's government designate a dedicated funding source for the board, which (under the unified budget concept) would increase federal revenues by an estimated $370 million. The net effect on the federal budget, therefore, is estimated to be zero. Structural Reforms in the Medium and Long Term Congress could also encourage the Puerto Rican government to pursue economic development strategies more in line with the island's economic comparative advantages rather than its tax advantages. Revenue Policies Puerto Rico has long relied on special provisions in the U.S. tax code and in its own tax laws to stimulate investment. Many of the tax advantages available to corporations or subsidiaries located in Puerto Rico, such as Internal Revenue Code Section 936, which until it was phased out between 1996 and 2005, essentially exempted income of U.S. firms operating in U.S. possessions, have reduced the U.S. Treasury's receipts. The IRS's unwillingness to challenge the creditability of Puerto Rico's Act 154 taxes against U.S. tax liability provides indirect support for the island's public finances that is nearly offset by the loss of revenues foregone by the U.S. Treasury. Puerto Rico's Act 22, which provides certain tax exemptions to wealthy persons who establish residency in Puerto Rico, may also affect U.S. Treasury receipts. Jones Act and Transportation Congress could also consider options that might address structural issues that may have hindered Puerto Rico's economic growth. Congress could consider several regulatory policies, such as Jones Act restrictions on shipping between Puerto Rico and the mainland. Congress has already waived Jones Act requirements for the U.S. Virgin Islands and could extend that waiver to Puerto Rico. Labor and Income Support Several past studies have noted that labor participation rates for Puerto Rico are well below those on the mainland. Some have suggested that social insurance may play a role in discouraging employment outside the underground economy. The Economic and Fiscal Recovery Working Group plan of September 2015 proposes establishment of an earned income tax credit, a restructuring of the Nutritional Assistance Program (NAP; the island analogue to the Food Stamps/Supplemental Nutrition Assistance Program), and changes to public housing policies—all designed to bolster incentives to work. Some economists have also pointed to the federal minimum wage as a hindrance to labor demand. The Economic and Fiscal Recovery Working Group plan calls for several labor reforms, including limits on severance pay, weakened dismissal protections, and changes in overtime regulations. The plan also calls on Congress to grant a 10-year waiver of minimum wage increases for workers under the age of 25.

The government of Puerto Rico faces severe fiscal challenges. A federal district court judge in late March 2016 held that the island's government was insolvent and unable to pay its obligations on time. Emergency legislation (Act 21 of 2016) enacted on April 6, 2016, stated that the Puerto Rican government's fiscal condition "is more dire than at any other point in its history" and that "depleted resources and strained liquidity threaten to bind the Commonwealth to a choice between honoring its commitments to bondholders or continuing to provide the residents of Puerto Rico with essential services." On April 8, 2016, the Puerto Rican governor invoked emergency authorities to maintain essential public services. The Puerto Rican government has been facing serious liquidity challenges and has lost normal access to credit markets despite measures taken by the island's government to reduce spending, increase revenues, and restructure its obligations. Much of the island's liquidity challenges stem from substantial debt service costs facing the central government and its public corporations. In August 2015, debt service on Public Finance Corporation bonds was not paid in full. The Puerto Rico Infrastructure Financing Authority (PRIFA) did pay interest in full on certain bonds due on January 1, 2016. On May 1, 2016, Governor Alejandro García Padilla declared a moratorium on certain debt payments by the Government Development Bank (GDB), the government's fiscal agent, due on that date. The Commonwealth government doubts that it can make a larger debt service payment on July 1, 2016. On June 29, 2015, Governor García Padilla stated during a televised address that "the debt is not payable." On the same day, a report commissioned from three former International Monetary Fund economists was released, which described severe short-term funding challenges as well as long-standing issues with key parts of the Puerto Rican economy and public sector. On September 9, 2015, a working group appointed by the governor released a plan that outlined its strategy. Puerto Rico's financing gap over the coming five years, according to the plan, is nearly $28 billion. The plan's proposals, along with hoped-for improvement in economic growth, were said to halve that gap. The precarious state of Puerto Rico's public finances stems in part from prolonged economic weakness. Economic growth was sluggish even before the 2007-2009 recession, and projections suggest that the economy is contracting. Past analyses noted low employment and labor participation rates, high rates of outmigration leading to a decline in population, an economic structure shaped more by tax advantages than comparative advantages, and intensified global competition, among other factors. Others point to weaknesses in fiscal and operational controls. In October 2015, the U.S. Department of the Treasury set out a reform framework and called on Congress to pass legislation to aid Puerto Rico. Resident Commissioner Pierluisi introduced H.R. 870 on March 16, 2015; the bill would restore the island's access to chapter 9 of the Bankruptcy Code. Senator Blumenthal introduced a similar measure (S. 1774) on July 15, 2015. On December 9, 2015, Representative Sean Duffy introduced H.R. 4199, a measure to provide fiscal oversight and a debt restructuring process. Senator Hatch introduced a similar measure (S. 2381) on the same day. On December 18, 2015, Representative Pelosi introduced H.R. 4290 and Senator Warren introduced S. 2436, both measures to stay debt-related litigation. On March 14, 2016, Senator Menendez introduced two bills (S. 2675, S. 2676) that would allow adjustments of Puerto Rico's debt. The House Natural Resources Committee issued a discussion draft on March 29, 2016. Representative Duffy introduced the Puerto Rico Oversight, Management, and Economic Stability Act (H.R. 4900) on April 12, 2016, and a revised version (H.R. 5278) on May 18, 2016, which would set up an Oversight Board for Puerto Rico and create a process to restructure the island's debts, among other provisions.

Introduction The Justiciability Doctrines Under Article III of the U.S. Constitution, the jurisdiction of federal courts is limited to actual, ongoing cases and controversies. From this constitutional requirement comes several "justiciability" doctrines that may be invoked in federal court actions that could prevent plaintiffs from maintaining a legal claim against defendants. The four justiciability doctrines are standing, ripeness, political question, and mootness. These doctrines will render a controversy "nonjusticiable" if a court decides that any one of them applies. Standing addresses whether the plaintiff is the proper party to assert a claim in federal court. Ripeness considers whether a party has brought an action too early for adjudication. The political question doctrine makes nonjusticiable controversies that involve an issue constitutionally committed to the political branches of government. There are two types of mootness: Article III mootness and prudential mootness. As the name implies, the former is derived from the constitutional requirement that judicial power be exercised only in "cases" or "controversies." The latter concerns a federal court's discretion to withhold use of judicial power in suits that—while not actually moot—should be treated as moot for "prudential" reasons. Article III Mootness Usually, a case or controversy must exist throughout all stages of federal judicial proceedings, and not just when the lawsuit is filed or when review is granted by an appellate court. The dispute must concern "live" issues, and generally, the plaintiffs must have a personal interest in the outcome of the case. The Supreme Court has described mootness as follows: The "personal stake" aspect of mootness doctrine ... serves primarily the purpose of assuring that federal courts are presented with disputes they are capable of resolving. One commentator has defined mootness as "the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness)." When a legal claim becomes moot while awaiting appellate review, the established practice is for the federal appeals court to reverse or vacate the judgment below and to remand the case to the district court with an instruction to dismiss the action. That consequence is because a moot case does not qualify as a "case or controversy" under Article III; due to the lack of jurisdiction, federal courts have no power to consider the merits of a constitutionally moot case. Cases may be rendered moot because of a change in the status of the parties or in the law, or because of an act of one of the parties that dissolves the controversy. The following paragraphs provide examples of these scenarios. Change in the Status of the Parties When a white law school applicant challenged the constitutionality of a public law school's affirmative action admissions policy, he was admitted to the school pursuant to a trial court ruling that found in his favor. During his second year of law school, the state's supreme court reversed the lower court's decision. By the time the Supreme Court granted certiorari to hear the case, the student was in his final school term. The Court dismissed the case as moot because "the petitioner will complete his law school studies at the end of the term for which he has now registered regardless of any decision this Court might reach on the merits of this litigation...." Change in the Law A lawsuit was filed claiming that the suspension and termination of disability benefit payments under the Social Security Act violated the procedural due process rights of the recipients. Before oral argument before the Supreme Court, the Secretary of Health, Education, and Welfare adopted new regulations governing the procedures to be followed by the Social Security Administration in determining whether to suspend or terminate disability benefits. In light of this development, the Court held "that the appropriate course is to withhold judicial action pending reprocessing, under the new regulations, of the determinations here in dispute. If that process results in a determination of entitlement to disability benefits, there will be no need to consider the constitutional claim that claimants are entitled to an opportunity to make an oral presentation." An Act That Dissolves the Controversy A prison inmate was transferred by corrections authorities, without notice or an opportunity for a hearing, from a medium security prison to a maximum security prison. The inmate filed a lawsuit alleging a violation of his due process rights under the Fourteenth Amendment of the U.S. Constitution; however, while his appeal was pending, he was transferred twice, first back to the medium security facility and thereafter to a minimum security institution. The Supreme Court held that the suit no longer presented a case or controversy, and thus dismissed the case as moot. Prudential Mootness Equitable, or prudential mootness, has been referred to as the "cousin of the mootness doctrine" and described as relating to the court's discretion in matters of remedy and judicial administration. Unlike Article III mootness, [it] address[es] not the power to grant relief but the court's discretion in the exercise of that power. In some circumstances, a controversy, not actually moot, is so attenuated that considerations of prudence and comity for coordinate branches of government counsel the court to stay its hand, and to withhold relief it has the power to grant. Thus, while a case may not be moot for failure to meet Article III's requirements, a court may nevertheless "treat [the case] as moot for prudential reasons" and decline to exercise judicial power in the case. The doctrine of prudential mootness is often applied in cases where the federal court declines to grant the plaintiff's request for declaratory judgment or injunctive relief because the defendant "has already changed or is in the process of changing its policies or where it appears that any repeat of the actions in question is otherwise highly unlikely." The Supreme Court has explained that the burden on the party asking the court to dismiss a case on prudential mootness grounds is a "heavy one," as the movant (usually the defendant) must "demonstrate that there is no reasonable expectation that the wrong will be repeated." Exceptions to the Mootness Doctrine The Supreme Court has recognized several exceptions to the mootness doctrine that, if found to apply to a case, would permit federal court adjudication of the dispute. Possibility of Collateral Legal Consequences In Sibron v. New York , an individual convicted of unlawful possession of heroin had completed service of his prison sentence prior to Supreme Court review of the case. The Court explained that the case was not moot: Although the term has been served, the results of the conviction may persist. Subsequent convictions may carry heavier penalties, civil rights may be affected. As the power to remedy an invalid sentence exists, we think, respondent is entitled to an opportunity to attempt to show that this conviction was invalid. This exception to the mootness doctrine thus applies in the criminal context, when there is a "possibility that any collateral legal consequences will be imposed on the basis of the challenged conviction." Even a "remote" possibility of such consequences is enough to save a criminal case from becoming moot. Conduct Capable of Repetition, Yet Evading Review Some disputes or injuries may arise in the short-term and have the potential for recurrence, but always fail to last long enough to permit federal judicial review. In such a situation, federal courts have justified an exception to the mootness doctrine. A classic example is the landmark abortion case, Roe v. Wade. The Supreme Court explained why the exception should be invoked in this instance: [W]hen, as here, pregnancy is a significant fact in the litigation, the normal 266-day human gestation period is so short that the pregnancy will come to term before the usual appellate process is complete. If that termination makes a case moot, pregnancy litigation seldom will survive much beyond the trial stage, and appellate review will be effectively denied. Our law should not be that rigid. Pregnancy often comes more than once to the same woman, and in the general population, if man is to survive, it will always be with us. However, the Court has held that this exception applies only in "exceptional situations," where the plaintiff "can make a reasonable showing that he will again be subjected to the alleged illegality." Voluntary Cessation If a defendant voluntarily terminates the allegedly unlawful conduct after the lawsuit has been filed but retains the power to resume the practice at any time, a federal court may deem the case nonmoot. The "heavy burden" of persuading the court that a case has been mooted by the defendant's voluntary actions lies with the party asserting mootness, and the standard for such a determination is a "stringent" one: "if subsequent events ma[ke] it absolutely clear that the allegedly wrongful behavior [can] not reasonably be expected to recur." This exception is supported by the Supreme Court because, in addition to ensuring that the defendant is not "free to return to his old ways," there is "a public interest in having the legality of the practices settled." For example, an environmental group had filed a citizen suit under the Clean Water Act against Laidlaw, a company that operated a wastewater treatment plant, alleging that the plant had discharged far more toxic pollutants into a river than it was allowed under terms of a government-issued permit. However, after the lawsuit began, Laidlaw began to comply with the discharge limit. The Supreme Court held that this case was not moot because it was a "disputed factual matter" whether the company's substantial compliance with its permit requirements, or its closure of the facility in question (which had occurred after the court of appeals had issued its decision), would make "it absolutely clear that Laidlaw's permit violations could not reasonably be expected to recur." Class Action Litigation When the claim of the named plaintiff in a certified class action becomes moot, the class action will not be dismissed so long as a member of the class continues to have a sufficiently adversarial relationship to constitute a live controversy. For example, a plaintiff brought a class action to challenge a one-year residency requirement in a state divorce statute, on the ground that it violated the U.S. Constitution. By the time her case reached the Supreme Court, she had long since satisfied the state's durational residency requirement, a development that, had she filed the suit only on her own behalf, would have made the case moot because she no longer retained a personal stake in the outcome. However, the Court noted the significant fact that she had brought the lawsuit as a class action in a representative capacity, which affected the mootness determination: "When the District Court certified the propriety of the class action, the class of unnamed persons described in the certification acquired a legal status separate from the interest asserted by [the named representative]," and therefore the Article III "cases or controversies" requirement was satisfied.

A case pending before a federal court may at some point in the litigation process lose an element of justiciability and become "moot." Mootness may occur when a controversy initially existing at the time the lawsuit was filed is no longer "live" due to a change in the law or in the status of the parties involved, or due to an act of one of the parties that dissolves the dispute. When a federal court deems a case to be moot, the court no longer has the power to entertain the legal claims and must dismiss the complaint. However, the U.S. Supreme Court over time has developed several exceptions to the mootness doctrine. This report provides a general overview of the doctrine of "mootness," as the principle is understood and used by federal courts to decide whether to dismiss certain actions for lack of jurisdiction.

Recent Developments On February 9, 2016, the Obama Administration released its FY2017 budget request. According to the initial release, the Administration is requesting at least $925,000 in foreign aid for Brazil next year (see " U.S. Foreign Assistance and Trilateral Development Initiatives "). On January 19, 2016, the International Monetary Fund (IMF) published an updated World Economic Outlook that revised down its forecast for the Brazilian economy . The report estimated that the Brazilian economy contracted by 3.8% in 2015 and forecasted an economic contraction of 3.5% for Brazil in 2016 (see " Economic Challenges "). On December 18, 2015, President Obama signed into law the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). Among other provisions, the act authorized reforms to the IMF that had been pending since 2010 and will provide greater voting power to Brazil and other emerging economies. It also provided foreign assistance for Brazil, including $10.5 million to support conservation programs in the Brazilian Amazon (see " Amazon Conservation "). On December 2, 2015, Brazilian Chamber of Deputies President Eduardo Cunha initiated impeachment proceedings against President Rousseff for allegedly violating the country's fiscal responsibility law (see " Political Challenges "). On November 11, 2015, Brazil's Ministry of Health declared a "public health emergency of national importance" in response to a sharp increase in the number of infants born with microcephaly, a birth defect that may accompany significant, permanent brain damage. The increase is suspected, but not yet confirmed, to be linked to the emergence of Zika virus in Brazil (see " Zika Virus Response "). On June 30, 2015, President Rousseff met with President Obama at the White House. While the meeting produced few major policy announcements, it demonstrated both countries' willingness to move beyond a difficult period in bilateral relations in the aftermath of disclosures about National Security Agency (NSA) activities in Brazil (see " U.S.-Brazil Relations "). On June 29, 2015, President Obama signed into law the Trade Preferences Extension Act of 2015 ( P.L. 114-27 ), which extended the Generalized System of Preferences (GSP) program through 2017. GSP provides nonreciprocal, duty-free tariff treatment to certain products imported from Brazil and other designated developing countries. Authorization for the program had previously expired on July 31, 2013 (see " Bilateral Trade and Investment "). On June 25, 2015, the Brazilian Congress approved two bilateral defense cooperation agreements with the United States that had been pending since 2010 (see " Defense "). Political and Economic Situation President Dilma Rousseff of the center-left Workers Party ( Partido dos Trabalhadores , PT) first assumed office in January 2011. Her predecessors, Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010), made notable progress in consolidating democratic governance, stabilizing the economy, and reducing the country's vast social disparities. Brazil also benefitted from favorable international economic conditions in the decade prior to her election, which, combined with the policies of her predecessors, facilitated stronger economic growth. Economic conditions began to deteriorate early in Rousseff's term, however, and her administration struggled throughout her first four years in office to address weak growth and popular discontent. Nevertheless, Rousseff was narrowly reelected. Now over a year into her second term, Rousseff is struggling to keep her campaign promises to protect social welfare programs and maintain low unemployment while simultaneously implementing austerity measures that many economists maintain are necessary to turn around Brazil's economy. Rousseff's political standing has weakened significantly as the economy has contracted and revelations about a major corruption scandal have come to light. Her public approval rating has drastically declined, and she has lost the support of many nominally allied legislators, some of whom have joined with the political opposition to initiate impeachment proceedings against her. Background Brazil occupies almost half of the continent of South America and is the fifth most populous country in the world with 204.5 million citizens. The country declared independence from Portugal in 1822, initially establishing a constitutional monarchy and retaining a slave-based, plantation economy. Brazil abolished slavery in 1888 and became a republic in 1889, but economic and political power remained concentrated in the hands of large rural landowners and the vast majority of Brazilians remained outside the political system. The authoritarian government of Getúlio Vargas (1930-1945) began the incorporation of the working classes but exerted strict control over labor as part of its broader push to centralize power. Vargas also increased the state's role in the economy and pursued import-substitution industrialization. Brazil enjoyed multiparty democracy between 1945 and 1964, but experienced polarization and instability as economic growth slowed, inflation increased, and populism gained strength. The Brazilian military seized power in a 1964 coup, ushering in two decades of authoritarian rule (1964-1985). Although repressive, the Brazilian military was not as brutal as those in some other South American countries. It nominally allowed the judiciary and Congress to function during its tenure, but stifled representative democracy and civic action, carefully preserving its influence during one of the most protracted transitions to democracy to occur in Latin America. According to Brazil's National Truth Commission, at least 434 people were killed or "disappeared" by the dictatorship. Brazil continued to pursue state-led development during most of the military era, and industrialization helped foster the transformation of Brazil into a predominantly urban society. Brazil restored civilian rule in 1985, and a national constituent assembly, elected in 1986, promulgated a new constitution in 1988. The constitution, as amended, establishes a liberal democracy with a strong president, a bicameral Congress consisting of the 513-member Chamber of Deputies and the 81-member Senate, and an independent judiciary. Power is somewhat decentralized under the country's federal structure, which includes 26 states, a federal district, and some 5,570 municipalities. Brazil experienced economic recession and political uncertainty during the first decade after the political transition. Numerous efforts to control runaway inflation failed, and two elected presidents did not complete their terms; one died before taking office, and the other was impeached on corruption charges. Cardoso Administration (1995-2002) Brazil's economic and political situation began to stabilize under President Fernando Henrique Cardoso, who was elected to serve two terms between 1995 and 2002. A prominent sociologist of the centrist Brazilian Social Democracy Party ( Partido da Social Democracia Brasileira , PSDB), Cardoso's initial election in 1994 was largely the result of the success of the anti-inflation " Real Plan" that he implemented as finance minister under President Itamar Franco (1992-1994). The plan consisted of a new currency (the real ) pegged to the U.S. dollar, a more restrictive monetary policy, and a severe fiscal adjustment that included a 9% reduction in federal spending and an across-the-board tax increase of 5%. Prices immediately began to stabilize, with annual inflation falling from 2,730% in 1993 to about 18% in 1995. Cardoso continued the economic reform push after taking office, privatizing some state-owned enterprises and gradually opening the Brazilian economy to foreign trade and investment. These policies contributed to stronger growth rates for a few years, but macroeconomic stability remained elusive. Following the 1997 East Asian and 1998 Russian financial crises, concerns about Brazil's overvalued exchange rate and substantial fiscal deficits sparked a massive capital flight. Brazil adopted a floating exchange rate, and the real lost 40% of its value. Although Cardoso's popularity declined as Brazil struggled with these economic challenges, most analysts credit him with laying the foundation for the macroeconomic stability that Brazil has experienced since he left office. In the aftermath of the 1998-1999 financial crises, Brazil adopted the three main pillars of its macroeconomic policy: a floating exchange rate, a primary budget surplus, and an inflation-targeting monetary policy. Cardoso also established a series of targeted income transfer programs designed to alleviate poverty. These economic and social policies have been maintained and built upon by subsequent administrations. Lula Administration (2003-2010) Luis Inácio Lula da Silva—known as Lula—was elected president of Brazil in 2002, his fourth attempt at the presidency as the candidate of the PT, which he helped found as a metalworker and union leader. During his first term, Lula maintained the market-oriented economic policies associated with his predecessor. He tightly controlled expenditures, raised the primary budget surplus, and granted additional autonomy to the Central Bank. At the same time, he placed greater emphasis on reducing poverty, reorganizing and expanding some of the social programs that had been initiated under Cardoso. The most high-profile program, Bolsa Familia ("Family Grant"), provides monthly cash transfers to poor families that ensure their children attend school and receive proper medical care. Lula's agenda stalled toward the end of his first term as several top PT officials were implicated in a vote-buying scheme. The scandal ultimately led to the convictions of 25 people—including Lula's former chief of staff—in 2012. Nevertheless, Lula was reelected in 2006. After primarily focusing on maintaining economic stability during his first term, Lula established a larger role for the Brazilian state in economic development during his second term. He expanded Bolsa Familia and launched new social welfare programs. He also continued to raise the minimum wage, which, adjusted for inflation, increased nearly 64% during his eight years in office. In response to the global financial crisis, the Lula Administration implemented a series of stimulus measures designed to offset declines in global demand with increased domestic consumption. Analysts have credited the administration's timely policy response for mitigating the effects of the crisis and facilitating recovery; the Brazilian economy contracted by 0.2% in 2009 before rebounding with 7.6% growth in 2010. Moreover, Lula won legislative approval for a new regulatory framework that increased the state's role in the exploitation of Brazil's considerable offshore oil reserves and is designed to ensure that those resources are used to fuel long-term economic and social development. Although some observers criticized Lula for not doing more to advance certain policy reforms, most give him credit for improving social inclusion in Brazil. Between 2001 and 2011, the percentage of the population living in poverty fell from 37.5% to 20.9%, and the percentage living in extreme poverty fell from 13.2% to 6.1%. Income inequality was also reduced, with the Gini coefficient falling from 0.64 to 0.56 during the same time period. While these advances were partially the result of stronger economic growth driven by a boom in international demand for Brazilian commodities, government policy also played a role. According to a 2012 study, about 28% of the decline in income inequality in Brazil between 2001 and 2009 was attributable to increases in the minimum wage, and another 13% of the decline was attributable to the Bolsa Família program. Rousseff Administration (2011-Present) President Dilma Rousseff of the center-left PT was inaugurated to a second four-year term on January 1, 2015. Although she was originally elected in 2010 after promising to maintain the popular socioeconomic policies of President Lula, Rousseff struggled to address the country's deteriorating economic situation during her first term. She also had to contend with popular unrest, including mass demonstrations in June 2013, during which more than 1 million citizens took to the streets to express frustration with the stagnation in their living standards, call for better quality public services, and denounce corruption. While the political opposition sought to capitalize on Rousseff's failure to meet citizens' rising expectations during the 2014 election campaign, Rousseff and the PT appear to have convinced many Brazilians that the opposition candidates would end popular social welfare programs and threaten the considerable socioeconomic gains made in Brazil since 2003. She held off two strong challengers and was narrowly reelected with 51.6% of the vote in a second round runoff. Now over a year into her second term, Rousseff continues to face significant economic and political challenges. On the economic front, Rousseff is struggling to keep her campaign promises to protect social welfare programs and maintain low unemployment while implementing austerity measures that many economists assert are necessary to encourage investment and ultimately boost growth (see " Economic Challenges "). Rousseff's political standing has declined precipitously as economic conditions have continued to deteriorate and a major corruption scandal has implicated numerous officials in the governing coalition. Rousseff has lost the support of many nominally allied legislators, some of whom have joined with the political opposition to initiate impeachment proceedings against her (see " Political Challenges "). Economic Challenges Brazil experienced a rapid economic expansion between 2003 and 2010, driven by a boom in international demand—particularly from China—for Brazilian commodities such as meat, sugar, soybeans, iron ore, and crude oil. The initial expansion was reinforced by domestic consumption from Brazil's fast-growing middle class, which now accounts for a majority of the population. Annual economic growth averaged over 4% during that eight-year span, boosting employment and wages. As China's economy decelerated and commodity prices began to fall, however, Brazil's economic growth slowed. During her first term, Rousseff sought to offset the weaker international economic situation by stimulating domestic consumption and protecting domestic industries. Her administration implemented a series of short-term tax cuts and provided subsidized credit through state banks. Although those measures initially helped keep unemployment near historic lows, they also eroded the country's primary budget surplus and helped push inflation to the upper edge of the government's targeted boundary (4.5% with a 2-point tolerance band). To mitigate the increase in inflation, the Rousseff Administration held down fuel and electricity prices, which, along with other interventions in the economy, deterred investment. Economic growth continued to slow, falling from 3.9% in 2011 to 0.1% in 2014. Facing further economic deceleration and the threat of Brazil losing its investment grade credit rating, President Rousseff began implementing a major shift in economic policy following her reelection. She appointed a new economic team to implement a series of austerity measures designed to stabilize the country's debt levels, encourage investment, and ultimately boost growth. The fiscal adjustment has included partial budget freezes, reductions in the number and size of government ministries, restrictions on certain pension and unemployment benefits, and reversals of several of the tax cuts granted during her first term. The Rousseff Administration has also allowed fuel and electricity prices to rise. At the same time, the Brazilian Central Bank has steadily raised the benchmark interest rate with the aim of bringing inflation back down to the 4.5% target. Nevertheless, economic conditions in Brazil have continued to deteriorate. The economy contracted by an estimated 3.8% in 2015, and the International Monetary Fund (IMF) now expects it to contract by 3.5% in 2016. The labor market has weakened considerably, with the formal economy shedding 1.5 million jobs in 2015. Unemployment reached 9% in August-October 2015, up from 6.6% during the same quarter of 2014, and real median wages fell by 1% during the same time period. Inflation remains high, amounting to 10.7% in 2015, eroding wages and the value of social welfare programs. As a result of delays in the implementation of its fiscal adjustments and weaker-than-forecasted revenue collection, the Rousseff Administration was forced to abandon its 1.1% primary budget surplus target and finished 2015 with a budget deficit before interest payments of 1.9%. Two of the three major credit ratings agencies have downgraded Brazil's sovereign credit rating to "junk" status, obliging many institutional investors to divest funds from the country. Many economists and international investors maintain that Brazil must implement more far-reaching economic adjustments. The IMF, for example, maintains that Brazil needs to quickly restore a fiscal surplus and put public debt on a downward path; bring inflation back down to the target range; and address structural impediments to growth, such as infrastructure bottlenecks, a relatively closed economy, and a complex and burdensome tax system. Some economists assert that Brazil has lost market credibility and that the only way to regain it quickly would be to negotiate an adjustment program with the IMF. President Rousseff did little to prepare her political base for an economic adjustment, however, having campaigned against austerity measures during the 2014 election. The Brazilian Congress, nominally controlled by Rousseff's coalition, has repeatedly sought to block, delay, and reverse the Administration's fiscal adjustments, and the ongoing political battle over a potential impeachment of Rousseff is likely to further delay efforts to address Brazil's economic challenges. Political Challenges In addition to addressing the deteriorating economic situation in Brazil, President Rousseff has had to manage the fallout of a major corruption scandal. According to Brazilian prosecutors, beginning in 2004, several construction and engineering firms colluded to systematically drive up the price of bids for contracts with the state-owned oil company, Petróleo Brasileiro S.A. (Petrobras). At least $3 billion from the inflated contracts was allegedly funneled to corrupt executives at the construction firms and Petrobras, as well as dozens of politicians from multiple political parties. Brazilian authorities have indicted more than 100 individuals, brought criminal charges against 13 companies, and arrested several politicians—including top officials in Rousseff's PT. Rousseff served as the chairwoman of Petrobras from 2003-2010, but prosecutors have yet to find evidence that she was aware of the corruption scheme. Anti-corruption legislation enacted during Rousseff's first term has been used to facilitate the investigation, and Rousseff recently reappointed the top prosecutor involved in the case. Nevertheless, many Brazilians hold her accountable for the scandal. As more information about the corruption scandal has come to light and economic conditions have continued to deteriorate, Rousseff's political support has declined significantly. Between February and December 2015, her public approval rating fell from 23% to 11% and her disapproval rating climbed from 44% to 65%. Rousseff's lack of popular support has further reduced her leverage to negotiate with the Brazilian Congress. While her nine-party electoral coalition won 304 (59%) of the 513 seats in the Chamber of Deputies and 53 (65%) of the 81 seats in the Federal Senate in the 2014 elections, Rousseff has struggled to advance her policy agenda. Brazilian presidents have traditionally constructed governing majorities by distributing control of government resources to allied political parties through legislative earmarks and positions in ministries and state enterprises. Rousseff has fewer resources to distribute, however, as a result of her administration's austerity policies. She has lost several important congressional votes, and some nominally allied legislators have begun to distance themselves from the President. Rousseff has even struggled to maintain the support of some PT legislators, who oppose her shift in economic policy. In December 2015, Brazilian Chamber of Deputies President Eduardo Cunha, a member of the nominally allied, but non-ideological Party of the Brazilian Democratic Movement ( Partido do Movimento Democrático Brasileiro , PMDB), initiated impeachment proceedings against President Rousseff. Although opposition legislators initially began discussing impeachment as a result of the Petrobras corruption scandal, Cunha decided to proceed with charges related to the government's accounting practices. Rousseff is charged with "fiscal pedaling" for allegedly violating the country's fiscal responsibility law by postponing required payments to state banks to compensate for budget shortfalls and thereby presenting a stronger (and artificial) fiscal position. Cunha's decision appears to have been driven largely by political factors. After he was indicted on corruption and money laundering charges, Cunha sought to use the threat of impeachment as leverage to ensure PT legislators would help derail efforts to expel him from Congress. When the PT legislators voted to move forward with an ethics investigation, Cunha retaliated with the impeachment proceedings. Rousseff maintains that there is no legal justification for her impeachment, and has repeatedly asserted that any attempt to remove her would amount to a "coup." Rousseff's opponents need to secure two-thirds majorities in both houses of the Brazilian Congress in order to impeach her and remove her from office. Most analysts think Rousseff currently has enough congressional support to hold onto the presidency. That could change, however, if prosecutors find evidence directly linking her to the Petrobras scandal or if the continued deterioration in economic conditions leads to a new round of large-scale anti-government protests. In December 2015, 60% of Brazilians surveyed said they were in favor of removing the president from office. Efforts to address Brazil's economic challenges are likely to remain stalled until the political crisis is resolved. U.S.-Brazil Relations The United States and Brazil have traditionally enjoyed robust political and economic relations. The countries have at least 20 active bilateral dialogues, which serve as vehicles for policy coordination on issues of mutual concern, including trade, energy, security, racial equality, and the environment. The United States and Brazil have also begun to engage more frequently on international issues as Brazil has sought to play a larger role in global affairs. According to the Obama Administration, Brazil is a "major global player" and an "indispensable partner" on issues ranging from international development to climate change. Nevertheless, bilateral ties have been strained from time to time as the countries' occasionally divergent national interests and independent foreign policies have led to disagreements. In recent years, for example, U.S. officials have been disappointed by Brazil's opposition to international efforts to diplomatically isolate Russia after it annexed Crimea and its unwillingness to openly criticize the Venezuelan government's efforts to suppress political dissent. Although Brazil does not support the actions of the Russian and Venezuelan governments, its aversion to sanctions and preference for dialogue have led it to approach the issues much differently than the United States. Similarly, Brazilian officials have been disappointed by the U.S. government's unwillingness to support Brazil's efforts to become a permanent member of a reformed U.N. Security Council and the reluctance of the U.S. Congress to approve reforms to the IMF that will provide greater voting power to Brazil and other emerging economies. Congress ultimately authorized the IMF reforms, which had been pending since December 2010, in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). Disclosures about NSA activities in Brazil have also impeded bilateral cooperation in recent years. The reports, which indicated that the NSA had spied on President Rousseff and Brazil's state-owned oil company, Petrobras, in addition to engaging in broader electronic surveillance, led Brazil to postpone indefinitely a state visit to Washington that Rousseff was scheduled to make in October 2013. They also appear to have contributed to the Brazilian government's decisions to terminate a $2 billion contract with Microsoft, award a $400 million contract to build a geostationary satellite to France's Thales over U.S.-based Space Systems/Loral, and award a $4.5 billion fighter jet procurement deal to Sweden's Saab AB over Boeing. At the September 2013 U.N. General Assembly, Rousseff denounced alleged NSA activities as a breach of international law and a threat to democratic governance, stating, "In the absence of the right to privacy, there can be no true freedom of expression and opinion, and therefore no effective democracy." She also asserted that "friendly governments and societies that seek to build a true strategic partnership ... cannot allow recurring illegal actions to take place as if they were normal. They are unacceptable." The U.S. and Brazilian governments have gradually moved past the surveillance dispute over the past year and a half. In October 2014, they signed a memorandum of understanding designed to resolve a long-running trade dispute over U.S. cotton support programs (see " Cotton Dispute "). Rousseff appointed her former ambassador to the United States as foreign minister following her reelection and asserted that "it is of great importance that we improve our relationship with the United States" during her January 2015 inaugural address, which was attended by Vice President Biden. She also rescheduled her visit to the United States that had previously been postponed, meeting with President Obama at the White House in June 2015. In the lead up to Rousseff's visit, the Brazilian Congress approved two pending defense cooperation agreements (see " Defense ") and a tax information exchange agreement that meets the requirements of the Foreign Account Tax Compliance Act (FATCA, P.L. 111-147 ). Brazil and the United States are currently working together to address an outbreak of Zika virus in Brazil and other Western Hemisphere nations (see " Zika Virus Response "). U.S. Foreign Assistance and Trilateral Development Initiatives As a middle-income country, Brazil does not receive large amounts of U.S. assistance. The United States provided Brazil with $18 million in FY2012, $15.2 million in FY2013, $13.9 million in FY2014, and $11.6 million in FY2015 (see Table 1 ). The Obama Administration requested $1.4 million in assistance for Brazil in FY2016. $500,000 would be used to support Brazil's national HIV/AIDS strategy and the goals of the President's Emergency Plan for AIDS Relief (PEPFAR). Another $625,000 would be used to provide professional training to members of Brazil's military. The remaining $240,000 would be used to enhance Brazil's strategic trade control compliance and enforcement of maritime and port security. The actual level of assistance in FY2016 will be much higher as Congress included $10.5 million to support environmental programs in the Brazilian Amazon in the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ); the Administration did not request any funding for such programs. The Administration's FY2017 budget request includes at least $925,000 for Brazil. In addition to supporting aid programs in Brazil, the U.S. Agency for International Development (USAID) has begun working with Brazil's development agency, the Brazilian Cooperation Agency ( Agência Brasileria de Cooperação , ABC), in third countries. Under these so-called trilateral development initiatives, the United States and Brazil share expertise and funding in order to accomplish common goals. In Haiti, Honduras, and Mozambique, for example, USAID and the ABC have collaborated on agricultural productivity and food security programs designed to reduce poverty, hunger, and malnutrition. The Administration's FY2016 foreign aid request included some funding to collaborate with Brazil on renewable energy and citizen security programs in Central America. Zika Virus Response47 On November 11, 2015, Brazil's Ministry of Health declared a "public health emergency of national importance" in response to a sharp increase in the number of infants born with microcephaly, a birth defect that may accompany significant, permanent brain damage. While an average of 163 cases of microcephaly were reported annually in Brazil between 2001 and 2014, nearly 4,800 cases were reported to Brazil's Ministry of Health between the start of 2015 and January 30, 2016. The increase in microcephaly is suspected, but not yet confirmed, to be linked to Zika virus, which is primarily spread by Aedes mosquitoes and first appeared in Brazil in late 2014. Although only a small proportion of people infected with Zika develop symptoms that are typically mild, health officials are concerned that pregnant women who are infected with Zika may pass the virus on to their unborn children who are at heightened risk of developing microcephaly. Brazilian health officials have investigated 1,113 suspected cases of microcephaly thus far; 709 cases were discarded, 404 cases were compatible with a congenital infection, and 17 cases were confirmed to have been infected by Zika. The Brazilian government has launched a "National Plan to Combat the Aedes and Microcephaly" that includes research, prevention and mosquito control efforts, and health assistance for pregnant women and children. It has dispatched 220,000 troops and 300,000 health agents to communities around the country to educate the population and eliminate mosquito breeding grounds. Observers have placed particular focus on mosquito control efforts in Rio de Janeiro, which is scheduled to host the 2016 Summer Olympic Games in August. Brazil has several world-class research institutions with vast experience in tropical diseases, and the country's national public health institutions are working with local and international partners to develop more efficient diagnostic kits, antiviral drugs, and a Zika vaccine. Several U.S. agencies are collaborating with the Brazilian government and international organizations to address the Zika outbreak. The U.S. Centers for Diseases Control and Prevention (CDC), for example, has been working with Brazil's Ministry of Health since early November 2015 to understand the sudden increase in microcephaly and the impacts of Zika infection during pregnancy. U.S. and Brazilian experts are also collaborating on efforts to develop a vaccine. In February 2016, the Obama Administration announced that it was requesting $1.8 billion in emergency funding to prepare for and respond to the Zika virus. More than $375 million of the funds would support USAID and State Department initiatives, primarily in South America, Central America, and the Caribbean. Activities would include education campaigns, mosquito control activities, training for health care workers, and health support for pregnant women. It is unclear how much of the funding would specifically support efforts in Brazil. Commercial Relations Trade policy has often been a contentious issue in U.S.-Brazilian relations. Throughout the past two decades, Brazil's trade policy has prioritized integration with its South American neighbors through the Common Market of the South (Mercosur) and multilateral negotiations at the World Trade Organization (WTO). Brazil is the industrial hub of Mercosur, which was established in 1991 and also includes Argentina, Paraguay, Uruguay, and Venezuela. While the bloc was created with the intention of incrementally advancing toward full economic integration, only a limited customs union has been achieved thus far. The group has also been plagued by internal disputes and frequent rule changes. Instead of serving as a platform for insertion into the global economy as originally envisioned, Mercosur has evolved into a more protectionist arrangement, shielding its members from external competition. Beginning in the 1990s, the United States sought to incorporate Mercosur and other sub-regional trade blocs into a hemisphere-wide Free Trade Area of the Americas (FTAA). The initiative was effectively killed in 2005, however, when the United States was unable to persuade Brazil and the other members of Mercosur to continue the negotiations. At the WTO, Brazil has played a key role in the Doha Development Agenda round of multilateral trade negotiations that began in 2001. It has led the G-20 group of developing nations in insisting that developed countries reduce agricultural tariffs and subsidies. Brazil has also resisted calls by the United States and other developed countries for increased access to developing nations' industrial and services sectors. In 2013, Brazil's widely respected diplomat and trade representative Roberto Azevêdo was appointed Director General of the WTO. He has sought to revive the Doha round, successfully negotiating a small-scale agreement on trade facilitation measures in December 2013. Negotiations on more sensitive issues like agriculture remain stalled, however, and the U.S. Trade Representative has called for the WTO to abandon the Doha round. Some Brazilian analysts have argued that the international trading system is undergoing a significant transformation and that Brazil should reconsider its trade policy. They maintain that large-scale agreements like the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP) could establish new and more comprehensive rules for trade and investment. By setting new global standards, the agreements could effectively bypass multilateral negotiations at the WTO and threaten Brazil's ability to shape the international trading system. The agreements could also place Brazilian companies at a competitive disadvantage and threaten the global market share of Brazilian exports. In order to remain relevant and take advantage of changing opportunities, these analysts argue that Brazil should conclude trade negotiations with the European Union (EU) and consider pursuing a trade agreement with the United States. While some members of the Rousseff Administration agree that Brazil should accelerate its trade agreement negotiations, others maintain that opening up Brazil to more foreign trade would decimate Brazilian industry. In the past year, the Brazilian government has placed renewed emphasis on concluding an agreement between Mercosur and the EU and has begun to move forward with trade negotiations with other nations. Further policy shifts will likely depend on how the TPP agreement and T-TIP negotiations advance and economic conditions in Brazil. Bilateral Trade and Investment Despite differences in trade policy and the lack of a free trade agreement, U.S.-Brazil trade has grown considerably over the past decade (see Figure 2 ). Between 2005 and 2014, U.S.-Brazil merchandise trade increased by more than 83%. It declined by nearly 20% in 2015, however, largely as a result of declining commodity prices and the deteriorating economic situation in Brazil. Compared to 2014, U.S. goods exports to Brazil declined 25% from $42.4 billion to $31.7 billion, and U.S. goods imports from Brazil declined 10% from $30.5 billion to $27.4 billion. Despite the significant decline in exports, the United States maintained a slight merchandise trade surplus with Brazil valued at $4.3 billion. In 2015, top U.S. goods exports to Brazil included refined civilian aircraft and parts, heavy and electric machinery, oil products, and medical equipment. Top U.S. goods imports from Brazil included crude oil, civilian aircraft, iron and steel, machinery, and coffee. Brazil was the United States' twelfth-largest trading partner, and the United States was Brazil's second-largest trading partner, behind China. U.S.-Brazil services trade has grown even more quickly than merchandise trade, increasing by 446% between 2004 and 2014 (the most recent year for which data are available), from $6.7 billion to $36.7 billion. The United States continued to run a substantial services trade surplus in 2014, valued at $19.8 billion, as U.S. services exports to Brazil totaled $28.2 billion and U.S. services imports from Brazil totaled $8.4 billion. Travel, transport, telecommunications, and intellectual property charges were the top categories of U.S. services exports to Brazil while business services was the top category of U.S. imports from Brazil. In 2014, nearly 2.3 million Brazilians visited the United States, spending an estimated $13 billion on travel and tourism. Brazil benefits from the Generalized System of Preferences (GSP) program, which provides nonreciprocal, duty-free tariff treatment to certain products imported from designated developing countries. Legal authorization for the GSP program expired on July 31, 2013, but the program was reauthorized and extended through 2017 after Congress passed and the President signed into law the Trade Preferences Extension Act of 2015 ( P.L. 114-27 ) in June 2015. In 2012, the last full year that the GSP program was in effect, Brazil was the third-largest beneficiary. The country's duty-free imports to the United States under the GSP program were valued at $2.3 billion, equivalent to about 7% of all U.S. imports from Brazil in 2012. Some observers have questioned the inclusion of Brazil and other upper-middle-income countries in the GSP program; the European Union removed such countries from its GSP program as of 2014. Foreign direct investment (FDI) between the United States and Brazil currently flows mostly in one direction, toward Brazil. As of 2014 (the most recent year for which data are available), the accumulated stock of U.S. FDI in Brazil was $70.5 billion, with significant investments in manufacturing and finance, among other sectors. The stock of Brazilian FDI in the United States totaled $616 million in 2014. Cotton Dispute70 In October 2014, Brazil and the United States appeared to resolve a more than decade-long dispute over U.S. government support for cotton farmers. In 2002, Brazil went to the WTO to challenge several provisions of the U.S. cotton program. A WTO dispute settlement panel ruled in Brazil's favor in 2004, finding that certain U.S. agricultural support payments and export guarantees were inconsistent with its WTO commitments. Although Congress modified agricultural support programs in 2005, a WTO compliance panel ruled in 2007 that the U.S. actions were insufficient. Following a ruling from a WTO arbitration panel, Brazil announced in March 2010 that it intended to impose retaliatory measures against the United States worth $829 million. This included $591 million in higher tariffs on a range of U.S. products and $239 million through suspension of certain intellectual property rights obligations. The United States reached a temporary agreement with Brazil in June 2010 to avoid the WTO-sanctioned retaliatory measures. Under the agreement, the United States pledged to make some short-term changes to its export credit guarantees and provide the Brazil Cotton Institute with $147 million annually for a fund to assist Brazilian cotton farmers with technical assistance, marketing, and market research. In exchange, Brazil agreed to temporarily suspend its retaliation with the intention of reaching a permanent agreement with the United States after Congress had an opportunity to adjust the subsidy program in a reauthorization of the farm bill. The U.S. government stopped complying with the temporary agreement in 2013, making only a portion of the required monthly payment in September 2013 and then stopping payments altogether as of October 2013. Secretary of Agriculture Tom Vilsack reportedly asserted that the partial payment was required by budget sequestration and that he had no authority to continue making payments once the farm bill expired at the end of September 2013. The suspension of payments led the Brazilian government to once again explore retaliatory measures. In February 2014, President Obama signed into law a new farm bill ( P.L. 113-79 ). According to the conference report accompanying the act ( H.Rept. 113-333 ), the legislation included several substantive changes to U.S. cotton support programs and the export credit guarantee program in order to resolve the dispute with Brazil. Nevertheless, Brazil's Foreign Trade Board ( Câmara de Comércio Exterior , CAMEX) asserted that the farm bill contained elements that would continue to distort the international cotton market, and authorized the Brazilian government to request a WTO panel to assess whether the farm bill brought the United States into compliance with previous rulings. Rather than requesting a new WTO compliance panel, Brazil reached a settlement with the United States. According to the memorandum of understanding signed in October 2014, the United States agreed to make a final one-time payment of $300 million to the Brazil Cotton Institute and make some additional changes to its export credit guarantee program. In exchange, Brazil agreed not to challenge U.S. cotton support programs at the WTO prior to September 30, 2018. Energy Ties Energy is another important area of U.S.-Brazilian cooperation. Brazil is the world's second-largest producer of ethanol (after the United States). It has also discovered large offshore oil deposits that have the potential to turn the country into a major oil and gas producer. President Obama and President Rousseff launched a Strategic Energy Dialogue in 2011 to facilitate greater cooperation in the development of safe, secure, and affordable energy. During their June 2015 meeting, they agreed to renew the dialogue and endorsed cooperation on biofuels; oil and natural gas; civil nuclear energy; renewable energy; and energy-related science. They also announced a joint goal of increasing the share of renewables—beyond hydropower—in the Brazilian and U.S. electricity generation mixes to 20% by 2030. Biofuels In response to sharp increases in global oil prices in the 1970s, the Brazilian government began a national program to promote the production and consumption of sugarcane ethanol. Today, most cars in Brazil are capable of running on pure ethanol, which is available at nearly every fueling station, or gasoline, which is required to include an 18-27.5% ethanol blend. The Brazilian ethanol sector has struggled in recent years, however, due to poor harvests and lower demand resulting from the Brazilian government's policy of capping gasoline prices to hold down inflation. Consequently, the ethanol industry has seen lower levels of investment and production. The Brazilian government has sought to provide some relief to the ethanol industry by raising gasoline prices, increasing the ethanol blend requirement, and reducing taxes on ethanol. Nevertheless, some analysts maintain that the lack of transparency and certainty regarding how gasoline prices are determined are likely to continue to discourage investment in the industry. In 2014 (the most recent year for which data are available), Brazil produced 497,000 barrels per day of ethanol, which was an increase of 3.6% compared to 2013. In 2007, the United States and Brazil, the world's two largest ethanol-producing and consuming countries, signed a memorandum of understanding to promote greater cooperation on ethanol and other biofuels. The agreement involves (1) technology sharing between the United States and Brazil; (2) feasibility studies and technical assistance to build domestic biofuels industries in third countries; and (3) multilateral efforts to advance the global development of biofuels. Since then, the United States and Brazil have moved forward on all three facets of the agreement. Bilaterally, the U.S. and Brazilian governments have attempted to improve methods for modeling the sustainability of biofuels, including their effects on greenhouse gas emissions and land use, and have exchanged information on how to maximize fuel economy in flex-fuel vehicles. They are also coordinating efforts to develop sustainable aviation biofuels. At the same time, the U.S. and Brazilian governments are working together to provide joint technical assistance designed to strengthen policy frameworks, implement blending laws, and develop domestic production capabilities in countries such as the Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, and Senegal. Multilaterally, the United States and Brazil have worked with other members of the Global Bioenergy Partnership (GBEP) to promote the sustainable production and use of modern bioenergy. In addition to these efforts, the United States and Brazil have taken steps to liberalize trade in ethanol. The Brazilian government has issued multiple resolutions to provide duty-free treatment for imported ethanol, most recently extending such treatment until December 31, 2021. Similarly, the U.S. Congress allowed a 54-cent-per-gallon duty on imported ethanol to expire at the end of 2011. Prior to its expiration, the duty served as a significant barrier to direct imports of Brazilian ethanol in most years. Nevertheless, total bilateral ethanol trade has declined since then, falling from 33,000 barrels per day in 2011 to 10,000 barrels per day in 2014 (the most recent year for which data are available). In 2014, the United States exported 7,000 barrels per day of fuel ethanol to Brazil and imported 3,000 barrels per day from Brazil. Oil Since 2007, Brazil has discovered substantial new offshore oil fields that have the potential to turn the country into one of the top five oil and gas producers in the world. The new discoveries are so-called "pre-salt" reserves, located beneath layers of rock and salt more than 18,000 feet below the ocean surface. In 2014 (the most recent year for which data are available), Brazil's proven oil reserves stood at 16.2 billion barrels (equivalent to 1% of global reserves), and Brazilian oil production reached 2.3 million barrels per day (equivalent to 2.9% of global production). In 2010, the Brazilian Congress approved a new regulatory framework for developing the approximately 70% of pre-salt reserves that had not already been auctioned off. The new framework increased the role of the Brazilian government and was designed to ensure that the country's resources would be used to fuel long-term economic and social development. Among other provisions, the framework established state-owned Petrobras as the sole operator for all new offshore projects; replaced the existing concessionary model with a production sharing regime; guaranteed Petrobras a minimum 30% stake in all joint ventures; created a public company—Petrosal—to manage the development of the offshore reserves; increased local content requirements; and created a new social fund overseen by the Brazilian Congress to direct offshore revenues toward four key areas: education, infrastructure, science and technology, and poverty reduction. The Brazilian Congress continued to debate legislation regarding the distribution of oil royalties until 2013. The delay in approving the new regulatory framework and royalty distribution law prevented Brazil's National Agency of Petroleum, Natural Gas, and Biofuels ( Agência Nacional do Petróleo, Gás Natural e Biocombustíveis , ANP) from auctioning new concessions for nearly five years. As a result, oil production did not increase as quickly as originally predicted and actually declined from 2011-2013. The ANP held its first auction of pre-salt concessions under the new regulatory framework in 2013. While it reportedly had expected more than 40 companies to participate, only 11 companies signed up for the auction, and a consortium of five companies (Petrobras, Royal Dutch Shell, Total, China National Petroleum Corporation, and China National Offshore Oil Corporation) was the sole bidder. Many energy analysts maintain that Brazil needs to modify its regulatory framework in order to attract the investment necessary to develop its reserves and accelerate production. Brazil's energy minister and some Petrobras officials agree with that assessment and have called for changes, such as loosening local content requirements and reversing the requirement that Petrobras hold a 30% minimum stake in all projects. Ongoing corruption investigations and the steep decline in the price of oil have taken a toll on Petrobras, which announced in January 2016 that it is cutting its planned investments for 2015-2019 by nearly 25%. This has led to a renewed focus on regulatory changes that would allow foreign companies to play a larger role in developing Brazil's offshore resources. While the Brazilian Congress has begun considering potential changes, President Rousseff has voiced opposition to such reforms. U.S.-Brazilian oil trade has expanded significantly over the past decade (see Figure 3 ). U.S. crude oil imports from Brazil grew rapidly from 51,000 barrels per day in 2004 to 295,000 barrels per day in 2009. They have declined since then, however, as U.S. consumption has fallen and U.S. domestic production has increased. In 2014, the United States imported 145,000 barrels per day of crude oil from Brazil, which was equivalent to about 2% of total U.S. crude imports. U.S. exports of refined products to Brazil have also grown quickly, increasing nearly 700% from 27,000 barrels per day in 2004 to 215,000 barrels per day in 2014. As a result, U.S. refined product exports to Brazil have exceeded U.S. crude imports from Brazil for the past two years. Brazil has been forced to increasingly rely on imports as its consumption has grown more quickly than its production and refinery capacity. Some energy analysts expect this trend to continue until at least 2017, when two new Brazilian refineries are scheduled to begin operations. Security Cooperation Although U.S.-Brazilian cooperation on security issues has traditionally been limited, law enforcement and military ties have increased over the past decade. Areas of coordination include counternarcotics, counterterrorism, and defense. Counternarcotics Brazil is not a major drug-producing country, but it is the world's second-largest consumer of cocaine hydrochloride and likely the world's largest consumer of cocaine-based products. It also serves as a transit point for illicit drugs destined for Europe. Security analysts contend that organized crime in Brazil has increased in scope and scale over the past decade as the drug trade has expanded. Some of the country's large, well-organized, and heavily armed criminal groups, such as the Red Command ( Comando Vermelho , CV) and the First Capital Command ( Primeiro Comando da Capital , PCC), have reportedly begun to operate transnationally, eliminating intermediaries in order to control cross-border trafficking. In recognition of these challenges, Brazil has taken several steps to improve its antidrug efforts. In 2004, it implemented an air bridge denial program, which authorizes lethal force for air interdiction, and in 2006, Brazil passed an antidrug law that prohibits and penalizes the cultivation and trafficking of illicit drugs. Brazil has also sought to improve security along the 15,719-kilometer border that it shares with 10 nations, including the region's cocaine producers—Bolivia, Colombia, and Peru. Under its Strategic Border Plan, introduced in 2011, the Brazilian government has deployed inter-agency resources, including unmanned aerial vehicles (UAVs), to monitor illicit activity in high-risk locations along its borders and in the remote Amazon region. It has also signed agreements and carried out joint operations with neighboring countries. In 2014, Brazilian authorities reportedly seized 25.6 metric tons of cocaine and 159.6 metric tons of marijuana. In 2008, the U.S. and Brazilian governments signed a memorandum of understanding designed to enhance the capacity of Brazilian authorities to combat drug trafficking and reduce domestic drug demand. To these ends, the United States provided training to Brazilian law enforcement on topics such as investigative techniques and money laundering and provided support to nongovernmental organizations creating anti-drug community coalitions in 2014. U.S. counternarcotics assistance to Brazil amounted to $3.5 million in FY2012, $1.9 million in FY2013, and $15,000 in FY2014. The Obama Administration did not request any counternarcotics assistance for Brazil in FY2015, FY2016, or FY2017. Counterterrorism100 According to the State Department's Country Reports on Terrorism , there are no confirmed operational cells of al Qaeda or Hezbollah in the Western Hemisphere, but ideological sympathizers provide financial and moral support to those and other terrorist groups in the Middle East and South Asia. In 2010, for example, the U.S. Treasury Department sanctioned Hezbollah's chief representative in South America, Bilal Mohsen Wehbe, for transferring funds collected in Brazil to Hezbollah in Lebanon. According to the Treasury Department, Wehbe and an associate raised more than $500,000 from Lebanese businessmen in the tri-border area of Argentina, Brazil, and Paraguay following the 2006 conflict between Israel and Hezbollah. Wehbe also reportedly had overseen Hezbollah's counterintelligence activity in the tri-border area and had worked for the office of Iranian Supreme Leader Ayatollah Ali Khamene'i. The U.S. government has worked with Brazil to address concerns about the tri-border area and strengthen the country's counterterrorism capabilities. The countries of the tri-border area and the United States created the "3+1 Group on Tri-Border Area Security" in 2002, and the group built a Joint Intelligence Center to combat trans-border criminal organizations in 2007. Within Brazil, the United States has supported efforts to implement the Container Security Initiative (CSI) at the port of Santos, and U.S. agencies have trained Brazilian airline employees on identifying fraudulent documents. U.S. authorities also have provided training to officials from each of the three Brazilian law enforcement agencies with counterterrorism responsibilities on topics such as infrastructure security, crisis incident management, and digital network security. These training programs are designed to enhance the Brazilian government's investigative capabilities and support efforts to prevent terrorist attacks at the 2016 Summer Olympic Games. The State Department's Country Reports on Terrorism for 2014 recognized the Brazilian government's continued support for counterterrorism-related activities, including pursuing investigative leads provided by the U.S. government regarding terrorist suspects. Brazil lacks antiterrorism legislation, however, which reportedly hinders prosecutions of potential terrorists. Like many other Latin American nations, Brazil has been reluctant to adopt specific antiterrorism legislation as a result of the difficulty of defining terrorism in a way that does not include the actions of social movements and other groups whose actions of political dissent were condemned as "terrorism" by repressive military regimes in the past. Nevertheless, both houses of Brazil's Congress passed bills in 2015 that would define terrorism and make terrorism, terrorist financing, and the intent to commit terrorism autonomous offenses. The Brazilian Congress is currently reconciling the differences between the bills and is expected to enact the legislation in early 2016. Defense U.S.-Brazil military cooperation has increased significantly in recent years. In the aftermath of a massive January 2010 earthquake in Haiti, U.S. and Brazilian military forces engaged in their largest combined operations since World War II, when the 25,000-strong Brazilian Expeditionary Force was dispatched to Italy and fought as a division within the United States Fifth Army. Later in 2010, the U.S. and Brazilian governments signed a Defense Cooperation Agreement designed to promote cooperation in areas such as research and development, technology security, and acquisition of defense products and services, and a General Security of Military Information Agreement designed to facilitate the sharing of classified defense and military information. In an effort to elevate defense ties further, President Rousseff joined with President Obama in 2012 to launch a presidential-level Defense Cooperation Dialogue. While the cooling of bilateral relations in the aftermath of the NSA revelations affected U.S.-Brazilian defense ties, military-to-military cooperation at the operational and tactical levels reportedly remained strong. The Defense Cooperation Agreement and the General Security of Military Information Agreement, which had been awaiting approval from Brazil's Congress since 2010, were adopted and entered into force in June 2015 prior to President Rousseff's trip to the United States. As previously noted, the United States provides security assistance, including military training, to Brazil. This assistance is designed to strengthen military-to-military relationships, increase the professionalization of Brazilian forces, and enhance Brazil's capacity to assume a larger role in peacekeeping operations and in combating terrorism. The U.S. Department of Defense and the U.S. Department of State provided nearly $2 million in military training assistance to about 110 Brazilians in FY2014. The Brazilian government paid for another 124 Brazilians to receive over $8 million in U.S. training through the Foreign Military Sales (FMS) program. In FY2015, the State and Defense Departments planned to provide $662,000 in military training assistance to about 50 Brazilians. They planned to train 72 more Brazilians with $1.5 million in Brazilian funding through the FMS program. Promotion of Racial Equality While Brazilians have experienced significant improvements in economic and social conditions over the past 15 years, racial disparities persist. Afro-Brazilians, who comprise about half of the Brazilian population, account for less than 25% of Brazilians that have completed post-secondary degrees and 17% of Brazilians that have completed graduate degrees. In 2010, the median income of Afro-Brazilians was 64% of the median income of white Brazilians. Even after controlling for education, occupation, and location, white Brazilians reportedly receive higher wages than Afro-Brazilians. Moreover, Afro-Brazilians are disproportionately the victims of Brazil's high levels of crime and violence. In 2010, the homicide rate for Afro-Brazilians was 36.5 per 100,000—nearly two and a half times the rate of other Brazilians. In order to reduce racial disparities, the Brazilian government has enacted a series of antidiscrimination and affirmative action measures. Brazil became the first Latin American country to endorse racial quotas in government service in 2002, and became the first country in the world to establish a special secretariat with a ministerial rank to manage racial equity promotion policies in 2003. In 2010, Brazil enacted the Statute of Racial Equality, which offered tax incentives for businesses that undertake racial inclusion, called on the government to adopt affirmative action programs, and reaffirmed that African and Afro-Brazilian history should be taught in all elementary and middle schools, among other provisions. In 2012, Brazil adopted a law that required federal universities to reserve half of their admissions spots for students who are Afro-Brazilian, indigenous, or graduates of public high schools (which tend to serve the poorest students). The law gradually increased the admissions spots required to be reserved from 12.5% in 2013 to 50% this year (2016), with half of the reserved spots set aside for low-income students of all races with the highest grades and the other half divided in accordance with the racial makeup of each state. More recently, President Rousseff enacted a law in 2014 that reserved 20% of jobs in the Brazilian executive branch and state-owned enterprises for Afro-Brazilians. Although race-based affirmative action policies are controversial among some sectors of the Brazilian population, they have been upheld as constitutional by the Brazilian Supreme Court. In March 2008, Brazil and the United States signed an agreement known as the United States-Brazil Joint Action Plan to Eliminate Racial and Ethnic Discrimination and Promote Equality. The initiative recognizes that Brazil and the United States are multi-ethnic, multi-racial democracies, and seeks to promote equality of opportunity for the members of all racial and ethnic communities. To that end, Brazil and the United States share best practices through activities such as training programs, workshops, technical expert exchanges, scholarships, and public-private partnerships. The initiative has focused on expanding access to education for students of African descent, eliminating racial health disparities, mitigating environmental impacts in communities of African descent, addressing challenges in criminal justice systems, and guaranteeing equal access to economic opportunities. Congress recommended providing resources to continue and strengthen the initiative in FY2015 according to H.Rept. 113-499 , which is considered part of the explanatory statement accompanying the Consolidated and Further Continuing Appropriations Act, 2015 ( P.L. 113-235 ). Congress did not specifically address the initiative in the FY2016 omnibus appropriations bill. Amazon Conservation The Amazon Basin is estimated to span more than 6.8 million square kilometers. It produces about 20% of the world's fresh water discharge and contains the largest remaining rainforest on Earth. In addition to supporting significant biological diversity, the Amazon Rainforest is a global sink for carbon emissions and an important asset in the mitigation of climate change. The forest biomass is estimated to hold about 100 billion tons of carbon, which is equivalent to more than 10 years of global fossil fuel emissions. About 69% of the Amazon Basin, which is shared by seven nations, lies within Brazil. The Brazilian Amazon was largely undeveloped until the 1960s, when the military government began subsidizing the settlement and development of the region as a matter of national security. Partially as a result of these incentives, the human population grew from 6 million in 1960 to 25 million in 2010. Forest cover in the Brazilian Amazon has declined to about 80% of its original area as a result of settlements, roads, logging, farming, and other activities in the region. Recognizing that continued destruction of the Amazon Rainforest is damaging to Brazil's global image and could threaten hydroelectricity generation and agricultural production, the Brazilian government has implemented a series of policies designed to slow deforestation. In 2002, for example, it created the Amazon Protected Areas Program, which now includes some 600,000 square kilometers of forest. Likewise, the Brazilian government adopted a plan to reduce the rate of Amazon deforestation by 80%—based on the 1996-2005 average—to 3,925 square kilometers per year by 2020. To meet this target, the Brazilian government has increased surveillance and financed sustainable development projects. Brazil appears to be on track to achieve its goal, as annual deforestation has fallen from 27,772 square kilometers in 2004 to 5,831 square kilometers in 2014 (see Figure 4 ). Despite progress over the past decade, Brazil's deforestation rate in 2015 was 28% higher than the low of 4,571 square kilometers recorded in 2012. Some analysts have attributed the increase in deforestation to government policy changes. In 2011, President Rousseff signed a law transferring responsibility for environmental oversight of nonfederal lands from Brazil's federal environmental protection agency to local officials. The federal government maintains that local officials are better placed to manage such resources, but critics argue that local authorities lack the necessary finances and are more susceptible to intimidation and corruption. In 2012, the Brazilian Congress approved a major overhaul of the forest code—a law that requires rural landowners to set aside 20%-80% of their land for natural vegetation. President Rousseff vetoed some of the most controversial provisions of the legislation, but the final version relaxed conservation requirements for environmentally sensitive areas like river banks, reduced reforestation requirements for land that had already been deforested, and decreased the total amount of forest that must be preserved. Supporters of the reform assert that it was necessary in order to bring farmers into compliance with the law, and argue that the updated forest code remains among the strictest regulations of private property in the world. Rousseff's decision to appoint two climate change skeptics to her cabinet has raised further questions about her administration's commitment to conservation. The United States has provided assistance to Brazil designed to support tropical forest conservation through the promotion of sustainable land use and encouragement of environmentally friendly income generation activities for the rural poor. In FY2006, USAID initiated the Amazon Basin Conservation Initiative, which supports community groups, governments, and other organizations working throughout the Amazon Basin to conserve the forest's biodiversity. USAID provided Brazil with $9.6 million in FY2013, $10.5 million in FY2014, and $10.5 million in FY2015 to continue those programs. The Obama Administration did not request any funds for conservation efforts in Brazil in FY2016. Nevertheless, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ) recommends providing $10.5 million for environmental programs in the Brazilian Amazon this fiscal year. In addition to providing foreign aid, the United States signed a debt-for-nature agreement with Brazil in 2010 under the Tropical Forest Conservation Act of 2008 ( P.L. 105-214 ). Under the agreement, the United States reduced Brazil's debt payments by $21 million over five years. In exchange, the Brazilian government committed those funds to activities to conserve protected areas, improve natural resource management, and develop sustainable livelihoods in endangered areas outside of the Amazon Rainforest such as the Atlantic Rainforest, Caatinga, and Cerrado ecosystems.

The United States traditionally has enjoyed robust economic and political relations with Brazil, which is the fifth most populous country and ninth-largest economy in the world. Brazil is recognized by the Obama Administration as a "major global player" and an "indispensable partner" on issues ranging from international development to climate change. Administration officials have often highlighted Brazil's status as a multicultural democracy, referring to the country as a natural partner that shares values and goals with the United States. Bilateral ties have been strained from time to time as the countries' occasionally divergent national interests and independent foreign policies have led to disagreements. U.S.-Brazilian relations were particularly strained following revelations in 2013 of alleged National Security Agency (NSA) activities inside Brazil. Cooperation has improved over the past year and a half, however, culminating in a June 2015 presidential meeting at the White House. Brazil and the United States are currently working together to address an outbreak of the Zika virus in Brazil and other Western Hemisphere nations. Other ongoing areas of engagement include trade, energy, security, racial equality, and the environment. Domestic Situation After narrowly winning a second-round runoff election in October 2014, President Dilma Rousseff of the center-left Workers Party was inaugurated to a second four-year term on January 1, 2015. Economic conditions in Brazil have deteriorated significantly in recent years, and Rousseff is now struggling to keep her campaign promises to protect social welfare programs and maintain low unemployment while simultaneously implementing austerity measures that many economists argue are necessary to attract investment and ultimately boost growth. Although international investors have advocated for a more rapid economic adjustment, much of Rousseff's political base is opposed to the policy shift. The economy contracted by an estimated 3.8% in 2015 and is expected to contract by 3.5% this year. Brazil's deep economic recession has weakened Rousseff's political standing, which was already fragile as a result of a major corruption scandal that has implicated numerous officials in the governing coalition. In December 2015, 11% of Brazilians approved of Rousseff's job performance while 65% disapproved. Some nominally allied legislators have distanced themselves from Rousseff, opposing her administration's austerity measures and other key portions of her policy agenda. Moreover, the president of Brazil's Chamber of Deputies has initiated impeachment proceedings against the president. Legislative Developments The 114th Congress has approved two legislative measures that will influence U.S.-Brazil relations. As part of the Trade Preferences Extension Act of 2015 (P.L. 114-27), Congress renewed the Generalized System of Preferences (GSP) program, which provides non-reciprocal, duty-free tariff treatment to certain products imported from Brazil and other designated developing countries. In the Consolidated Appropriations Act, 2016 (P.L. 114-113), Congress authorized reforms to the International Monetary Fund (IMF) that had been pending since 2010 and will provide greater voting power to Brazil and other emerging economies. The act also provided foreign assistance for Brazil, including $10.5 million to support conservation programs in the Brazilian Amazon. Two other bills introduced in 2015 are designed to pressure Brazil to amend its constitution to allow the extradition of Brazilian nationals; H.R. 2784 would suspend foreign assistance to Brazil, and H.R. 2785 would suspend the issuance of visas to Brazilian nationals, until it changes its extradition policies.

Introduction In December 2010, the Board of Governors of the International Monetary Fund (IMF, the Fund), the institution's highest governing body, agreed to a wide-ranging set of institutional reforms. If enacted, this reform package would increase the institution's core source of funding and expand the representation of dynamic emerging market and developing countries, such as Brazil, China, and Mexico, within the institution. In order for key parts of the reform package to take effect, IMF rules dictate that the reforms must be formally accepted by three-fifths of IMF members (113) representing 85% of the total voting power. Under this formula, although unanimous support is not required, approval by the United States, the IMF's largest stakeholder with 16.75% of the total voting power, is essential (see text box). To date, the United States has not formally approved these reforms. Congress plays a pivotal role in determining the U.S. position on the current IMF reform agenda. Under U.S. law, specific congressional authorization is required for the United States to consent to change the U.S. quota, or "shares" in the Fund, which determine the United States' total voting power. Furthermore, depending on the budgetary treatment of any new authorized U.S. contributions to the IMF, appropriations would likely also be required. A majority of IMF member countries have approved these reforms, and with U.S. support, the IMF would meet the thresholds necessary for the reforms to become effective. News reports indicate that inaction by the United States on the reforms created tensions at the IMF-World Bank Annual Meetings in October 2012. Some commentators have suggested that a lack of U.S. action may be frustrating for other IMF member countries, since the U.S. Administration was instrumental in advancing some of the reforms earlier in the process. This report provides information about the reforms, Congress's role in the reform process, and how the reforms could affect U.S. interests at the IMF. For additional background on the IMF, see CRS Report R42019, International Monetary Fund: Background and Issues for Congress , by [author name scrubbed]. Proposed Reforms Motivation for Reform IMF member countries and staff have pursued reforms to address two problems facing the IMF: (1) core IMF resources have substantially declined as a share of the global economy, while anticipated needs have increased; and (2) the voice and vote of many emerging and developing countries at the IMF increasingly under-represents their current contribution to the global economy, a development which some analysts believe harms support and buy-in for IMF policies and initiatives among critical constituencies. Adequacy of IMF Resources Total IMF quota member contributions are approximately $328 billion. However, this figure represents just over 25% of the IMF's available resources. In addition to its quota resources, the IMF maintains standing multilateral borrowing arrangements to temporarily supplement available quota resources and borrowing. The main borrowing arrangement, the New Arrangements to Borrow (NAB), is a set of credit arrangements between the IMF and 38 member countries that can provide about $510 billion of supplementary resources to the IMF. Finally, around 32 countries have established bilateral loan or note purchasing agreements with the IMF that provide an additional $418 billion dollars. The United States has not participated in these new bilateral pledges. Combining both quota and provisional resources, total IMF resources are approximately $1.28 trillion. IMF rules call for a review of quotas every five years to ensure that total IMF resources are adequate and that countries' quotas reflect their relative share in the global economy. Despite major growth and change in relative contributions to the global economy, there has not been a major quota increase since 1998. Faster economic growth in than in the rest of the world doubled the share of emerging market and developing countries' contribution to global GDP from 20% in 1996 to 55.5% over 2011-2013, according to the IMF's October 2014 World Economic Outlook. Emerging market countries accounted to 76% of global growth in 2013. Focus on the adequacy of IMF resources has been on the IMF quota, the financial commitment that countries make when they join the Fund. It has traditionally been the main source of funding that the IMF uses for financial assistance packages. It also determines a member country's voting power at the IMF. Figure 1 shows how IMF quota resources have changed over time relative to different measures of international economic activity since 1975. In general, IMF quota resources have fallen relative to global GDP, net capital inflows, trade, and reserves in recent decades. Some analysts view this as evidence that IMF quota resources have not kept pace with increased economic integration and that the IMF needs more financial resources in order to remain effective in responding to economic crises, one of its three major functions. Some commentators argue that having the large supplemental fund (the NAB) and large bilateral pledges are inadequate substitutes for increasing quota resources. They argue that such large supplemental funds and bilateral borrowings undermine the legitimacy of the IMF as a quota-based institution, where many crucial aspects of the organization, including access to finances and voting power, are influenced by quota. Additionally, they argue that because NAB resources are more difficult to use than quota resources, the IMF's ability to move quickly during crises is weakened. Bilateral commitments may also be temporary, and may not be a reliable source of funds in the future. Representation of Emerging and Developing Countries In addition to concerns about the adequacy of IMF resources, some IMF members worry that the voice and vote of emerging and developing countries are "under-represented" at the IMF. This under-representation, critics argue, puts into question the evenhanded provision of IMF resources among crisis-afflicted member countries. The ability of emerging economies to influence IMF strategic policies may also be lower, potentially undermining the legitimacy of the IMF in the views of some members. Similar concerns prompted reforms at the IMF in 2006 and 2008; however, these reforms were largely seen as incremental and inadequate steps towards a meaningful solution. Successive U.S. Administrations have generally been supportive of increasing representation of emerging markets at the IMF. A former U.S. Alternate Executive Director to the IMF argues that on governance issues, the United States' aim was to "gain political good will for taking the lead in addressing an unfair structure that undermined the credibility and legitimacy of the IMF—an institution that the United States rightly saw as a positive benefit to itself and the world." In theory, IMF voting shares are supposed to reflect a country's relative weight in the global economy, but voting shares have proved slow to change and do not fully reflect major changes in recent decades. The increasing economic influence of Brazil, India, Russia, and China (the BRICs), for example, illustrate the changing distribution of global growth and the diffusion of economic power among a much wider group of countries than when the IMF was founded in 1944. Figure 2 compares the share of GDP and share of IMF quota (which affects IMF voting shares) for the BRICs and a group of advanced European economies. The share of global GDP produced by the BRICs started to increase in the mid-2000s, while the share of global GDP produced by the group of advanced European economies has fallen in recent decades. However, IMF quota share, and hence voting power, for both sets of countries has remained relatively flat. Concerns about dominance of European views and interests on the IMF Executive Board have also been expressed. The IMF Executive Board, which meets several times a week, has 24 members (Executive Directors), and is normally chaired by the IMF Managing Director (currently Christine Lagarde of France). Table 1 shows the nationality of Executive Directors of the Executive Board in September 2012. Eight of the 24 Executive Directors were from advanced European economies, and an additional two Executive Directors represented groups of countries that included at least one advanced European economy. Some argue that this is an overabundance of European Executive Directors, which critics argue limits the ability of non-European Executive Directors to represent adequately their constituencies' interests and for IMF members to hold their Executive Director accountable. They have suggested that European voices on the Board should be consolidated, allowing for more seats on the Board to be controlled by emerging and developing countries. Several of the Executive Directors represent large constituencies of African and South American countries, many of which are among the IMF's poorest members who depend on the IMF for lending. The 2010 Reform Package In December 2010, the IMF's Board of Governors approved a package of reforms to address these concerns. Key components of the reform package include the following: Doubling IMF quota and rollback of the NAB: The reform package calls for a doubling of IMF quota, and a corresponding rollback of the NAB. Although IMF quota has been periodically increased before, if adopted, this would be the largest proportional quota increase in the history of the IMF. Shifting IMF quota to emerging economies: The reform package also calls for a 6% shift in quota share to emerging markets, which would increase their voting power at the IMF, as well as their relative financial commitments to the institution. If implemented, the negotiated changes in quota shares would result in China becoming the third-largest shareholder at the IMF, and India and Brazil would also join China and Russia among the 10 largest shareholders. The United States' quota share would fall slightly, but the U.S. quota would still be sufficient to ensure it had more than the 15% of the total voting power needed to veto major IMF policy decisions. See Table A-1 for more details about how IMF quota shares would change for major economies. Creating an all-elected IMF Executive Board: Rather than continuing the practice of having the five largest shareholders at the IMF appoint Executive Directors to the Board, the proposed reform would make all Executive Directors on the Executive Board elected. This reform could pave the way for future consolidation of European representation on the Executive Board. Reducing representation of advanced European economies on the Executive Board: Ten seats on the Executive Board represent advanced European economies. The reform proposal reflects a commitment by the membership to reduce the number of Executive Directors representing advanced European economies by two, so emerging and developing countries have more representation on the Board. Potential Impact on the United States If implemented, the quota reform would result in a shift in the composition of U.S. financial commitments to the IMF as the NAB is reduced and the quota is increased, but would not increase total U.S. commitments to the IMF. This shift would likely require appropriations for the entire amount of the increase but the net effect on the budget would depend on how much of the funds need to be shifted and whether there are any changes to the budgetary treatment of U.S. IMF contributions (see discussion in the " The Role of Congress " below). Because the United States arguably has more control over when NAB funds are used compared to quota resources, the shift could entail some loss of U.S. control over the resources. However, quota commitments are still generally considered very safe, and the United States has never lost money on its quota commitments (and it earns a small amount of interest on these commitments). With the realignment of IMF quota shares towards emerging markets, the U.S. voting share would fall from 17.69% to 17.40%. This change does not have a meaningful impact and would maintain the United States' unique veto power over major policy decisions at the IMF, while freeing up quota share to be shifted to emerging-market countries. The United States is actually under-represented at the IMF, with a quota share (17.69%) smaller than its share of global GDP (about 22.4% in 2013). The United States has allowed its quota share to fall over the years, partly to facilitate realignment of IMF quota shares to reflect the increasing weight of dynamic emerging market economies in the global economy, while maintaining enough voting power to be able to veto major policy decisions at the IMF that require an 85% majority. Since the IMF was founded, the United States has appointed its own representative to the Executive Board. Under the reform, large shareholders like the United States could still represent a constituency of one country (themselves), but other countries could in theory elect to join a large member's constituency, subject to the rules of the Fund, which aim to maintain constituencies balanced in terms of voting power. Reducing the number of seats on the Executive Board representing advanced European economies will not impact U.S. representation on the Board. Arguments against Reforms Opponents of the reform argue that the IMF has sufficient resources to address financial crises, through the expansion of the NAB and through the IMF's ability to coordinate bilateral contributions during periods of intense market pressure. They also argue that the stricter process for accessing NAB funds, relative to IMF quota, is appropriate for protecting taxpayer commitments to the IMF. Moreover, some analysts reject the notion that the IMF needs more funds to combat the Eurozone crisis, because Europe has the financial resources it needs to respond to the crisis. They argue that if the IMF has any role to play in the Eurozone crisis, it should be through non-financing functions, such as through technical assistance and surveillance of economic policies and conditions. Others are skeptical that emerging economies support the existing norms and values of international financial institutions, and question whether they would be "responsible stakeholders." Emerging countries may also have significantly different views on economic policies, such as on free markets and state-led development. There may be concerns among critics of the reform package that increasing the voice and participation of emerging markets at the IMF could result in the support of economic policies that are less aligned with the preferred policies of advanced economies. Status of Reform Although the IMF Board of Governors approved the reform package in 2010, some of the key parts of the package require additional action to take effect. To move to an all-elected Executive Board, three-fifths of IMF member countries representing 85% of the voting share need to formally approve an amendment to the IMF's Articles of Agreement. For the quota reform (doubling quota and shifting of quota to emerging markets) to take effect, the amendment to the Articles providing for an all-elected Executive Board must be approved, and IMF members representing at least 70% of total quotas consent to the quota changes. With the largest voting power at the IMF (16.75%), the reforms cannot go through without U.S. support, even though a majority of IMF member countries have approved them. Table 2 summarizes the approval process for the Board amendment and the quota reform, and the number of formal approvals received to date by the IMF. By contrast, reducing the seats held by advanced European economies on the IMF Executive Board is a more informal process. Countries voluntarily decide how to group themselves on the Executive Board, and the consolidation will require coordination and proactive action among IMF members. The initial reform package included the pledge to reduce the representation of advanced European economies on the Executive Board by two seats following the implementation of the other reforms. However, the process for obtaining the required acceptances for the Board amendment and consents to the quota reform has taken longer than expected, and steps towards Board realignment were taken in November 2012. In particular, the Belgium and Netherlands seats merged. Austria is currently serving as an Executive Director for the seat vacated by Belgium, but reportedly will rotate its chair with Turkey, the Czech Republic, and Hungary. It has also been reported that the grouping of Nordic countries will permit all the Baltic members of the group to rotate serving as the Executive Director, and that the Switzerland Executive Director will rotate with Poland in a few years. The Role of Congress Congressional support is necessary for the United States to consent to the quota reform and accept the amendment to create an all-elected Executive Board. The Bretton Woods Act, which authorizes U.S. participation in the IMF, states that, among other things, the Administration cannot consent to a change in U.S. quota at the IMF or accept an amendment to the IMF Articles of Agreement, unless Congress authorizes such action by law. Therefore, congressional action will determine the outcome of the U.S. position and, by extension, the success of the reform effort. In addition to the congressional role in authorizing the reforms, appropriations will likely be necessary for the quota reform. For the United States, the reform with entail a nearly doubling of the U.S. quota at the IMF and a corresponding rollback of U.S. financial participation in the NAB. Total U.S. financial commitment to the IMF would not change. Any appropriations needed for the transfer would depend on the scoring by the Congressional Budget Office (CBO). This determination would include factors such as whether U.S. commitments to the NAB are more, less, or equally risky than U.S. commitments to quota resources. The last time the United States increased its financial commitments to the IMF, in 2009, there was a debate over their budgetary treatment, which resulted in a change in the budgetary process that had been in place since 1980. Since 1980, contributions to the IMF had been handled as an exchange of assets, which required increases in budget authority but no outlays. In 2009, it was decided that the new U.S. commitments to the IMF would be treated as lines of credit. Congress had to appropriate funds as a potential loan-loss reserve, consistent with the treatment of federal loans under the Federal Credit Reform Act (FCRA) of 1990 ( P.L. 101-508 ), but also adjusted for market risk. The Congressional Budget Office (CBO) determined that $5 billion needed to be appropriated for the approximately $108 billion in new commitments to the IMF ( P.L. 111-32 ). Congressional Debate and Options for Congress Some analysts are also skeptical as to the interest among Members of Congress to change the composition of U.S. commitments to the IMF. In the 112 th Congress, continuing concerns about the use of IMF resources in the Eurozone debt crisis contributed to the introduction of legislation in the House and Senate ( H.R. 2313 , S.Amdt. 501 , and S. 1276 ) that would rescind U.S. financial commitments to the IMF approved by Congress in 2009, primarily through to the NAB. Similar language was also included in a House draft of the FY2012 State and Foreign Operations Appropriations bill. Following the December 2010 international agreement on IMF reform, the Administration sought for several years to have Congress introduce funding legislation but did not include a formal budget request. In its budget requests for FY2014, FY2015, and FY2016, the Obama Administration has included authorization and appropriation requests for the United States to endorse and ratify the 2010 reform package. During the spring of 2014, during debate on a Ukraine-assistance package, IMF funding legislation was included in the Senate version of the bill but was stripped out prior to passage. Congress has at least four options regarding the reform package. The authorizing committees for the IMF are the Senate Committee on Foreign Relations and the House Committee on Financial Services. Option 1: Do not authorize U.S. participation in the reforms Congress could choose not to authorize U.S. support for the reform package. Without U.S. approval, the reforms could not take effect and the current IMF funding and governance structures would not change. U.S. financial commitments at the NAB would not be transferred to IMF quota, emerging markets would not gain a greater voice at the IMF, and the United States would continue to appoint its own Executive Director. The United States would, however, face strong backlash from other IMF members for "blocking" reforms that have been approved by a majority of IMF member countries. Congress could urge the Administration to use its "voice and vote" at the IMF to pursue and negotiate a different set of reforms. Option 2: Authorize the Administration to accept both reforms Congress could authorize both parts of the reform package: the amendment to the Articles of Agreement providing for an all-elected Board and the quota reform, and pass whatever appropriations may be needed for the quota reform. If the United States supports the reform package, the increase in the U.S. quota would be counterbalanced by an equivalent reduction of U.S. participation in the NAB, and the United States would start electing its representative to the IMF, rather than appointing its representative. Emerging markets would gain greater voting power at the IMF, and increase their relative financial commitments to the IMF. The legislation could include a reporting requirement, such as having the Administration report to Congress on how increased IMF quota resources are being used, or how increased representation of emerging markets at the IMF is shaping IMF policies. Option 3: Authorize U.S. support for the Board reform, but not the quota reform Congress could authorize the Administration to accept an amendment to the Articles of Agreement providing for an all-elected Board, but not authorize U.S. participation in the quota increase. If the United States supports the Board amendment, the Executive Board would become an all-elected body and the U.S. representative would be elected, not appointed. The quota reform would also take effect, even without U.S. consent. Quota subscriptions by others could then proceed, and the U.S. quota share would decline as others implement their quota increases. Given the size of the quota increase (doubling), the U.S. quota share would be expected to fall below 15%. This would mean that the U.S. financial commitments to quota would fall relative to other countries, but that the United States would also lose its veto power in supermajority decisions requiring 85% of the voting share. For this reason, it is extremely unlikely that any Administration would consent to the Board reform amendment without the quota increase. Option 4: Authorize U.S. support for the quota reform, but not the Board reform Congress could authorize U.S. participation in the quota increase but not amend the Articles of Agreement to create an all-elected Board. Because quota reform is conditional on the completion of the Board reform, neither of the reforms would take effect. Concluding Remarks In response to concerns among IMF member nations that the institution was underfunded given the potential global needs for crisis funding and that the developing and emerging economies were underrepresented, member nations agreed in December 2010 to an ambitious package of reforms. If completed, these reforms would double the IMF's quota resources and allow emerging and developing countries to own a larger share of the institution and take on more responsibility for the Fund's governance. In order for key parts of the reform package to take effect, IMF rules dictate that the reforms must be formally accepted by three-fifths of IMF members (113 members out of 188 members) representing 85% of the total voting power. Under this formula, although unanimous support is not required, approval by the United States, the IMF's largest stakeholder, is essential. To date, no action has been taken by Congress on the necessary legislation. In October 2014, IMF member countries agreed that if the 2010 reform package was not completed by the end of the 2014, other options for advancing quota and governance reform should be considered. Following the absence of any IMF authorizations or appropriations in the FY2015 omnibus legislation, IMF Managing Director Christine Lagarde requested that Fund staff prepare alternative reform options that could be enacted without U.S. authorizations or appropriations. Since the beginning of 2015, two interim options that are reportedly being discussed are (1) "de-linking" the IMF quota increase and governance reform proposals and (2) ad hoc quota increases, that would raise the quota and voting rights of a select group of under-represented countries. Delinking IMF quota and governance is highly unlikely. If the United States allows the IMF quota increase to proceed without participating, the U.S. quota share would be expected to fall below 15%, and the United States would forfeit its veto power in supermajority decisions requiring 85% of the voting share. For this reason, it is extremely unlikely that any Administration would consent to the Board reform amendment without the quota increase. Most experts believe that an ad hoc increase will be the likely interim measure pursued by IMF membership. Appendix. Current and Proposed IMF Quota Shares: Top Shareholders

In December 2010, the Board of Governors of the International Monetary Fund (IMF, the Fund), the institution's highest governing body, agreed to a reform package that addresses two major concerns about the institution: (1) that the size of the IMF's resources has not kept pace with increased economic activity in the global economy; and (2) that the representation of emerging and developing economies at the IMF does not reflect their growing importance in the global economy. Key parts of the reform package cannot go into effect until a number of IMF countries formally approve the reforms. If enacted, these reforms would increase the size of the IMF's core source of funding (IMF "quota"), and increase the representation of emerging market and developing countries at the IMF to reflect more accurately their weight in the global economy. Implementing the Reform Package, and the Role of Congress IMF rules do not require formal approval of the reform package by all IMF member countries, but the support of the United States, as the largest shareholder at the institution, is necessary. Although many other IMF member countries have submitted their formal approvals for these reforms, to date, the United States has not formally approved these reforms. Under U.S. law, the Administration cannot do so without specific congressional authorization. Appropriations could also be necessary. In its budget requests for FY2014, FY2015, and FY2016, the Obama Administration has included authorization and appropriation requests for the United States to endorse and ratify the 2010 reform package. Implications of the Reform Package Arguments for Reforms: Proponents argue that the reform package is necessary for maintaining the effectiveness and legitimacy of the IMF as the central institution for international macroeconomic stability. The IMF's core source of funding needs to be increased, they argue, in order to give the IMF the resources that it needs to respond effectively to financial crises. They also argue that the under-representation of emerging economies at the IMF is broadly perceived as unfair and reduces the support of several member countries for IMF programs and initiatives. Arguments against Reforms: Opponents argue that since the IMF has found other ways to supplement its resources during economic crises, the IMF's core funding source does not need to be increased. Opponents are also skeptical that emerging economies support the existing norms and values of international financial institutions, and that these countries may prefer financial and trade strategies that are less aligned with those of the United States. Potential Impact on the United States: Implementing the reforms would not increase total U.S. financial commitments to the IMF and would have little impact on U.S. representation at the IMF. The reforms would require transferring some U.S. financial commitments from a supplementary fund at the IMF (the "New Arrangements to Borrow," or NAB) to the IMF's core source of funding (quota). This transfer could require appropriations, depending on how the Congressional Budget Office (CBO) scores the transfer of funds. The share of U.S. voting power at the IMF would fall slightly, but the United States would still maintain its unique veto power over major policy decisions.

The Reconciliation Process 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 established in the annual budget resolution. When Congress adopts a budget resolution, it is agreeing upon budgetary goals for the upcoming fiscal year. In some cases, for these goals to be achieved, Congress must pass legislation that alters current revenue, direct spending, or debt-limit laws. In this situation, Congress seeks to reconcile existing law with its current priorities. The reconciliation process is still a relatively new congressional process in that there have only been 23 reconciliation bills passed by Congress since the first use of reconciliation in 1980. Overview of the Reconciliation Process Budget reconciliation is an optional, congressional process that consists of several different stages ( Figure 1 ). The first stage in the reconciliation process is the adoption of the budget resolution. If Congress intends to utilize 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 jurisdiction related to spending, revenue, or the debt-limit. 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 to be achieved in the reconciliation legislation, and the time period over which the impact of the budgetary change should be measured. If a single committee is directed in the budget resolution to develop reconciliation legislation, it will likely be instructed to report this language directly to its full chamber. If, however, several committees are directed to report reconciliation legislation, they typically will be directed to submit the language to their respective Budget Committee for packaging, without any substantive change, into an omnibus measure. During the second stage of the reconciliation process, the specified committee develops legislation in response to the reconciliation directive included in the budget resolution. The committee will then meet to 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. As stated above, if more than one committee has been directed to report reconciliation legislation, they are directed to submit such language to their respective Budget Committee. The Budget Committee then packages all committee responses into an omnibus budget reconciliation bill without making any substantive revisions and votes on whether to report the omnibus reconciliation bill to the full chamber. In this way, both the legislative committees and the Budget Committees in both chambers have important roles to play in the reconciliation process. During the final stages of the reconciliation process, the reported legislation is considered under expedited procedures in both the House and Senate. As with all legislation, any differences in the 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, either approval or veto. Sometimes the reconciliation process triggered in the annual budget resolution of a specific year is not completed until the subsequent year. For instance, the FY2006 budget resolution , agreed to on April 28, 2005, included reconciliation directives that resulted in the enactment of two reconciliation bills, but these bills were not signed into law until February and May of 2006. Reconciliation Directives As described above, Congress has the option of including reconciliation directives in its annual budget resolution. These directives trigger the reconciliation process, and without their inclusion in a budget resolution, no measure would be eligible to be considered under expedited reconciliation procedures. When reconciliation directives are included in an annual budget resolution, their purpose is to require committees to develop and report legislation that will allow Congress to achieve the budgetary goals set forth in the annual budget resolution. 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 exist within the reconciliation legislation, and the time period over which the impact of the 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 programmatic direction. Components of Reconciliation Directives The Committee(s) Directed to Report Reconciliation Legislation As described above, reconciliation directives in a budget resolution direct a specific committee or committees to develop legislation within its jurisdiction achieving a desired budgetary outcome. Single Committee Directive vs. Multiple Committee Directives In both the House and Senate, reconciliation instructions in a budget resolution have directed either a single committee to report, or multiple committees to report. In cases when only one committee has been directed to report, the process directs the committee to report its reconciliation legislation directly to its full chamber. If the budget resolution instructs more than one committee to report reconciliation legislation, then those committees have been directed to submit their legislative recommendations to their respective Budget Committee. The Budget Committee then packages the committee responses into an omnibus budget reconciliation bill without making any substantive revisions, and votes on whether to report the omnibus reconciliation bill. Particular Committees Directed to Report Any legislative committee with jurisdiction over spending, revenues, or the debt limit may be directed to report reconciliation legislation, and many have been instructed to report reconciliation legislation at some point. Because the Senate Finance Committee and the House Committee on Ways and Means each have jurisdiction within their respective chamber over all revenue and debt-limit legislation, as well as some direct spending legislation, these committees are often directed to report some type of reconciliation legislation when reconciliation directives are included in a budget resolution. Since the 101 st Congress, 13 budget resolutions have included reconciliation directives to Senate committees. Twelve of those thirteen budget resolutions directed the Senate Finance Committee to report reconciliation legislation. Similarly, in that same period, 13 budget resolutions have included reconciliation directives to House committees. Twelve of those thirteen budget resolutions directed the House Ways and Means Committee to report reconciliation legislation. In current practice, reconciliation may include mandatory spending legislation, but does not include discretionary spending. Discretionary spending is subject to other enforcement mechanisms. The Appropriations Committees have only been directed to report reconciliation legislation on two occasions, the last of which was in 1981. Multiple Directives to a Single Committee Individual committees sometimes are given several separate reconciliation directives within a single budget resolution. In 2000, for instance, the budget resolution included four separate reconciliation instructions to the House Ways and Means Committee. There are several reasons why a budget resolution may include multiple directives to a single committee. First, a committee may be directed to report more than one kind of reconciliation legislation (revenue, spending, or debt-limit legislation) with a separate directive given for each type. The Budget Act also recognizes that committees may be directed to report a combination of spending and revenue legislation, including a directive to achieve deficit reduction. If a committee is given more than one directive, for instance to increase revenues and decrease spending, then the committee may respond with separate pieces of legislation. A committee may also be asked to report reconciliation legislation that achieves budgetary goals over different periods of time. Lastly, reconciliation directives may be separated to make clear that the directives are intended to achieve separate policy goals. The Dollar Amount of Budgetary Change Reconciliation directives set forth the dollar amount that reconciliation legislation should alter spending or revenue levels. Directives that would reduce spending or increase revenues are typically aimed at reducing or eliminating a deficit. These types of directives include a dollar amount that in practice is considered a minimum amount of deficit reduction, sometimes referred to as a floor, meaning a committee may report greater spending cuts or tax increases, but not less. Conversely, directives that would increase spending or reduce revenues are typically aimed at reducing or eliminating a surplus. These types of directives include a dollar amount that in practice is considered a maximum , sometimes referred to as a ceiling, meaning that the committee might report a lower level of spending increases or revenue reductions, but not greater. Further, the Budget Act provides that it is not in order in the Senate to consider reconciliation legislation that includes extraneous matter. One definition of extraneous is a provision that would increase the deficit beyond the period specified in the reconciliation directive. 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, might have a provision that would increase spending for a certain program. This would be considered in order as long as the legislation, taken as a whole, would satisfy the overall spending decreases set forth on the reconciliation directive. If a committee does not respond to its directive, each chamber has methods that it may employ that would allow it to include legislative language that falls within the non-reporting committee's jurisdiction to satisfy the committee's directive. For more information, see the section on "Enforcement of Reconciliation Directives," below. The Type of Reconciliation Legislation to be Reported Section 310 of the Budget Act recognizes three types of reconciliation legislation that committees may be directed to report: spending, revenue, and debt limit. The Budget Act also recognizes that committees may be directed to report a combination of the three, including a direction to achieve deficit reductions, which may result from an unspecified combination of revenue increases and spending decreases. If a committee is given more than one directive, for instance to increase revenues and decrease spending, then the committee may respond with separate pieces of legislation. Under current Senate practice, however, this provision has been interpreted to mean that no more than one reconciliation measure of each type is permitted. Reconciliation instructions, therefore, may result in the creation of as many as three reconciliation bills that may be considered on the floor under expedited procedures, but no more than one each for spending, revenue, and the debt limit. Spending In current practice, reconciliation directives pertain to direct spending which is in the jurisdiction of House and Senate legislative committees, rather than discretionary spending, which is in the jurisdiction of the Appropriations Committees. Such direct spending directives may instruct a committee to report legislation that would effect spending levels. A committee may respond to the directive by reporting changes to direct spending programs or by recommending changes in offsetting collections. Offsetting collections, such as user fees for water or mineral rights on federal land, are treated as negative 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 dispersed 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 budget. In practice, if a reconciliation directive instructs a committee to report legislation reducing spending by a specific amount, that amount is the minimum by which the legislation should reduce spending. Conversely, if a reconciliation instruction directs a committee to report language increasing spending, that amount is a maximum by which spending should be increased. An example of a spending instruction is as follows: The Senate Committee on Energy and Natural resources shall report changes in laws within its jurisdiction that provide direct spending ... to reduce outlays $6,000,000 in fiscal year 2002 .... Revenue 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. Similar to spending directives, in practice, if a reconciliation directive instructs a committee to report legislation increasing revenues by a specific amount, that amount is the minimum by which the legislation should increase revenues. Conversely, if a reconciliation directive includes instructions to decrease revenue, that amount is a maximum by which revenue should be decreased. An example of a revenue instruction is as follows: The Committee on Finance shall report changes in laws within its jurisdiction necessary to reduce revenues by not more that $122,400,000,000 for the period of fiscal years 1997 through 2002. Public Debt-Limit 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 to consider debt-limit legislation in recent years, although it is the least frequently used, being employed only four times. Reconciliation directives to amend the public debt limit fall under the jurisdiction of the Senate Finance Committee and the House Ways and Means Committee. An example of a public debt-limit directive is as follows: (D) The Senate Committee on Finance shall report changes in law within its jurisdiction which provide for an increase in the permanent statutory limit on the public debt by an amount not to exceed $1,900,000,000,000. Combination Reconciliation directives may also instruct a committee to recommend legislation achieving a certain level of deficit reduction without specifying the method. This option allows a committee to respond with legislation that includes spending decreases, tax increases, or a combination of the two. Only the Senate Finance Committee and the House Ways and Means Committee would receive such a directive since they are the only two committees with jurisdiction over revenue legislation. An example of a deficit reduction directive is as follows: ...the Senate Committee on Finance shall report changes in laws within its jurisdiction sufficient (1) to reduce outlays, (ii) to increase revenues, or (iii) any combination thereof, as follows $2,000,000,000 in fiscal year1991.... Similarly, when either the House Ways and Means Committee or the Senate Finance Committee is instructed to report both spending and revenue legislation, they are granted some flexibility under the "fungibility rule." An example of such a directive is as follows: ...the 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. The fungibility rule deems a committee to have satisfied both parts of the reconciliation directive even if the committee's recommendations cause either the spending changes or the revenue changes to exceed or fall below its directive by more than 20% of the sum of the two types of changes, as long the total amount of changes reported is equal to the total amount of changes instructed. The Time Period Over Which the Budgetary Change Should Occur Reconciliation directives may specify either a single year or a period of years over which the impact of budgetary change should be measured. For example, an instruction might direct a committee to report legislation decreasing spending by a certain amount in the upcoming fiscal year, as well as an amount for a more extended period, typically the entire period covered by the budget resolution. An example is as follows: (A) COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY- The Senate Committee on Agriculture, Nutrition, and Forestry shall report changes in laws within its jurisdiction that provide direct spending (as defined in section 250(c)(8) of the Balanced Budget and Emergency Deficit Control Act of 1985) to reduce outlays $86,000,000,000 in fiscal year 1997 and $251,000,000,000 for the period of fiscal years 1997 through 2002. Dates for Reporting Reconciliation Legislation Reconciliation directives included in an annual budget resolution direct a committee to report (or submit to the Budget Committee) legislation by a specific date. For example (b) Not later than June 20, 1980, each committee specified in subsection (a) shall submit its recommendations to the Committee on the Budget of its House. (1) Not later than July 23, 1999, the Senate Committee on Finance shall report to the Senate a reconciliation bill.... These dates may vary in several respects. In some years, they have been the same for both the House and Senate committees. Due dates have sometimes been as early as April or as late as October and have fallen within every month between except August. In some cases, staggered deadlines may be used to regulate the pace of legislative activity. Committees have typically responded to their directives early and on time. Committees have also responded to their directive after the date specified, with no impact on whether the resultant legislation was considered as reconciliation legislation. In other words, late responses to a reconciliation directive did not cause the bill to lose its privileged status as a reconciliation bill. There is no procedural mechanism, such as a point of order, for enforcing the date specified in the reconciliation directive. Each chamber, however, has methods it can employ to allow it to move forward with reconciliation legislation and include legislative language that falls within the non-reporting committee's jurisdiction to satisfy the committee's directive. For more information, see the section on "Enforcement of Reconciliation Directives," below. Contingent Provisions in Reconciliation Directives Budget resolutions have sometimes included contingent provisions in reconciliation directives. Such provisions typically dictate that certain things within a reconciliation directive may be altered, contingent on the occurrence of a specific event. For instance, the budget resolution for FY1996 stated that a certain reconciliation directive would be valid only after the Congressional Budget Office (CBO) certified that the recommendations would balance the budget for a specific time period. (1) CERTIFICATION- In the Senate, upon the certification pursuant to section 205(a) of this resolution, the Senate Committee on Finance shall submit its recommendations pursuant to paragraph (2) to the Senate Committee on the Budget. After receiving those recommendations, the Committee on the Budget shall add these recommendations to the recommendations submitted pursuant to subsection (a) and report a reconciliation bill carrying out all such recommendations without any substantive revision. Policy Instruction in Reconciliation Directives Reconciliation directives are included in an annual budget resolution with the purpose of achieving budgetary goals, and instructions are given to committees to recommend legislation within their jurisdiction that would have a specific budgetary effect. The programmatic details of the legislation, and how those budgetary goals should be met, therefore, are left to the discretion of the specified committee. In general, committees may report any matter within their jurisdiction. Reconciliation directives do, however, sometimes include programmatic expectations or detail, although they are not binding. Including programmatic direction in a reconciliation instruction allows the Budget Committee to communicate policy preferences or assumptions, but does not compel the specified legislative committee to comply with them. Examples of policy instructions include the following: It is the sense of the Congress that of the total amount reconciled in subsection (a), $100,000,000,000 will be for an economic stimulus package over the next 2 years, and (a) Health Care Reform.-(1) The House Committee on Energy and Commerce shall report changes in laws to reduce the deficit by $1,000,000,000 for the period of fiscal years 2009 through 2014. Enforcement of Reconciliation Directives Procedural Enforcement of Budget Reconciliation Timing The Budget Act includes a budget process timetable stating that Congress is to complete action on reconciliation legislation on or before June 15. There is no corresponding enforcement mechanism, however, for ensuring that reconciliation legislation be completed by that date, and Congress has instead followed a timetable established by the committee due dates in reconciliation directives in the budget resolution. Another provision in the Budget Act, prohibits House consideration of any resolution providing for adjournment of more than three days during the month of July if the House has not completed action on any required reconciliation legislation. There is no procedural mechanism, such as a point of order, for enforcing the date specified in the reconciliation directive as it appears in the budget resolution. Committees sometimes have reported reconciliation legislation in response to their directives after the date specified in the directive with no impact on whether the resultant legislation was considered as reconciliation legislation. In other words, the late response of one or more committees did not cause the bill to lose its privileged status as a reconciliation bill. In the case of omnibus reconciliation measures, the House and Senate Budget Committees have at times delayed reporting a bill until tardy committee submissions were received. In the Event that a Committee Does Not Respond to a Reconciliation Directive In some years, committees have not formally responded to the reconciliation directive instructing them to report legislation. There may be several reasons for the lack of a formal committee submission. For instance, there may have been a shift in policy priorities and Congress no longer desired to pass reconciliation legislation. It could also be that a committee fails to approve reconciliation language or it may be that although committees did not respond formally to the directive, they reported freestanding legislation that was not considered under reconciliation procedures but that may have satisfied the goal of the reconciliation directive. As explained above, there is no procedural mechanism for requiring a committee to report reconciliation legislation on time, or at all. Each chamber, however, may employ methods of moving forward with reconciliation legislation, and to include legislative language that falls within the non-reporting committee's jurisdiction, in the event that the committee has not yet reported. These methods vary by chamber. House of Representatives In the House, if a committee has not responded to a reconciliation directive, it still may be possible to consider reconciliation legislation on the House floor that would satisfy the committee's directive. In the case of omnibus reconciliation legislation, the Budget Act states that the House Rules Committee may make in order amendments to a reconciliation bill to satisfy reconciliation directives if a committee has not submitted reconciliation legislation to the House Budget Committee. Senate In the Senate, if a committee has not responded to a reconciliation directive, it still may be possible to consider reconciliation legislation on the Senate floor that would satisfy the committee's directive. This would be in order on the floor in the form of a motion to recommit the bill to that committee with instructions that it report the measure back to the Senate forthwith with an amendment. Unlike amendments to the reconciliation bill, the motion to recommit would not have to be germane if it were made in this situation. Such a motion to recommit would allow any Senator to craft legislative language within the directed committee's jurisdiction on the floor.

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 established in the annual budget resolution. When Congress adopts a budget resolution, it is agreeing upon its budgetary goals for the upcoming fiscal year. In some cases, for these goals to be achieved, Congress must pass legislation that alters current revenue, direct spending, or debt-limit laws. Reconciliation instructions are the means by which Congress can establish the roles that specific committees will play in achieving these goals. Budget reconciliation is an optional, congressional process that consists of several different stages. The first stage in the reconciliation process is the adoption of the budget resolution. If Congress intends to utilize the reconciliation process to achieve its budgetary goals, reconciliation directives (also referred to as reconciliation instructions) must be included in the annual budget resolution. To achieve the budgetary goals set forth in the budget resolution, reconciliation directives designate which committee(s) should report reconciliation legislation, the date by which the committee(s) should report, the dollar amount of budgetary change to be achieved in the reconciliation legislation, and the time period over which the impact of the budgetary change should be measured. They might also include language identifying the type of budgetary change that should be reported as well as other procedural provisions, contingencies, and programmatic direction. This report discusses these various components of reconciliation instructions. There is no procedural mechanism for requiring a committee to report reconciliation legislation on time, or at all. Each chamber, however, has methods that it can employ to allow it to move forward with reconciliation legislation and to include legislative language that falls within the non-reporting committee's jurisdiction, in the event that a committee has not reported. These methods vary by chamber.

Trends in First Generation and Low-Income Enrollment The proportion of high school graduates whose parents do not have a college degree has declined over the last threedecades, according to data collected by the U.S. Department of Education and the U.S. Census Bureau. (3) Over four out offive graduates in the class of 1972 would have been first generation college students were they to have gone tocollegecompared to two out of three graduates in the class of 2000. (4) This decline of would be first generation college studentsroughly coincides with the growth in educational attainment that occurred during the same period. In 1970, 11%of theU.S. population were college graduates and by 2000 this had increased to 24%. (5) The proportion of high school graduates from families with income below 150% of the official poverty level has remainedrelatively stable at around 21% over the last 30 years, according to these data. Twenty percent of the class of 1972lived inlow-income families compared to 22% of the class of 2000. This parallels the rate of poverty for the U.S.population as awhole which has fluctuated between 16% and 20% over the same period. (6) Similar trends can be seen in the data on college students, although the Department has only begun to collect such datasince 1987. (7) These data indicate modest declinesin the proportion of low-income and first generation college students. The proportion of students from low-income families dropped from 16% to 12% between 1987 and 2000. Theproportionwho, upon graduation, would be the first in their family to get a college degree declined from 65% in 1987 to 62%in 2000. A second indication from these data is that the representation of first generation and low-income students among thoseenrolled in college has been consistently lower than among those graduating from high school. Thus, it appears thathighschool graduates from low-income families and those that lack a parent with a college degree are less likely thanothergraduates to move on to college. A Closer Look at the 2000 High School Graduating Class As stated above, the overall rate of college enrollment for the high school class of 2000 was 53%. That is, just over half ofthose who graduated in the spring of 2000 were enrolled in college in the fall of that year and just under half werenot. Theanalysis that follows reveals that the rate of enrollment is strongly related to parental educational attainment andfamilyincome. Table 1 shows fall 2000 college enrollment for the high school class of 2000 by parent's education. The rates ofenrollment for fall 2000 were 46% for those whose parents did not attain a Bachelor's degree and 75% for thosewhoseparents hold a Bachelor's degree. High school graduates whose parents lack a college degree were more than twiceaslikely not to be enrolled in college the fall after graduation as those whose parents have a college degree(54% compared to25%). Table 1. College Enrollment in the Fall of 2000 Among Spring 2000 High School Graduates by Parental Educational Attainment Source: Current Population Survey. Note: Columns may not sum to 100% due to rounding. Table 2 displays fall 2000 college enrollment for the high school class of 2000 by family income. The rates of enrollmentfor the fall of 2000 were 35% for those from families below 150% of the poverty line and 58% for those above150% ofpoverty. High school graduates from families below 150% of poverty were over 50% more likely not tobe enrolled incollege the fall after graduation as those from families above 150% of poverty (65% compared to 42%). Table 2. College Enrollment in the Fall of 2000 Among Spring 2000 High School Graduates by Family Income Source: Current Population Survey. Note: Columns may not sum to 100% due to rounding. The figures in Tables 1 and 2 also support the large body of research which has established a strong link between thesocio-economic status of parents (including income, occupation, and educational attainment) and that of theirchildren. Since the late 1960s, researchers have documented the various ways that "class background is very important indetermining who goes to college." (8) Among theindicators of class background used in this research were direct measureslike family income and parent's education and more indirect measures like educational aspirations and collegepreparedness -- all have been found to be positively associated with college attendance and completion. Combined Effects of First Generation and Income Status The final section of this report takes a brief look at the combined effects of first generation status and family income onrates of college enrollment. Table 3 shows rates of college enrollment in the fall of 2000 amongthose who graduated highschool in the spring of 2000 by parental educational attainment and family income. Table 3 indicates that the rate of college enrollment among students from low-income families is not altered by parentaleducation -- 69% of those whose parents did not attain a Bachelor's degree were not enrolled, compared to 66% ofthosewhose parents have a Bachelor's degree (this difference is not statistically significant). Conversely, Table3 reveals thatparental educational attainment is strongly associated with college attendance among students above150% of poverty. Atthis income level, 51% of the graduates whose parents lack a Bachelor's degree went on to college compared to 75%of thegraduates whose parents have a Bachelor's degree. (9) Table 3. College Enrollment in the Fall of 2000 Among Spring 2000 High School Graduates by Parent's Educational Attainment and Family Income Status Source: Current Population Survey. Note: Columns may not sum to 100% due to rounding. Conclusion The findings presented here indicate that rates of college enrollment vary greatly by family income and parental educational attainment. Rates of college enrollment among low-income and first generation students were muchlowerthan the overall rate for 2000 high school graduates. In the final analysis of the combined effects of these factors,firstgeneration status was found to have little association with the rate of enrollment of low-income students, but wasstronglyassociated with the rate of enrollment of students from families with greater income. These results have particularly important implications for the TRIO programs since the legislation stipulates that not lessthan two-thirds of program participants be both low-income and first generation students. The results which show that firstgeneration status does not impact upon the enrollment rate of low-income students might lead some to argue forremoval ofthe first generation portion of this requirement. However, since the findings do reveal lower college going ratesamongfirst generation students from higher income families, some might argue that the statute should be amended to read"or"rather than "and." Another possibility would be an amendment to the definition of low-income to include studentsatgreater income levels whose enrollment likelihood is impacted by first generation status.

The Higher Education Act (HEA) supports several programs that provideservices and incentives to disadvantaged students to help increase their educational attainment. Foremost amongtheseprograms are the federal TRIO programs and the Gaining Early Awareness and Readiness for UndergraduateProgram(Gear Up). These programs are primarily intended for individuals who are from low-income families and wouldbe thefirst in their family to attain a college degree. This report reviews available data on these populations and attemptstomeasure the extent to which high school graduates from these groups go on to college. This report is intended asasupplement to CRS Report RL31622, TRIO and Gear Up Programs: Status and Issues, and will notbe updated.

Introduction In the wake of the worst U.S. financial crisis since the Great Depression, Congress passed and the President signed into law sweeping reforms of the financial services regulatory system through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), P.L. 111-203 . Title X of the Dodd-Frank Act is entitled the Consumer Financial Protection Act of 2010 (CFP Act). The CFP Act establishes the Bureau of Consumer Financial Protection (CFPB or Bureau) within the Federal Reserve System (FRS) with rulemaking, enforcement, and supervisory powers over many consumer financial products and services, as well as the entities that sell them. The CFP Act significantly enhances federal consumer protection regulatory authority over nondepository financial institutions, potentially subjecting them to comparable supervisory, examination, and enforcement standards that have been applicable to depository institutions in the past. The act transfers to the Bureau much of the consumer compliance authority over larger depositories that previously had been held by banking regulators. The law also transfers to the Bureau the primary rulemaking authority over many federal consumer protection laws that, with one exception, were enacted prior to the Dodd-Frank Act. These "enumerated consumer laws" include the Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974. The CFP Act has proven to be one of the more controversial portions of the Dodd-Frank Act. The 113 th Congress has been actively involved in conducting oversight of the implementation of the CFP Act. The 113 th Congress also has considered bills that would either eliminate the CFPB altogether or significantly alter the structure of the Bureau by, for example, making the CFPB's primary funding subject to the traditional appropriations process, converting the CFPB's leadership structure from a sole directorship to a commission, or allowing the Financial Stability Oversight Council (FSOC) to overturn CFPB-issued regulations with a simple majority vote, as opposed to the current supermajority vote. This report provides an overview of the regulatory structure of consumer finance under existing federal law before the Dodd-Frank Act went into effect and examines arguments for modifying the regime in order to more effectively regulate consumer financial markets. It then analyzes how the CFP Act changes that legal structure, with a focus on the Bureau's organization; the entities and activities that fall (and do not fall) under the Bureau's supervisory, enforcement, and rulemaking authorities; the Bureau's general and specific rulemaking powers and procedures; and the Bureau's funding. Federal Consumer Financial Protection Regulation Before the CFPB Before the CFP Act went into effect, which largely occurred on July 21, 2011 (called the "designated transfer date"), the authority to write rules to implement the majority of the federal consumer financial protection laws, the power to enforce these laws, and the supervisory authority over the individuals and companies offering and selling consumer financial products and services were predominately shared by five different banking regulators, as well as the Federal Trade Commission (FTC) and the Department of Housing and Urban Development (HUD). The jurisdiction of these regulators varied based on the type of institution involved and, in some cases, based on the type of financial activities in which institutions engaged. The authority of the five banking regulators varied based on depository charters. The Office of the Comptroller of the Currency (OCC) supervised national banks; the Board of Governors of the Federal Reserve System (FRB) supervised domestic operations of foreign banks and state-chartered banks that were members of the FRS; the Federal Deposit Insurance Corporation (FDIC) supervised state-chartered banks and other state-chartered banking institutions that were not members of the FRS; the National Credit Union Administration (NCUA) supervised federally insured credit unions; and the Office of Thrift Supervision (OTS) supervised federal savings and loan associations and thrifts. The five banking regulators were charged with the two-pronged mandate of regulating for both safety and soundness, as well as consumer compliance. Safety and soundness regulation, also referred to as prudential regulation, consists of ensuring that institutions are managed in a safe and sound manner so as to maintain profitability and avoid failure. The focus of consumer compliance regulation, on the other hand, is ensuring that institutions are in compliance with applicable consumer protection and fair lending laws. To reach these ends, the banking regulators were provided with broad authority to subject banks, credit unions, and thrifts (which this report will collectively refer to as "depository institutions" or "depositories") to up-front regulatory standards, such as maintaining minimum capital levels, through regulations, orders, and guidelines. These regulators also were given strong supervisory powers, including the authority to perform on-site examinations of depositories, and flexible enforcement powers to rectify problems found during the course of their supervision. These supervisory powers gave banking regulators at least the potential to catch problems before they caused significant harm to consumers, counterparties, and the depositories themselves. Additionally, consumer compliance issues often were dealt with informally and confidentially as part of the examination process, rather than through public, ex post formal enforcement orders. The Federal Trade Commission (FTC) was the primary federal regulator for nondepository financial institutions, such as payday lenders and mortgage brokers. Unlike the federal banking regulators, the FTC had little up-front supervisory or enforcement authority. The FTC's powers generally were limited to ex post enforcement. Thus, the FTC did not have the statutory authority to regularly examine nondepository financial institutions or impose reporting requirements on them as a way to proactively ensure they were complying with consumer protection laws. The FTC also did not have any direct safety and soundness authority over institutions. Instead, nondepository financial institutions were primarily supervised by state regulators. The powers granted to state regulators and the level of supervision these regulators provided varied considerably from state to state. In addition to institution-based distinctions, both depository and nondepository financial institutions also were subject to the restrictions of federal consumer financial protection laws. These federal laws each regulate specific types of consumer products and activities. For example, the Truth in Lending Act (TILA) requires disclosures regarding the terms and conditions associated with extensions of consumer credit; the Equal Credit Opportunity Act (ECOA) bans certain kinds of discrimination in consumer lending; the Real Estate Settlement Procedures Act of 1974 (RESPA) imposes disclosure requirements and fee restrictions associated with home loan settlements; the Truth in Savings Act (TISA) requires disclosures regarding the terms and conditions of consumer deposit accounts; and the Fair Debt Collection Practices Act (FDCPA) restricts third-party debt collection activities. Individually, these enumerated consumer laws target discrete activities. Taken as a whole, they govern a broad and diverse set of consumer activities and services. Before the Dodd-Frank Act went into effect, the rulemaking authority to implement federal consumer financial protection laws was largely held by the FRB. The authority to enforce the federal consumer financial protection laws and regulations, however, was spread among all of the banking regulators, the FTC, and HUD. In short, the banking regulators held both prudential and consumer compliance supervisory and enforcement powers over depository institutions. Although they had the authority to take ex post enforcement actions, the banking regulators placed a great deal of emphasis on ex ante regulation and supervision. The FTC was the primary regulator of nondepository financial institutions. The FTC's authority was much more limited than that of the banking regulators. Its authority was almost exclusively limited to ex post enforcement. Additionally, both depositories and nondepository financial institutions were required to comply with the various federal consumer financial laws and the regulations issued under those laws. The rulemaking authority under the federal consumer financial laws was predominately held by the FRB, but the authority to enforce those laws and regulations was spread among all the banking regulators, as well as the FTC and HUD. Arguments for Consolidating Federal Consumer Financial Regulatory Powers Scholars and consumer advocates argued that the complex, fragmented federal consumer financial protection regulatory system in place before the Dodd-Frank Act failed to adequately protect consumers and created market inefficiencies to the detriment of both financial institutions and consumers. Some argued that these problems could be corrected if all federal consumer financial regulatory powers were consolidated in a single regulator with a consumer focus. As discussed below, proponents of change generally raised two primary criticisms of the pre-Dodd-Frank Act regulatory system. One was that it allowed financial institutions to engage in "regulatory arbitrage," which pressured regulators to lower supervisory standards in a so-called "race-to-the-bottom." The other was that banking regulators tended to place greater emphasis on their safety and soundness duties, at the expense of their consumer compliance responsibilities. "Regulatory Arbitrage" Resulted in a "Race-to-the-Bottom" "Regulatory arbitrage," that is, a financial institution's ability to take advantage of regulatory loopholes or permissive supervisory oversight, arguably resulted from three forms of competition—competition between depositories and nondepositories; competition among the various types of depository charters (e.g., state charter versus federal charter; bank charter versus thrift charter); and competition among the financial regulators. These competitive pressures were fueled by the fact that there is considerable overlap in the types of consumer products and services that are offered by state and federal depositories, as well as by nondepository institutions. However, since these institutions had different federal regulators, they could be subject to very different regulatory regimes. Some believed that the more costly supervisory burdens of depositories gave nondepositories a competitive advantage over depository institutions in certain consumer markets. The general discrepancy may have encouraged banking regulators to lower their supervisory standards as a way to help depositories under their jurisdictions more effectively compete with nondepositories. Banking regulators may have been further pressured to relax regulatory scrutiny because of the threat that depositories would change their charters. Although there were significant distinctions between the various depository charters historically, statutory changes over the years have eliminated many of those differences. As a result, many depositories could change their charters without having to significantly alter their business practices. One of the few remaining differences was that the depository charters determined an institution's primary regulator. Thus, an influencing factor in an institution's chartering decision could be the characteristics of the regulator associated with a particular charter. Financial institutions may be incentivized to switch their charters in order to be supervised by the agency with the lightest, least costly regulatory touch. Banking regulators also had a financial incentive to attract institutions to their charters and to ensure the happiness of institutions already within their supervisory jurisdictions because a significant portion of their budgets derive from assessments against the institutions under their supervision. As a result, if one banking regulator lowered its regulatory standards as a way to encourage financial institutions to change their charters, the others may have been pressured to respond in kind. Some argued that these competitive forces placed downward pressure on regulators, which led to a "race-to-the-bottom." Therefore, some proposed consolidating consumer compliance regulatory authority in a single agency as a means to level the regulatory playing field for depositories and nondepository financial institutions, thus stifling the competitive pressures that fueled the "race-to-the-bottom" and "regulatory arbitrage" to the benefit of both consumers and financial institutions. Safety and Soundness Historically Have Trumped Consumer Compliance The second major criticism of the federal consumer financial protection regulatory system before the Dodd-Frank Act was that no federal agency had both the mission and legal authority to effectively regulate consumer markets. The banking regulators had the statutory powers to protect consumers; however, it has been argued that the banking regulators placed more importance on their safety and soundness mission than on their consumer protection duties. Scholars have noted that the banking regulators view their primary mission as protecting the safety and soundness of banks, not protecting consumers. A heightened focus on safety and soundness arguably caused regulators to turn a blind eye toward practices that may have been detrimental to consumers if those practices were profitable for banks. A safety and soundness-centric mission also may have hampered the banking regulators' ability to hire and retain staff with expertise in consumer products and consumer behavior. The FTC, on the other hand, did have a consumer focus. However, the FTC's statutory authority prevented it from conducting ex ante supervision of nondepositories and from regulating depositories altogether. Some argued that these statutory constraints precluded the FTC from sufficiently protecting consumers and eliminating consumer financial market inefficiencies. In a law review article on the subject, Professors Warren and Bar-Gill summed up these arguments this way: Effective regulation requires both authority and motivation. Yet none of the many regulators in the consumer credit field satisfies these basic requirements. Federal banking regulators have the authority but not the motivation. For each federal banking agency, consumer protection is not first (or even second) on its priority list. By contrast, the FTC makes consumer protection a priority, but it enjoys only limited authority over consumer credit markets. Thus, they were among those who argued that consumer markets could be effectively regulated if a federal agency was established with both a consumer protection focus and strong supervisory, enforcement, and rulemaking powers. Overview of the Bureau The CFP Act significantly alters the consumer financial protection landscape by consolidating rulemaking authority and, to a lesser extent, supervisory and enforcement authority in one regulator—the CFPB. The CFP Act empowers the Bureau through the transfer of existing consumer protection powers from other federal regulators and the establishment of heightened consumer protection authorities not previously held by federal regulators. The Bureau has jurisdiction over an array of consumer financial products and services, and it serves as the primary federal consumer financial supervisor of many of the institutions that offer these products and services. However, at least six other agencies—the OCC, FRB, FDIC, NCUA, FTC, and HUD—will continue to hold some consumer protection powers at the federal level. The CFP Act also imposes certain limitations on the Bureau's authority to regulate various types of financial institutions and financial activities. Several fundamental policy questions arose consistently during the legislative debate over proposals that ultimately became the CFP Act. These policy questions seem to be the primary motivations for the exceptions to the consolidation of consumer protection power in the CFPB and the various restraints on the Bureau's authorities. One policy question was how best to balance the safety and soundness regulation of depositories with that of consumer compliance. There is considerable overlap between prudential and consumer compliance regulation. For instance, a mortgage that the borrower is unable to fully repay is typically bad for both the borrower and the lender. The borrower runs the risk of damage to her credit score and the loss of her home. The lender may suffer from lost interest income and increased costs associated with the foreclosure process. However, there are some areas in which there can be a conflict between safety and soundness regulation and consumer protection. When a banking activity is profitable, safety and soundness regulators tend to look upon it favorably because it enables the bank to meet capital requirements and withstand financial shocks. A consumer protection regulator, on the other hand, may look at such activity less favorably if the profit is seen to have been gained unfairly or deceptively at the expense of consumers. A related question that surfaced frequently during the legislative debate is the extent to which large and small financial institutions should be treated differently in the regulatory structure. Whereas the largest depository institutions are accustomed to having examiners on-site continuously, examinations may be more disruptive for smaller depositories. Enhanced compliance costs also are likely to more significantly impact smaller depositories, with their lower aggregate revenues, than larger depositories. Similar arguments could be made for large versus small nondepository financial institutions. Additionally, when assessing the causes of the recent financial crisis, many tend to place more blame on this country's large financial institutions than on smaller ones. Thus, one could argue that the larger institutions should be subject to greater, more costly regulation than smaller institutions. On the other hand, the goal of the Dodd-Frank Act appears to be geared not just toward eliminating the exact causes of the recent financial crisis, but also toward preventing future crises. Another issue that the legislative drafters of the CFP Act had to grapple with is that there is not always a clear delineation between financial and nonfinancial goods, services, and providers in the marketplace. For example, a clothing store's main line of business likely is selling clothes and shoes, so it may seem that a consumer financial regulator would have no regulatory role over it. However, most clothing retailers do rely on financial services to maintain their businesses. They usually accept credit cards and debit cards as a form of payment. Many clothing stores team with financial institutions to offer credit cards that provide store rewards for using the card. Clothing retailers also commonly offer electronic gift cards. Additionally, some clothing stores may directly offer financing options for the purchase of their merchandise. As a result, defining the scope of the Bureau's authority required careful consideration. In some instances, the act uses rigid, bright-line rules that provide considerable certainty as to where the Bureau's authorities begin and end. In other instances, the CFP Act imposes subjective standards intended to give the CFPB the flexibility to evolve with consumer financial markets, but that also create the potential that the Bureau will overreach by regulating beyond congressional intent. Apparently as a result of the policy considerations outlined above, the act's allocation of regulatory authority among the prudential regulators and the CFPB varies based on institution size and type. Regulatory authority differs for (1) depository institutions with more than $10 billion in assets (i.e., "larger depositories"); (2) depository institutions with $10 billion or less in assets (i.e., "smaller depositories"); and (3) nondepositories. The Dodd-Frank Act also explicitly exempts a number of different entities and consumer financial activities from the CFPB's supervisory, enforcement, and rulemaking authorities. Consequently, compliance costs and the extent to which the cost and availability of credit will be affected by the new regulator will depend on the type of institution that is providing consumer financial products and services, as well as exactly how the Bureau wields its powers and how aggressively it (and other state and federal regulators) enforces consumer protection laws and regulations. The breadth of the CFPB's supervisory, enforcement, and rulemaking powers is similar to that of the banking regulators. The banking regulators, however, have held those authorities for decades, thus establishing a degree of certainty in the industry as to how those powers will be exercised. The fact that the CFPB does not have a similar history, coupled with the Bureau's overarching focus on consumers, as opposed to safety and soundness, and its potential to oversee a large number of nondepository financial institutions that largely were unregulated at the federal level have some anxious that the Bureau will overreach in exercising its powers and, as a consequence, excessively restrict consumer credit and unduly increase regulatory costs. Bureau's Purpose and Structure The stated goal of the Bureau is to: implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products and services are fair, transparent, and competitive. The Bureau is established within the FRS, but it has considerable independence from the FRB. For instance, the FRB does not have the formal authority to stop, delay, or disapprove of a Bureau regulation, nor can it: (A) intervene in any matter or proceeding before the Director [of the CFPB], including examinations or enforcement actions, unless otherwise specifically provided by law; (B) appoint, direct, or remove any officer or employee of the Bureau; or (C) merge or consolidate the Bureau, or any of the functions or responsibilities of the Bureau, with any division or office of the Board of Governors or the Federal reserve banks. The Bureau's authorities are concentrated within a single Director, rather than in a board or commission. The Director is to be appointed by the President, subject to the advice and consent of the Senate, to serve for a five-year term from which he could only be removed for "inefficiency, neglect of duty or malfeasance in office." The Director has authority to hire the employees necessary to carry out the duties of the Bureau and to delegate powers to employees. This structure insulates the Bureau from the Office of the President and allows the Director to steer the course of the CFPB. The Bureau's structure is similar to that of the OCC, which is established within the Department of the Treasury and is headed by a single individual, the Comptroller of the Currency. The law requires the Director to establish units within the Bureau to focus on consumer financial research; to provide guidance and technical assistance to traditionally underserved areas and individuals; and to monitor and to respond to consumer complaints. The act also requires the establishment of an Office of Fair Lending and Equal Opportunity; an Office of Financial Education; an Office of Service Member Affairs directed toward members of the military and their families; an Office of Financial Protection for Older Americans to, among other things, "facilitate the financial literacy of individuals who have attained the age of 62 years or more ... on protection from unfair, deceptive, and abusive practices on current and future financial choices"; and a Private Education Loan Ombudsman to, among other things, study and attempt to resolve complaints raised by private education loan borrowers. General Powers The authorities of the Bureau fall into three broad categories: supervisory, which includes the power to examine and to impose reporting requirements on financial institutions; enforcement of various consumer protection laws and regulations; and rulemaking. Some of these powers are newly established by the Dodd-Frank Act, such as the authority to supervise certain nondepository financial institutions. A significant portion of the Bureau's powers was transferred from other regulators to the Bureau, including the authority to prescribe regulations under the enumerated consumer laws. Covered Entities and Activities Under the CFP Act, the Bureau has authority over an array of consumer financial products and services, including deposit taking, mortgages, credit cards and other extensions of credit, loan servicing, check guaranteeing, collection of consumer report data, debt collection associated with consumer financial products and services, real estate settlement, money transmitting, and financial data processing. The Bureau also has authority over "service providers," that is, entities that provide "a material service to a covered person in connection with the offering or provision of a consumer financial product or service." While the breadth of the products, services, and entities that fall within the Bureau's jurisdiction is considerable, the CFP Act imposes some important exceptions to and limitations on the CFPB's rulemaking, enforcement, and supervisory powers. In some instances, the CFP Act clearly defines the institutions that the Bureau may regulate. In other cases, the statutory language establishes less objective standards that provide the CFPB a fair amount of discretion to determine the types of institutions that may fall within its regulatory reach. How the Bureau interprets and applies these standards could significantly affect the scope of the Bureau's powers, the regulatory burden of covered entities, and the impact that the Bureau's actions have on consumer financial markets. Depositories With More Than $10 Billion in Assets With respect to depository institutions holding more than $10 billion in assets (larger depositories), the CFP Act transfers from the banking regulators to the Bureau the primary consumer compliance supervisory, enforcement, and rulemaking authorities. The safety and soundness supervisory, enforcement, and rulemaking authorities over these institutions remain with their banking regulators (i.e., the OCC, FRB, FDIC, or NCUA). The Bureau's supervisory powers include the authority to examine larger depositories for consumer compliance, meaning that the CFPB has "visitorial" powers over larger depositories that historically have been almost exclusively held by their prudential banking regulators. The CFP Act, however, does require the Bureau to coordinate examinations and other supervisory activities with larger depositories' state and federal prudential regulators, and it establishes a procedure for resolving conflicts between the Bureau and a prudential regulator. The Bureau may require reports directly from larger depositories, although it must rely on existing reports "to the fullest extent possible." As a supervisor, the Bureau has an important responsibility of safeguarding non-public information of financial institutions. Through the exercise of its examination and reporting powers, the CFPB (much like banking regulators) may acquire sensitive competitive, commercial, and personal information, as well as evidence of practices that may violate state or federal law. This information could be useful to private litigants, state attorneys general, and market competitors. However, the banking regulators have long protected much of this information from being shared with third parties in order to encourage bank officials to willingly provide information without the fear of private lawsuits and to maintain a competitive marketplace. This information also generally is exempt from public disclosure under the Freedom of Information Act. As a result, parties without examination and other supervisory powers generally have only been able to gain access to proprietary and confidential bank information through litigation. Rules of procedure and evidence associated with litigation serve as significant barriers to access of banks' non-public information, and stand in stark contrast to the supervisory powers of the banking regulators and now the CFPB. The CFPB has issued regulations governing how it handles confidential information acquired through its regulatory actions and the extent to which that information may be shared with individuals and state and federal regulators outside of the CFPB. These rules are very similar, though not identical, to analogous rules prescribed by the banking regulators. Despite their similarity to existing confidentiality rules of the banking regulators, some have expressed concern that the CFPB will be more willing to share non-public bank information, especially with state attorneys general to aid investigations and enforcement actions. One potential source of this concern is that, since the CFPB's primary focus is consumer protection, it may not have reason to consider the potential impact that an enforcement action may have on an institution's safety and soundness. Another potential source of this anxiety is that the Bureau has actively pursued partnerships with state attorneys general as a means to enhance consumer protection. For example, the CFPB and the Presidential Initiative Working Group of the National Association of Attorneys General announced a Joint Statement of Principles, in which they agreed to, among other things: Share information, data, and analysis about conduct and practices in the markets for consumer financial products or services to inform enforcement policies and priorities; Engage in regular consultation to identify mutual enforcement priorities that will ensure effective and consistent enforcement of the laws that protect consumers of financial products or services; Support each other, to the fullest extent permitted by law as warranted by the circumstances, in the enforcement of the laws that protect consumers of financial products or services, including by joint or coordinated investigations of wrongdoing and coordinated enforcement actions; [and] Pursue legal remedies to foster transparency, competition, and fairness in the markets for consumer financial products or services across state lines and without regard to corporate forms or charter choice for those providers who compete directly with one another in the same markets;.... Time will tell whether the Bureau will handle confidential information in much the same way as banking regulators have in the past or whether it will share information with state prosecutors or other third parties more freely. Depositories With $10 Billion or Less in Assets Although depositories with $10 billion or less in assets (smaller depositories) are subject to the rules issued by the Bureau to implement the enumerated consumer laws, the primary consumer protection supervisory and enforcement powers over smaller depository institutions remain with the prudential banking regulators. However, the Bureau does have some limited supervisory authority over smaller depository institutions. For instance, the Bureau, "on a sampling basis," may participate in examinations of smaller depository institutions that are conducted by prudential regulators. The prudential regulators must provide the CFPB access to all reports, records, and other documents connected to the examination; must allow the CFPB examiners to participate in all aspects of the examination; and generally must take into account any input that the CFPB's examiner offers regarding the examination. Also, the Bureau may require reports directly from these depositories, although the Bureau will have to rely on existing reports "to the fullest extent possible." The CFP Act does not provide the Bureau enforcement powers over smaller depository institutions, although the act does establish a formal procedure by which the Bureau can refer potential enforcement actions against smaller depository institutions to their prudential regulators. The relevant banking regulator must respond to such a referral, but would not be bound to take any other substantive steps associated with it. Nondepository Financial Institutions With respect to nondepository financial institutions, the CFPB may regulate providers of three categories of specific consumer financial products and services: providers of private student loans; providers of payday loans; and entities that engage in mortgage-related activities, such as mortgage origination, brokerage, mortgage servicing, mortgage modification, and foreclosure relief activities. In addition to the three particular categories, the Bureau may regulate nondepository financial institutions it considers to be a "larger participant in a [consumer financial] market," as well as any entity that the Bureau has reasonable cause to believe is "engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services." This discretion may provide the Bureau the latitude to evolve with the markets by, for example, making it possible to regulate entities that offer consumer financial products or services that were not in the marketplace when the Dodd-Frank Act was signed into law. On the other hand, this discretion could create uncertainty for those nondepository financial institutions that do not clearly fall within one of these categories. Concerns associated with this uncertainty might be alleviated if, for example, the CFPB establishes a policy of providing sufficient notice of its intent to exercise authority over a particular institution. To date, the Bureau has designated certain credit reporting agencies, debt collectors, and student loan servicers as "larger participants" that are subject to the Bureau's supervisory authority and has yet to make a designation pursuant to its "poses risks to consumers" authority. The Bureau has the authority to require any company that falls into one of these categories (covered nondepository) to register with the Bureau, to submit to examinations, to submit to background checks, and to adhere to other measures designed "to ensure that such persons are legitimate entities and are able to perform their obligations to consumers." However, the Bureau generally must coordinate examinations with any other state and federal regulators that have supervisory authority over covered nondepositories and must rely on existing reports required by those regulators "to the fullest extent possible." The Bureau generally serves as the primary enforcer of federal consumer financial laws with respect to covered nondepositories and has primary consumer protection rulemaking authority over them. The Bureau's examination, reporting, and other supervisory powers over covered nondepository financial institutions are a significant change from past federal regulation, which largely took the form of ex post enforcement. The CFPB now has the potential to regulate covered nondepositories in an analogous fashion to banks, thrifts, and credit unions. While this may eliminate the competitive forces between depositories, nondepositories, and their regulators that some believe led to the "regulatory arbitrage" and "race-to-the-bottom" problems discussed above, it also could increase the regulatory costs of these institutions considerably. These costs might be passed on to consumers and could push companies out of covered consumer markets entirely. Nondepository Institutions with Explicit Exemptions The Dodd-Frank Act explicitly exempts a number of entities from the CFPB's jurisdictional reach, such as automobile dealers and accountants. However, the statutory language defining the scope of several of these exemptions is complex and includes subjective standards, such as "regularly extends" and "engaged significantly," that the Bureau has the discretion to expound on in guidance and regulations. Merchants, Retailers, and Sellers of Nonfinancial Goods and Services The Bureau generally does not have authority to regulate merchants, retailers, and sellers of non-financial goods and services, even if such an entity extends credit to borrowers for the purchase of their goods and services. However, certain business practices of these entities could trigger CFPB regulatory authority. The CFPB could regulate a merchant, retailer, and seller of nonfinancial goods or services if such an entity "regularly extends credit and the credit is subject to a finance charge" and is "engaged significantly in offering or providing consumer financial products or services." Such an entity also could become subject to the CFPB's regulatory authority if it either (1) "assigns, sells or otherwise conveys to another person such [nondelinquent] debt owed by a consumer," or (2) extends credit that "significantly exceeds the market value of the nonfinancial good or service provided" or otherwise evades the CFP Act. However, the Bureau's rulemaking, supervisory, and enforcement authorities are further constrained over certain small businesses, as established by the Small Business Act, that otherwise would only fall under the Bureau's jurisdiction because they "regularly extend[] credit and the credit is subject to a finance charge." The Bureau also has authority over merchants, retailers, and sellers of nonfinancial goods or services to the extent that they fall within the ambit of an enumerated consumer law. To illustrate, a large furniture store with a national presence that occasionally allows customers to pay off the purchase of a bedroom set over the course of 12 months without additional charge likely would not fall within the Bureau's jurisdictional reach. If that same furniture store charges interest over the 12 months, it is possible that the store could be regulated by the CFPB. However, a small, independently owned furniture store that regularly charges interest on furniture purchases that are paid off over 12 months may fall outside the Bureau's regulatory authority due to the CFP Act's exception for certain small businesses. All furniture stores, regardless of their size, that extend consumer loans generally must comply with TILA and the regulations implemented under that act by the Bureau. In short, the Bureau's authority to supervise, prescribe regulations, and enforce consumer protection laws with regard to merchants, retailers, and sellers of nonfinancial goods is limited, but not insubstantial. The extent to which the Bureau may regulate these institutions is based on subjective standards such as "regularly extends credit," "engaged significantly," and "significantly exceeds." Unless the Bureau provides guidance on how this language will be interpreted, merchants, retailers, and sellers may have difficulty determining whether or not they will be regulated by the CFPB and the extent to which they would have to modify their business practices and procedures to avoid regulation. Automobile Dealers The Bureau generally does not have supervisory, rulemaking, or enforcement powers over automobile dealers engaged in leasing, selling, or servicing automobiles. However, the Bureau may regulate financial activities engaged in by automobile dealers that are outside of the normal automobile dealer business. For example, the Bureau could regulate an automobile dealer to the extent that it extends credit directly to consumers rather than "routinely assign[ing the credit] to an unaffiliated third party finance or leasing source." The CFPB also would have jurisdiction over automobile dealers that sell or offer to sell consumer financial products or services unrelated "to the sale, financing, leasing, rental, repair, refurbishment, maintenance, or other servicing of motor vehicles, motor vehicle parts, or any related or ancillary product or services." This could include dealers that offer car title loans, payday loans, or mortgage-related products or services. Although the Bureau's regulatory powers over automobile dealers are significantly constrained, the CFP Act streamlines the rulemaking process that the FTC must follow to issue unfair or deceptive trade practice rules against automobile dealers. Normally, when the FTC promulgates unfair or deceptive rules pursuant to Section 5 of the Federal Trade Commission Act (FTC Act), it must adhere to the rigorous procedures of the Magnuson-Moss Act, which include public hearings and publishing staff reports. The CFP Act authorizes the FTC to issue these rules in accordance with the standard informal rulemaking procedures of the Administrative Procedure Act. Thus, while automobile dealers generally are outside of the Bureau's authority, the CFP Act may make it somewhat easier for the FTC to regulate them. Other Excluded Entities Real estate brokers, real estate agents, sellers of manufactured and mobile homes, income tax preparers, and accountants generally are not subject to the Bureau's rulemaking, supervisory, and enforcement authorities to the extent that they are acting in their normal capacities. However, the Bureau may regulate these entities if they extend credit; otherwise sell or offer to sell a consumer financial product or service; or engage in an activity that makes them subject to an enumerated consumer law. When practicing law, attorneys generally are exempt from the Bureau's supervisory and enforcement authority (although the act does not explicitly exempt attorneys from the Bureau's rulemaking authority). However, this exemption does not apply to the extent that an attorney sells or offers to sell "a consumer financial product or service ... that is not offered or provided as part of, or incidental to, the practice of law, occurring exclusively within the scope of the attorney-client relationship; or that is otherwise offered or provided by the attorney in question with respect to any consumer who is not receiving legal advice or services from the attorney in connection with such financial product or service." Thus, the Bureau likely would not have authority to regulate an attorney who advances credit based on an expected legal award to a client to cover necessary living expenses during the course of the litigation. However, the CFP Act's exemption for attorneys likely would not apply to a lawyer who regularly extends similar loans to non-clients. Other entities and activities that generally fall outside of the Bureau's jurisdiction include insurance companies; employee benefit plans; entities that are regulated by state securities commissions; firms regulated by the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC); entities regulated by the Farm Credit Administration; and donations to tax-exempt charities. Newly Established Rulemaking The Dodd-Frank Act establishes procedures that the Bureau must follow when proposing and prescribing rules, in addition to the notice of proposed rulemaking and comment period procedures required for informal rulemakings under the Administrative Procedure Act and other generally applicable federal administrative laws. The act also imposes additional procedures for specific types of rulemaking (e.g., when declaring certain acts or practices to be unfair or abusive), which are discussed below. General Rulemaking Powers The CFP Act authorizes the Bureau to "prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof." Before proposing a rule and during the comment period of a proposed rule, the CFPB is required to consult with the "appropriate" financial regulators. The Bureau must address any written objections by the federal prudential regulators when issuing final regulations. Additionally, the CFPB must consider "the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products and services resulting from such rule," as well as the impact the rule would have on smaller depositories and "consumers in rural areas." The CFP Act also requires the Bureau to take a number of steps to evaluate the impact that proposed regulations may have on small businesses. If the Bureau expects that a proposed rule will have a "significant economic impact on a substantial number of small entities," then it must offer a written analysis that describes, among other things: (A) any projected increase in the cost of credit for small entities; (B) any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any increase in the cost of credit for small entities; and (C) advice and recommendations of representatives of small entities relating to issues described in subparagraphs (A) and (B).... The Bureau, at times, also must convene a small business "advocacy review panel" pursuant to the Regulatory Flexibility Act before proposing regulations that likely will have a "significant economic impact on a substantial number of small entities." These panels, which are comprised of representatives of the types of small businesses that likely would be affected by the regulations, issue reports describing the potential impact of the proposed rule on small businesses and providing advice and recommendations on, among other things, how to simplify the rule or reduce its compliance costs while still meeting the proposal's objectives. The Bureau also must solicit public feedback and publish a report assessing the effectiveness of any "significant rule or order" it has issued within five years of the rule becoming effective. The act does not specify what is to be considered "significant," presumably leaving these determinations to the Bureau. The CFP Act also transfers to the CFPB rulemaking authority under the enumerated consumer laws. In some instances, the Bureau will share rulemaking powers under the enumerated consumer laws with other financial regulators. For example, the CFPB has primary rulemaking authority under the Electronic Funds Transfer Act, but the FRB has exclusive authority to prescribe regulations to implement the debit interchange fee restrictions of Section 920 of that act, which is commonly referred to as the "Durbin Amendment." As a check on the Bureau's rulemaking powers, the Financial Stability Oversight Council (FSOC)—which is established under Title I of the Dodd-Frank Act and mainly composed of the federal financial regulators, including the Director of the Bureau —has the ability to set aside or stay a regulation prescribed by the Bureau if the regulation "would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk." No other federal financial regulator is subject to a similar executive agency "veto" power, so there are no real analogs to look to for guidance on how frequently this power could be used. Because the FSOC is comprised of the heads of financial regulators with whom the CFPB generally must consult when crafting regulations, the Bureau likely will be aware of concerns of FSOC members about a proposed rule and likely will have the opportunity to allay those concerns before a rule is finalized, which may reduce the probability of the FSOC exercising this authority. Specific Rulemaking Powers Unfair, Deceptive, or Abusive Acts or Practices The Bureau has authority to prescribe rules declaring certain acts or practices pertaining to be unlawful because they are unfair, deceptive, or abusive. This is a broad mandate that leaves the Bureau with a great deal of discretion to determine how to wield this power, in part, because of the inherent difficulty of objectively defining the terms "unfair," "deceptive," and "abusive." However, the Bureau's unfair, deceptive, and abusive rulemaking authority is very similar to the FTC's mandate under the FTC Act. For example, the statutory language defining "unfairness" under the CFP Act is virtually identical to the FTC Act's standard of unfairness. Thus, while it is not statutorily required to do so, the Bureau might look to the FTC's long-standing interpretation of the FTC Act when prescribing regulations under this new authority, to the extent that doing so also comports with the CFP Act. Although these two mandates are similar in many ways, there are some important distinctions between them. One is their scope. The Bureau's unfair, deceptive, and abusive authority is limited to consumer financial products and services and to those entities that fall under the Bureau's general regulatory jurisdiction. The FTC's authority applies to a broader universe of "acts or practices in or affecting commerce," as that phrase is defined in 15 U.S.C. Section 45. A second important distinction is the procedural requirements that must be met before rules can be prescribed. When prescribing rules under Section 1023 of the Dodd-Frank Act, the Bureau must consult with the other federal financial regulators, as appropriate, and otherwise follow the general rulemaking procedures, as described above. The FTC, on the other hand, generally must follow the much more onerous, time consuming, and costly procedures of 15 U.S.C. Section 57a, commonly referred to as "Magnuson-Moss rulemaking" after the law that established them. Another distinction is the statutory use of the term "abusive." The FTC Act does not explicitly bar "abusive" acts or practices. As a result, the FTC has not provided long-standing guidance and commentary on the term's meaning from which the Bureau could draw. The CFP Act does provide the Bureau statutory guidance on the term's meaning, although this statutory language is somewhat malleable. Under the CFP Act, an abusive act or practice may only be deemed unlawful by regulation if it: materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or takes unreasonable advantage of (a) a lack of understanding on the part of the consumer ...; (b) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. While the terms "materially interferes," "unreasonable advantage," and "reasonable reliance" could provide the Bureau the flexibility to regulate emerging business practices for the benefit of consumers, at the same time, the regulated community may have to cope with the inherent uncertainty that results from this flexibility. Disclosure Requirements The Bureau has the authority to prescribe rules imposing disclosure requirements to help consumers understand the terms, benefits, costs, and risks of financial products and services. When prescribing these rules, the CFPB must follow the general rulemaking procedures described above and also must "consider the available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services." Rulemakings Initiated by the States If a majority of states adopt a resolution requesting a new consumer protection regulation under the CFPB's jurisdiction or a change in an existing rule, the Bureau must issue a notice of proposed rulemaking on the subject. Before finalizing such a rule, the Bureau must assess whether or not the final rule will (1) increase consumer protection; (2) create more benefits than costs for consumers; (3) unfairly discriminate against a group of consumers; and (4) "likely [] present an unacceptable safety and soundness risk to insured depository institutions," if such a concern is raised by a prudential regulator. If the Bureau decides not to finalize such a rule, it must publish an explanation of the decision in the Federal Register. Rulemaking Under the Enumerated Consumer Laws As previously mentioned, the CFPB acquired authority to prescribe regulations pursuant to 19 federal consumer protection laws that largely predate the Dodd-Frank Act. Individually, these enumerated consumer laws target discrete activities. Taken as a whole, they govern a broad and diverse set of consumer activities and services including debt collection practices, debit card transfers, overdraft services, consumer leases, mortgage lending, credit card lending, mortgage appraisals, real estate settlement practices, and credit reporting. As a result, the transfer of rulemaking authority under these laws represents a major source of the Bureau's regulatory powers. The CFPB has not acquired rulemaking authority over all existing federal consumer financial protection laws. For example, the FTC retains its primary rulemaking authority under the FTC Act; the banking regulators continue to hold rulemaking authority pursuant to the Community Reinvestment Act; and HUD maintains its rulemaking authority under the Fair Housing Act. Funding The Bureau's funding does not primarily derive from appropriations, like that of most executive agencies, or assessments on institutions within its regulatory jurisdiction, as is typical of federal banking regulators. Instead, the Bureau primarily is funded by a transfer of non-appropriated funds from the Federal Reserve System's combined earnings, in an amount "determined by the Director to be reasonably necessary to carry out the authorities of the Bureau," subject to specified caps. The cap was 10% of the total operating expenses of the FRS for FY2011, 11% for FY2012, and will be 12% going forward. The caps are based on the operating expenses as reported in the FRS's annual report for 2009 and are to be adjusted for inflation. The FRS's operating expenses for FY2009 totaled $4.98 billion, 12% of which is approximately $598 million. The Bureau's estimated budget is $541 million for FY2013 and is $497 million for FY2014. In addition to the transfer of funds from the FRS, the act authorizes appropriations if the Director "determine[s] that sums available to the Bureau [as specified by the caps] under this section will not be sufficient to carry out the authorities of the Bureau under Federal consumer financial law for the upcoming year." Upon the Bureau's making such a finding and submitting a report to both the House and Senate Committees on Appropriations, the CFP Act provides authorization for an appropriation of $200 million per year for FY2010-FY2014. To date, the CFPB has not requested appropriated funds nor have any funds been appropriated to the Bureau. The act also establishes a Consumer Financial Civil Penalty Fund for civil penalties secured by the Bureau for violations of consumer financial protection laws. The Bureau is authorized to use the funds to pay victims of such violations, as well as for financial literacy and consumer education programs. The statutory caps on the funds that may be transferred to the CFPB give the Bureau less flexibility than the OCC, FDIC, and other banking regulators that are able to increase assessments on the institutions within their jurisdiction to raise revenue, as needed to carry out their responsibilities. On the other hand, because it does not rely on appropriations for funding, the Bureau enjoys some degree of insulation from the uncertainties inherent to the congressional appropriations process. Congress does have many other ways of exerting influence over and conducting oversight of the Bureau's budget outside of the typical appropriations process. The CFP Act, for example, requires the Bureau to submit semi-annual reports to Congress that provide, among other things, a justification of its budget requests. A minimum of twice each year, the Bureau Director must appear before the Senate Committee on Banking, Housing, and Urban Affairs; the House Committee on Financial Services; and the House Committee on Energy and Commerce. The Bureau also must submit certain financial information for Office of Management and Budget review and is subject to regular audits by the Comptroller General. Of course, Congress could pass legislation that subjects the Bureau's budget to additional congressional scrutiny, including the appropriations process. Conclusion The CFP Act substantially, though not completely, consolidates in the CFPB federal consumer protection powers that previously were held by seven other regulators. It has the authority to write rules to implement a broad array of federal consumer financial protection laws, as well as most consumer compliance supervisory and enforcement powers over larger depositories. However, the CFPB did not acquire from the banking regulators the primary supervisory and enforcement powers over smaller depositories. The Bureau also wields new federal consumer financial protection powers to regulate nondepository financial institutions, which previously were largely unregulated at the federal level. However, the CFP Act wholly exempts certain nondepository financial institutions from the Bureau's regulatory reach and curtails the CPFB's authority to regulate others. Although the powers that the CFPB has at its disposal are largely the same or analogous to those that other federal regulators have held for decades, there is a great deal of uncertainty in how the new agency will exercise these broad and flexible authorities, especially in light of its almost exclusive focus on consumer protection and the novel expansion of federal oversight to nondepository financial institutions. This uncertainty has some anxious that the Bureau, in the name of protecting consumers, may excessively restrict consumer credit and unduly increase regulatory costs. As the Bureau continues to exercise its authorities, policy makers will have a performance record on which to evaluate how the CFP Act is working and whether amendments might improve consumer protections, increase access to credit markets, reduce the costs of consumer financial products and services, or reduce compliance costs.

In the wake of the worst U.S. financial crisis since the Great Depression, Congress passed and the President signed into law sweeping reforms of the financial services regulatory system through the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), P.L. 111-203. Title X of the Dodd-Frank Act is entitled the Consumer Financial Protection Act of 2010 (CFP Act). The CFP Act establishes the Bureau of Consumer Financial Protection (CFPB or Bureau) within the Federal Reserve System (FRS) with rulemaking, enforcement, and supervisory powers over many consumer financial products and services, as well as the entities that sell them. The CFP Act substantially, though not completely, consolidates in the CFPB federal consumer protection powers that previously were held by seven other regulators. It has the authority to write rules to implement a broad array of federal consumer financial protection laws, as well as most consumer compliance supervisory and enforcement powers over larger depositories. However, the CFPB did not acquire from the banking regulators the primary supervisory and enforcement powers over smaller depositories. The Bureau also wields new federal consumer financial protection powers to regulate nondepository financial institutions, which previously were largely unregulated at the federal level. However, the CFP Act wholly exempts certain nondepository financial institutions from the Bureau's regulatory reach and curtails the CPFB's authority to regulate others. Although the powers that the CFPB has at its disposal are largely the same or analogous to those that other federal regulators have held for decades, there is a great deal of uncertainty in how the new agency will exercise these broad and flexible authorities, especially in light of its almost exclusive focus on consumer protection and the novel expansion of federal oversight to nondepository financial institutions. This uncertainty has some anxious that the Bureau, in the name of protecting consumers, may excessively restrict consumer credit and unduly increase regulatory costs. As the Bureau continues to exercise its authorities, policy makers will have a performance record on which to evaluate how the CFP Act is working and whether amendments might improve consumer protections, increase access to credit markets, reduce the costs of consumer financial products and services, or reduce compliance costs. The 113th Congress has been actively involved in conducting oversight of the implementation of the CFP Act. The 113th Congress also has considered bills that would either eliminate the CFPB altogether or significantly alter the structure of the Bureau by, for example, making the CFPB's primary funding subject to the traditional appropriations process, converting the CFPB's leadership structure from a sole directorship to a commission, or allowing the Financial Stability Oversight Council (FSOC) to overturn CFPB-issued regulations with a simple majority vote, as opposed to the current supermajority vote. This report provides an overview of the regulatory structure of consumer finance under existing federal law before the Dodd-Frank Act went into effect and examines arguments for modifying the regime in order to more effectively regulate consumer financial markets. It then analyzes how the CFP Act changes that legal structure, with a focus on the Bureau's organization; the entities and activities that fall (and do not fall) under the Bureau's supervisory, enforcement, and rulemaking authorities; the Bureau's general and specific rulemaking powers and procedures; and the Bureau's funding.

Introduction Congress facilitated the development of railroads, especially railroads in the West, throughvarious forms of federal assistance. Primary among this assistance was the granting of rights of wayacross the public lands. Not all of these grants were the same, but some arguably contemplated aretained interest in the United States. As the continued operation of certain railways became lesspracticable and portions of rail lines were sold or closed, attention increasingly turned to title issuesand the nature and scope of the authority of Congress to dispose of rail corridors. This reportdiscusses the history of the federal railroad rights of way grants, the various forms such grants havetaken, and the provisions Congress has enacted to govern disposition of railroad rights of way. Thisreport will be updated as circumstances warrant. Background The middle of the nineteenth century witnessed a burst of federal legislation fostering theconstruction of railroads in America. (1) Many factors contributed to this legislative initiative, among themthe discovery of gold in California, the American civil war, the absence after secession of opposingvotes by southern states, and a desire to encourage the settlement and development of the vast newwestern territories, thereby increasing tax revenues, opening markets, and providing more adequatelyfor the defense of the West. It was also felt that transcontinental rail lines could not be built withoutsubstantial Federal assistance. The grants sometimes consisted only of a right of way across publiclands, but sometimes also included a greater subsidy in the form of additional grants of land,financial support, or both. Some land grants were made to states to be conveyed by them to arailroad company upon completion of specified segments of line. Other grants were made to railroadcorporations directly. Usually this latter course was followed if the route was to cross territoriesrather than states. Typically, in this latter instance, a federally chartered corporation was created bythe same legislation that established the land grants. Several transcontinental railroads were authorized in a ten-year period, including the UnionPacific/Central Pacific in 1862 and 1864, (2) the Northern Pacific in 1864, (3) the Atlantic and Pacific in1866, (4) and the TexasPacific in 1871. (5) Theterms of grants varied, but all of these railroads received a right of way and additional land grants. These lands were typically granted in a "checkerboard" layout -- blocks of railroad lands alternatedwith government-retained lands -- with the intent that the railroads would sell their lands to settlersto finance the railroad, and the presence of the railroad would make the retained government landsmore valuable. Other, non-transcontinental railroads also received federal grants to begin operation. By the time the fourth transcontinental line was authorized in 1871, vehement opposition wasdeveloping to the railroads that only a few short years before had received enthusiastic support. Asone historian put it, when the West "saw evidence that railroads were not prompt in bringing theirlands on the market and putting them into the hands of farm makers, the West turned from warmfriendship to outright hostility to railroads." (6) This hostility was reflected in a cessation of congressional land grants to railroads. (7) Congress did, however, wishto continue to encourage the expansion of railroads across the western lands. Special acts continuedto be passed that granted a right of way through the public lands of the United States to designatedrailroads, but this piecemeal approach was burdensome. In 1875, Congress enacted a statute knownas the "General Railway Right of Way Act (GRRWA)," (8) that granted a right of way two hundred feet wide across publiclands and, as codified at 43 U.S.C. § 934, states in pertinent part: The right of way through the public lands of the UnitedStates is granted to any railroad company duly organized under the laws of any State or Territory,except the District of Columbia, or by the Congress of the United States, which shall have filed withthe Secretary of the Interior a copy of its articles of incorporation, and due proofs of its organizationunder the same, to the extent of one hundred feet on each side of the central line of said road; alsothe right to take, from the public lands adjacent to the line of said road, material, earth, stone, andtimber necessary for the construction of said railroad; also ground adjacent to such right of way forstation buildings, depots, machine stops, side tracks, turnouts, and water stations, not to exceed inamount twenty acres for each station, to the extent of one station for each ten miles of itsroad. At times, railroads also acquired some rights through the exercise of state power of eminentdomain and through the exercise of federal power of eminent domain. In addition, some rights ofway were simply purchased by the railroads from non-federal owners. In the latter instance, therailroad obviously could hold full title to the right of way lands and the federal government none. By contrast, in those instances in which the right of way was obtained by an exercise of the federalpower of eminent domain, one would have to examine the particular authority for that exercise andalso the particular condemnation proceedings to determine the scope and conditions of the title therailroad obtained. This report does not address privately-owned railroad rights of way but discusses railroadrights of way granted by the federal government, either as part of a land grant or under the 1875 rightof way statute. Legal Nature of "Rights of Way" The courts have interpreted the right of way interests conveyed to railroads in various ways,and it has become increasingly difficult to reconcile the sequence of congressional enactments andjudicial holdings into a coherent body of law. A complete review of the extensive enactments,litigation, and interpretations is beyond the scope of this report, but some of the principal cases andissues are set out. The Supreme Court has said that a pre-1871 right of way granted to a land grant railroad wasa "limited fee," (9) while theright of way granted under the 1875 statute was an easement. (10) More recent cases seemto indicate that the terminology may not be of vital importance; the significance of the terms useddepends on the context in which an inquiry arises. (11) However, the "rail banking" provisions of the Rails to Trails Act(discussed below) have again resulted in a focus on the exact nature of the right of way interest andthe authority of Congress over rail corridors. To encourage settlement of the West, Congress notonly enacted railroad rights of way grants but also statutes that authorized the conveyance of landsto private citizens. The railroads crossed these lands and whether the "banking" of the rail corridorsonce trains no longer operate results in a taking of private property for which compensation is owedunder the 5th Amendment to the Constitution has been addressed in several recent cases discussedlater in this report. A review of property law terms may be helpful. Usually when land is granted to anotherowner, the conveyance is complete and final. If the interest conveyed is complete and includes allrights associated with the property, it is a "fee simple." It is possible, however, to convey less thanall property rights, or to convey title to a grantee so that title may revert to the grantor in somecircumstances. If the interest conveyed is only the right to use the land of another for a particularpurpose (such as the right to cross the land of another), the interest is an easement. There can be agradation of interests between fee title and an easement depending on the exclusivity of possessiongranted, the duration of the interest granted, and the completeness of the rights granted. A right ofway interest may be structured and conveyed in such a manner that the grantor retains a"reversionary" interest in the property, which means that the property may in some circumstancesrevert to the grantor. A fee grant may be made so that it continues only so long as some use or circumstancecontinues, and if that use or circumstance ceases, then title reverts automatically to the grantor. Thisis called a determinable grant. Or a fee grant may be interpreted as being made on the condition thatif "x" occurs, then the grantor may reenter the property, and title may revert to the grantor. This iscalled a grant on a condition subsequent. Both of these could be characterized as "limited fees,"since they are less than full fee title. The principal difference between these two types of grants is that in the former instance, noaction on the part of the grantor is necessary to reassert title; title reverts by action of law as soon asthe envisioned use or circumstance ceases. In contrast, if the grant is deemed to be a grant on acondition subsequent, the grantor must take some action to reassert title upon the breach (orfulfillment) of the condition (depending on whether the grant and condition were worded positivelyor negatively). This action usually takes the form of a judicial proceeding to determine that the termsof the condition have in fact been met or breached. If the right of way is a mere easement, at common law when the easement use ceases, theeasement simply disappears and the "servient" estate -- the land burdened by the easement -- nolonger is so burdened. (Therefore, it usually is not technically correct to speak of a "reversionaryinterest" in connection with a common law easement.) However, Art. IV, § 3, cl. 2 of the Constitution gives Congress the "Power to dispose of andmake all needful Rules and Regulations respecting the Territory or other Property belonging to theUnited States." When Congress grants a property interest, the grant is both a grant of property anda law and Congress is free to specify terms or elements different from those that otherwise wouldapply either by virtue of the common law or in other statutes. This fact seems to have been lost insome of the discussions of congressional railroad grants. A railroad grant may also be both a grantof a property interest and a contractual agreement between the federal government and therailroad. (12) One of the earlier cases in which the Supreme Court considered the title taken by a land-grantrailroad was Schulenberg v. Harriman in 1874, in which the Court said: "A legislative grant operatesas a law as well as a transfer of the property, and has such force as the intent of the legislaturerequires." (13) Considering all the conditions and provisos that in the legislation granted lands to the railroad inquestion, the court found the interests granted to the railroad to be a fee on condition, and that breachcould only be asserted by the government as grantor. In this respect, the Court clearly distinguishedbetween what could happen at common law where the two private parties were involved from thesecongressionally created property interests where one party was the sovereign government and mustenforce the terms of the property grant either by judicial proceedings or by legislative assertion thatwas the equivalent -- "the mode of asserting or of resuming the forfeited grant is subject to thelegislative authority of the government." (14) Another early case interpreted a land grant railroad right of way as a limited fee, made on animplied condition of reverter in the event that the company ceased to use the land for railroadpurposes. (15) In thiscase, the Court also said: "No express provision for a forfeiture was required to fix the rights of theGovernment. If an estate be granted upon a condition subsequent, no express words of forfeiture orreinvestiture of title are necessary to authorize the grantor to reenter in case of a breach of suchconditions." (16) It isimportant to note that this case involved private persons who had been patented lands over whichthe train tracks ran, and the Court voided those patents on the ground that they could not convey theblock of lands they purported to convey due to the fact that the railroad held limited fee title to theright of way strip of land. In 1875, Congress approved the general railroad right of way grant (GRRWA) using the samelanguage as in some of the land-grant rights of way grants: "The right of way through the publiclands of the United States is hereby granted to any railroad company ...." (17) The Supreme Court heldin Great Northern Railway Co. v. United States that this language clearly granted only a surfaceeasement rather than the strip of land right of way. (18) In reaching this conclusion, the Court looked to other languageof GRRWA, to administrative interpretations, and to subsequent enactments by Congress thatreferred to the "easements" given by the 1875 Act. The Court pointed to § 4 of the Act as especiallypersuasive in that it states that once each right of way is noted on plats in the local land office,"thereafter all such lands over which such right of way shall pass shall be disposed of subject to theright of way. " (Emphasis added.) "Apter words to indicate the intent to convey an easement wouldbe difficult to find." (19) As will be discussed, however, it is possible that Congress did not intend by this language torelinquish its authority over the ultimate disposition of the rail corridor. The Great Northern case illustrates the mixture of facts and terminology that rendersharmonizing the various judicial holdings difficult. In Great Northern , the United States sued toenjoin the plaintiff Railway Company from drilling for oil and gas beneath an 1875 right of way. The railroad owned the adjacent lands and hence at common law could have been the owner ofunderlying estate. No evidence of title in the United States was introduced; but the court allowedthe parties to stipulate that "the United States has retained title to certain tracts of land over whichpetitioner's right of way passes ...." (20) This stipulation avoided a resolution of issues involving thepossible rights of adjacent landowners or the nature of possible retained authority of Congress. In another case in which the government sued to enjoin a railroad company from drilling foroil and gas on the land-grant right of way granted it by the government, the Supreme Court ruled thatthe right of way grant did not include mineral rights because of other language in the Act thatexcepted out mineral lands -- language the Court held applied to the entire statute and not just togrants of lands. (21) Inreviewing the "limited fee" cases, the Court said that the most such cases decided was that "therailroads received all surface rights to the right of way and all rights incident to a use for railroadpurposes." This case has sometimes been regarded as holding that even land-grant rights of waywere merely easements, but in fact the Court held only that the grant did not give the mineral rightsto the owner of the right of way because nothing passed except what was conveyed in clear language;the grants were construed favorably to the government with doubts resolved in favor of thegovernment; and oil and gas development was not within the railroad purposes of the right of way. Nevertheless, the Supreme Court did strongly suggest that all railroad rights of way were easements. Although the courts have struggled at times to articulate the nature and scope of the interestheld by a railroad, the cases are clear that the right of way interest, whether limited fee or easement,is conditioned on the continued use of the right of way for railroad purposes, although that phrasemay be broadly construed. (22) Conveyances by the Railroads Congress has authorized the railroads to convey part of their rights of way for highwaypurposes. In 1920, Congress authorized railroads to convey to state, counties, or municipalities,portions of rights of way to be used as public highways or streets provided the conveyance wouldnot diminish the railroad right of way to less than 100 feet. As codified at 43 U.S.C. 913, thisprovision reads: § 913 Conveyance by land-grant railroads ofportions of rights-of-way to State, county, or municipality All railroad companies to which grants for rights of waythrough the public lands have been made by Congress, or their successors in interest or assigns, areauthorized to convey to any State, county, or municipality any portion of such right of way to be usedas a public highway or street: Provided , That no such conveyance shall have the effect to diminishthe right of way of such railroad company to a less width than 50 feet on each side of the center ofthe main track of the railroad as now established and maintained. (23) Section 16 of the Federal Highway Act of 1921 (24) gave the consent of the United States to any railroad or canalcompany conveyance to the highway department of any state "any part of its right of way or otherproperty in that State acquired by grant from the United States." Note that this provision did notmention the necessity for retaining the central right of way, and the legislative history offers noclarification on the point. The Federal Highway Act included language stating "all acts or parts ofacts in any way inconsistent with the provisions of this act are hereby repealed ...," and courts thathave addressed the issue have found that the 1921 enactment amended § 913, eliminating therequirement that the retained central core be 100 feet in width. (25) It is arguable, however,that because the railroad is only authorized to convey "property acquired" from the United States,neither a full fee title nor any retained interest of the United States could be conveyed. Under suchreasoning, the railroad must continue to use the right of way for railroad purposes or, if that useceased, the railroad could not convey the central core. In addition, if the railroad were legallyabandoned, the public highway exception in section 912 would still allow one year for anyabandoned portion of a right of way to be "embraced in a public highway." (26) Controversies have arisen as to the authority of the railroads to convey all or part of theirinterest in the rights of way aside from the highway context, and as to the authority of private citizensto obtain rights to property within the rights of way through adverse possession -- what might becharacterized as "squatter's rights." The Supreme Court interpreted the grant of a federal right of way as a unit, no portion ofwhich could be obtained for private purposes by adverse possession. By granting a right of way four hundred feet in width,Congress must be understood to have conclusively determined that a strip of that width wasnecessary for a public work of such importance, and it was not competent for a court, in the suit ofa private party, to adjudge that only twenty-five feet thereof were occupied for railroad purposes inthe face of the grant .... (27) Similarly, the court has held that the right of way purposes would be negated by the existenceof the power of the railroad to alienate the right of way or any portion of it. (28) Despite the limitations on the alienability of federal rights of way, the railroads still purportedto convey, and adjacent landowners continued to encroach upon, rights of way and claim rightsthereto. Over the years, Congress has repeatedly legislated to legitimize particular conveyances andactivities to alleviate the hardships to innocent purchasers. (29) In doing so, Congress hasconsistently asserted that Congress, not the railroads, had the authority to dispose of rail corridors. Many of the validation statutes involved land-grant railroad rights of way, which Congressrepeatedly characterized as limited fee grants with a reversionary interest in the federalgovernment. (30) Subsequent statutes interpreting and declaring the intent of earlier statutes are entitled to be givengreat weight in statutory construction. (31) In this context, Congress has enacted statutes for more than acentury that in text or committee reports refer to the reversionary interest of the United States, a pointthat will be discussed further below. A review of these enactments may shed light on the issues,although this consistent view of Congress that a residual interest remains in the United States hasnot figured prominently in judicial decisions thus far. Congressional Disposition of Underlying Federal Interests Congress legislated specially to provide for the final disposition of particular rights of wayno longer being used for railroad purposes, and in 1922 also enacted a general statute. (32) As codified at 43 U.S.C.§ 912, the 1922 statute provides that upon forfeiture or abandonment, the lands granted to anyrailroad company for use as a right of way for its railroad etc. would pass to a municipality if theright of way passed through one, or to adjacent landowners, except that a highway could beestablished within the right of way within one year after the date of a forfeiture or abandonment. Theprovisions state: Whenever public lands of the United States have beenor may be granted to any railroad company for use as a right of way for its railroad or as sites forrailroad structures of any kind, and use and occupancy of said lands for such purposes has ceasedor shall hereafter cease, whether by forfeiture or by abandonment by said railroad company declaredor decreed by a court of competent jurisdiction or by Act of Congress, then and thereupon all right,title, interest, and estate of the United States in said lands shall, except such part thereof as may beembraced in a public highway legally established within one year after the date of said decree orforfeiture or abandonment[,] be transferred to and vested in any person, firm, or corporation, assigns,or successors in title and interest to whom or to which title of the United States may have been ormay be granted, conveying or purporting to convey the whole of the legal subdivision or subdivisionstraversed or occupied by such railroad or railroad structures of any kind as aforesaid, except landswithin a municipality the title to which, upon forfeiture or abandonment, as herein provided, shallvest in such municipality, and this by virtue of the patent thereto and without the necessity of anyother or further conveyance or assurance of any kind or nature whatsoever: Provided , That thissection shall not affect conveyances made by any railroad company of portions of its right of wayif such conveyance be among those which have been or may after March 8, 1922, and before suchforfeiture or abandonment be validated and confirmed by any Act of Congress; nor shall this sectionaffect any public highway on said right of way on March 8, 1922: Provided further , That the transferof such lands shall be subject to and contain reservations in favor of the United States of all oil, gas,and other minerals in the land so transferred and conveyed, with the right to prospect for, mine andremove same. Note that this statute begins by referring to grants of lands for railroad rights of way, and atleast two fundamental elements of section 912 remain integral to disposition of railroad rights of way-- the concept of abandonment and the public highway exception. Under section 912, as amended, certain rights vest upon abandonment. (33) A finding of abandonmentmust also be declared by a court of competent jurisdiction or by an act of Congress. (34) What constitutesabandonment remains, however, somewhat uncertain. The relevant statutes do not defineabandonment, and no single court decision has definitively resolved the question. Likewise, thecongressional debate on the statute was limited and does not provide clarification of the intendedmeaning. (35) The courtsthat have addressed the abandonment requirement have often looked to common law principles ininterpreting the term. A particularly influential case has read § 912 to require a present intent toabandon as well as physical abandonment, evidenced by the cessation of tax payments related to theproperty, discontinuation of service and other railroad-related use, and removal of tracks. (36) Additional requirements,however, vary from circuit to circuit. The major point of dissension appears to be the status ofabandonment determinations by the Interstate Commerce Commission ("ICC") or, for cases arisingafter the termination of the ICC, by the Surface Transportation Board ("STB"). (37) The Tenth Circuit hasconsistently found such a determination a prerequisite to abandonment. (38) However, in the NinthCircuit, an ICC or STB determination of abandonment may not always be necessary. As stated in Vieux v. East Bay Regional Park District , "a railroad could abandon without any involvement fromthe I.C.C., if there is no injunctive action brought [by the I.C.C., the U.S. or state government] andif a court decrees that the railroad has abandoned the line. The I.C.C. regulation and processdetermine what effects an abandonment will have and what the railroad must do to counteract thoseeffects before it abandons, but they do not determine that an abandonment has actuallyoccurred." (39) Section 912 also established a public highway exception. A state or local agency has theright to include portions of any railroad right of way in a public highway within one year of its legalabandonment, thus eliminating other title claims. (40) The relevant committee report indicates: It seemed to the committee that such abandoned orforfeited strips are of little or no value to the Government and that in case of lands in ruralcommunities they ought in justice to become the property of the person to whom the whole of thelegal subdivision had been granted or his successor in interest. Granting such relief in reality giveshim only the land covered by the original patent. The attention of the committee was called,however, to the fact that in some cases highways have been established on abandoned rights of waysor that it might be desirable to establish highways on such as may be abandoned in the future. Recognizing the public interest in the establishment of roads, your committee safeguarded suchrights by suggesting the amendments above referred to protecting not only roads now established butgiving the public authorities one year's time after a decree of forfeiture or abandonment to establisha public highway upon any part of such right of way. (41) Two cases have held that the United States retained a reversionary interest in railroad rightsof way, including those established after 1871 (i.e. non-land grant railroad rights of way), and thatthe adjacent landowners had non-vested reversionary rights that were cut off when recreational trailuses were properly established as public highways under state law within the one-year publichighway exception set out in §§ 912 and 913. (42) The 1922 Act and the report language explaining it reveal an important point that arguablyhas not received adequate attention. Clearly, Congress believed that it had retained the authority toprovide for the disposition of railroad rights of way, whether because Congress continued to holdsome traditional property interest, such as a reversionary interest (note the reference to Congress'understanding that the rights of way were "strips" of land), or because its retained authority over thetermination of the rights granted was an element of the property interests granted . If the railroadrights of way exactly paralleled some common law property interest such as an easement, how canCongress make an alternative disposition of the underlying lands other than that which wouldotherwise apply at common law? The one-year window within which highways could be establishedin an abandoned rail corridor only makes sense if Congress retained the authority to deviate fromcommon law property rights with respect to termination of the grants. Recalling that the railroadgrants were both grants of a property interest and a law, the argument could be made that Congressintended as a matter of law to retain authority over the termination of the property rights granted. Arguably, this principle has been embodied in the enactments of Congress for more than a centurythat provided for the disposition of the rights of way. The importance of this question has beenhighlighted by recent cases involving the Rails to Trails litigation. "Rails to Trails" Congress has established a National Trails System to designate and manage a system ofnational trails. Amendments in 1983 (43) and 1988 (44) authorized the banking of railroad rights of wayto preserve themfor possible future railroad use and to allow interim use of the rights of way corridors for recreation. As indicated in the legislative history, Congress intended the trails system to increase recreationalopportunities, conserve natural resources, and, through the "Rails to Trails" provisions, preserverapidly diminishing rail corridors for possible future railroad use. (45) Specifically, the Rails toTrails provisions were enacted to deal with the problem of state property laws providing for theexpiration of easements upon abandonment. (46) As codified at 16 U.S.C. § 1247(d), Congress provided railroadswishing to discontinue service on a particular route an opportunity to negotiate with state, municipal,or private entities who were prepared to assume responsibility for conversion and management ofthe rail corridor as a trail. (47) If the negotiations were successful, the right of way would notbe deemed abandoned; rather it was considered to be under an "interim use," with the possibility thatrail service could be reinitiated in the future. (48) By avoiding final abandonment status, the railroad right of waydid not pass under applicable state law or 43 U.S.C. § 912. The 1988 amendment (16 U.S.C. § 1248(c)) provides for the retention by the federalgovernment of any and all federal interests in railroad rights of way. (49) The statute provides Commencing on October 4, 1988, any and all right, title,interest, and estate of the United States in all rights-of way of the type described in the Act of March8, 1922 (43 U.S.C. 912), shall remain in the United States upon the abandonment or forfeiture ofsuch rights-of way, or portions thereof, except to the extent that any such right-of way, or portionthereof, is embraced within a public highway no later than one year after a determination ofabandonment or forfeiture, as provided under such Act. (50) Section 1248(c) thus significantly changes the disposition of federal interests involved infederally-granted rail corridors over which trains no longer run, causing all interests to be retainedby the United States rather than passing to adjacent landowners or municipalities. By its ownlanguage, section 1248(c) confirms the continuing force of the 1922 Act, specifically reinforcing thecontinued vitality of §912 public highway exception. Accordingly, courts have continued torecognize §912 in so far as it does not conflict with section 1248(c). (51) 5th Amendment Takings Cases After the enactment of Rails to Trails, cases examined whether the retention of non-operatingrailroad rights of way for use as recreational trails constitutes a taking entitling the landowners to justcompensation under the 5th Amendment to the Constitution. With respect to some privately grantedrights of way, the Supreme Court in Preseault held that the law was constitutional because the"Tucker Act" (52) provided an avenue to obtain compensation if any were owed. (53) A subsequent caseinvolving the same plaintiffs held that a compensable taking had occurred, but that not every exerciseof authority by the United States under the Rails to Trails Act would necessarily result incompensable takings. The Preseault cases involved private fee-title landowners whose predecessorshad sold an easement for railroad purposes to a railroad. Ultimately, the Court of Appeals for theFederal Circuit decided that use of the right of way for recreational purposes was beyond the scopeof the easement granted and agreed to by the private parties, and hence the use of the corridor forthose purposes constituted a taking. (54) With respect to federal rights of way, early decisions after the 1988 statutory changeconcluded that, despite the absence of an explicit reservation of interest, the federal government didretain an implied interest when it patented (conveyed title to) lands crossed by federal railroadeasements into private ownership, such that the retention of the rights of way for interim use as trailswas not a taking, when a public highway was established under state law. (55) More recent cases haveheld the opposite. (56) There has not yet been a Supreme Court ruling in the federal right of way context. In the Hash case, (57) landowners brought a class action challenging a conversion ofa railroad right of way across their lands to a recreational trail. The federal district court for Idahofound no taking and plaintiffs appealed. The lower-court decision was vacated and remanded in lightof an Idaho Supreme Court decision. The right of way in question was granted under the 1875GRRWA, and the landowners argued that under the reasoning of Preseault , the application of theTrails Act after abandonment of railway use prevented the railroad easement from reverting to theowners of the servient estate and entitled them to compensation. This claim required the court toascertain whether the federal right of way was an easement and the claimant landowners owned theunderlying estate, or whether the underlying estate never left ownership by the United States, orwhether the estate was deeded in fee to the railroad. There were various categories of landowners,but for purposes of this report, we shall address only those who obtained title to their lands from thefederal government after the establishment of the railroad right of way, thereby raising the questionof what § 4 of the GRRWA means when it states that subsequent land owners take "subject to" theright of way. The court in Hash noted the previous cases that had held that the 1875 statute granted onlyeasements, and further noted that the United States had failed to expressly reserve any interest toitself when conveying lands to homesteaders, except that settlers took lands "subject to" the railroadright of way. "We have been directed to no suggestion, in any land patent, deed, statute, regulation,or legislative history, that can reasonably be construed to mean that the United States silentlyretained the fee to the land traversed by the right-of-way, when the United States granted that landto homesteaders." (58) Similarly, the court did not find that language directing the railroads to share their rights of way withhighways under either 43 U.S.C. § 912 or § 913 mandated the conclusion that the United States hadretained the fee to the land underlying the right of way after land patents including that land weregranted to private persons. Similarly, the court found that § 913 (that authorizes highways withinthe right of way for up to a year after abandonment) does not weaken the position of the landownersbecause it required that the rights of the United States be conveyed to the private owner. However,this reasoning arguably does not adequately take into account the fact that if the United States couldvalidly legislate regarding the one-year window for the establishment of the highways, Congressmust have had some interest in the right of way. As discussed above with respect to the statutesvalidating railroad right of way conveyances, Congress has repeatedly enacted statutes premised onsome legislative or proprietary interest over termination of the rights of way. Similarly, the court stated that the statute requires the United States to convey any rights ithas in the right of way, and that the statute does not indicate what rights the United States had. However, the statute actually directs that all right, title, and interest of the United States beconveyed, except for highways within the year after abandonment. "All" is not an equivocal wordas "any" is, and arguably may indicate that Congress believed there was such right or interest heldby the United States. The Beres case also involved an 1875 right of way, and the Court of Federal Claims held thatthe right of way granted only an easement, so that when the right of way was no longer used forrailroad purposes, the easement was lifted and no property interest reverted to the United States. When the underlying lands were patented, the court held, the government gave up all its interest inthe land, including any reversionary interest. This case again did not take into account the years ofenactments by Congress premised upon some retained interest or authority over the rights of way,nor the language of § 913 that on its face makes a disposition different from that which wouldpertain if the right of way were an easement at common law. The government in Beres again argued that the United States had retained some interest inthe railroad rights of way, quoting from Whipps Land & Cattle Co. v. Level 3 Communications, LLC in which the Nebraska Supreme Court stated that, "while the vocabulary of the common law of realproperty is often imported into the discussion of railroad rights-of-way, where those rights-of-wayhave been created by federal law, they are entirely creatures of federal statute, and their scope andduration are determined, not by common law principles, but by the relevant statutoryprovisions." (59) Thegovernment argued that even if the 1875 Act were an easement, Congress in the 1922 Act hadaffirmed its understanding that the United States had a reversionary interest in the rights of way evenwhere the whole of the land traversed had subsequently been patented. However, the discussion by both the government attorneys and the court devolved into anattempt to fit the various congressional actions into some traditional property interest. The courtstated the issue as being "whether the 1988 legislation can have retroactive effect on the transfer ofland rights which occurred years earlier...." The 1875 Act appeared to the court to have"intentionally omitted any words to create a reversionary right in the United States in grants ofrailroad rights of way, especially in light of the clarifying legislation in the 1922 Act, whichspecifically addressed the issue." An argument can be made that all elements of the court's reasoning miss the mark in that what land rights might have been transferred years earlier is part of the question; it is possible thatthe 1875 Act did not need to expressly create a reversionary right in the United States; and the 1922Act itself arguably reflects Congress' continuing belief that it had the power to dispose of part of theright of way in a manner different from what would pertain at common law. (60) Under Art. IV, § 3 of the Constitution, Congress has the authority to dispose of and make all needful Rules and Regulationsrespecting the Territory or other Property belonging to the United States.... Perhaps an avenue by which the enactments to date can be reconciled is the possibility thatCongress' actions were premised on its authority to legislate regarding the ultimate disposal of therights of way, and that this continuing authority over termination and disposition was an intrinsic partof both the railroad rights of way and the land titles homesteaders and others received when title waspatented "subject to the right of way." This retention of disposal authority makes sense of Congress'repeated and consistent enactments and accompanying committee reports regarding its "reversionaryinterest" in the rights of way. Perhaps Congress was using that term to indicate its reserved authorityto articulate the disposition of the rights of way upon termination of rail service. As one court saidwhen commenting on Congress' imprecise choice of words regarding another aspect of railroad landgrants: "[y]et it will not do for us to tell the Congress 'We see what you were driving at but you didnot use choice words to describe your purpose.'" (61) Perhaps many of the recurring difficulties could be resolved ifthe courts focused less on contradictory property/title words and more on the intent of Congressevident from decades of congressional enactments, including the 1922 Act, premised on Congress'continuing authority to specify disposition of terminating federal rights of way. There is analogous precedent for this approach in the "navigational servitude" context inwhich the government may sometimes take private property without compensation being owed underthe 5th Amendment. Over the years, the rationale for this result has been articulated either as annavigational easement of some sort implicitly reserved to the government -- i.e. a property interest-- or as a constitutional authority of the government that is always a part of all property conveyances,and hence no compensation is owed when it is exercised within the constitutional parameters. Therule of no compensation derives from the fact that the property damage "results from the lawfulexercise of a power to which the property has always been subject." (62) Most recently, this conceptmight be worded that the power of the government to take property for navigation purposes is abackground principle applicable to all title, and hence no compensation is owed because the ownernever had a property interest not subject to that limiting background principle of property law. (63) Similarly, the argument can be made that because Congress has the plenary power under Art.IV of the Constitution to provide for the regulation and disposal of the property of the United States,the power to control the ultimate disposal of federal rights of way was a part of the right of way titlethe railroads took and of the title homesteaders received to lands "subject to" the railroad right ofway. Arguably, if Congress made an alternative disposition of the lands before the conditions weremet that would have fully vested private title under the 1922 Act, no compensation would be owed. Congress could of course give up this authority, but arguably it must be clear that it has doneso. Again, in the context of the navigational servitude such a waiver "will not be implied, but insteadmust be surrendered in unmistakable terms, (64) and conferral by Congress of title to a streambed does not,without more, waive applicability of the navigational servitude. (65) Whether the courts will consider such an argument, of course, is not yet clear. However, thecases to date do not seem to have adequately taken into account the numerous enactments byCongress over the last 100 years, in which Congress has legislated regarding disposition of federalrailroad rights of way. Conclusion The legal status of land within any particular right of way depends on the interest held by arailroad or landowner, the general and particular applicable statutes, and the facts of a particularsequence of conveyances. Although Congress has on many occasions addressed the disposition ofrailroad rights of way, controversies may be expected to continue to arise because of issues as to thenature and scope of Congress' authority over the rights of way; the nature and scope of the interestof the railroad, the validity of attempts by the railroad to convey all or part of that interest,ambiguities associated with dating abandonment, disputes between adjacent landowners overperceived entitlements to lands within a right of way, and assertions that compensation is owed. Congress has from time to time legitimized conveyances that otherwise would be invalid, and inother legislation has permitted certain general types of conveyances. In particular, the conversionof federal rail corridors to recreational use under the Rails to Trails legislation may occasion furtherlitigation as to the interests held by the United States and those of adjacent landowners.

During the drive to settle the western portion of the United States, Congress sought toencourage the expansion of railroads, at first through generous grants of rights of way and lands tothe great transcontinental railroads between 1862 and 1871, and later through the enactment of ageneral right of way statute. The 1875 General Railroad Right of Way Act permitted railroads toobtain a 200-foot federal right of way by running tracks across public lands. Some railroads alsoobtained rights of way by private purchase or through the exercise of state or federal powers ofeminent domain. Therefore, not all railroad rights of way are on federal lands, and the propertyinterest of a railroad in a right of way may vary. The courts have characterized the interest held bya railroad pursuant to a federally granted right of way variously: as a "limited fee" in the case of aland grant right of way, or as an easement in the case of a right of way under the 1875 Act. As railroads closed rail lines, questions arose as to the disposition of the lands within theformer rights of way. Many individual instances were resolved in separate legislation. In 1922,Congress enacted a general law to provide that federal railroad rights of way on federal lands becomethe property of the adjacent landowner or municipality through which the right of way passed. Thislaw is unclear in several respects -- for example, as to what procedures are sufficient to constitutean abandonment of a right of way, and on what authority Congress could provide for theestablishment of highways within the right of way after abandonment of the rail line. In 1988, inwhat is popularly known as the Rails to Trails Act, Congress opted to bank rail corridors, keepingthem available for possible future use as railroads and making them available for interim use asrecreational trails. Some cases have held that Rails to Trails results in takings of private property whennon-federal easements were involved. In the context of federal rights of way, recent cases have heldthat the federal government did not retain any interest in federal railroad rights of way when theunderlying lands were conveyed into private ownership, and therefore if an abandoned rail corridoris held for interim trail use, compensation is owed the adjacent landowners. However, Congress haslegislated numerous times over the years regarding federal railroad rights of way, as though Congressbelieved it had continuing authority over their ultimate disposition. Issues may continue to arisesurrounding the disposition of federal railroad rights of way, possibly involving, for example, theauthority of Congress over the rights of way, the nature of the interest held by the railroad, thevalidity of attempts by the railroad to convey all or part of that interest, and disputes betweenadjacent landowners over perceived entitlements to lands within a particular right of way. This report discusses the history of federal railroad rights of way and some of the casesaddressing them. It will be updated from time to time as circumstances warrant.

Overview of the TAG Program In September 2008, ongoing financial turmoil escalated into a financial panic—large financial institutions, such as Lehman Brothers and AIG, were failing, the stock market was falling, and credit markets seized up as lenders became unwilling to extend or roll over short-term loans. The federal government responded with a series of lending and guarantee programs to mitigate the economic damage. Among the many policy responses, the Federal Deposit Insurance Corporation (FDIC) established the Temporary Liquidity Guarantee Program (TLGP) on October 14, 2008, to strengthen confidence and to encourage liquidity in the banking system. TLGP had two parts: a Debt Guarantee Program (DGP) and a Transaction Account Guarantee (TAG) program. Although the DGP is no longer guaranteeing new debt, TAG continues to apply to new deposit balances. The TAG program currently provides unlimited deposit insurance for $1.4 trillion in noninterest-bearing transaction accounts (NIBTAs). NIBTAs are accounts that do not pay interest and allow the depositor to make withdrawals without giving advanced notice to the bank. NIBTAs are frequently used by businesses and local governments as a cash management tool, often for payroll transactions, but any depositor whose account meets the eligibility criteria receives unlimited deposit insurance coverage. In spite of a loss of confidence in other parts of the financial system, the insured banking sector saw few bank runs during the financial panic. The establishment of TAG, in addition to the existing deposit insurance and other measures taken by regulators, may have bolstered depositors' confidence in banks as reliable counterparties. Deposit insurance brings stability to the banking sector by giving depositors confidence that if their bank fails, they will not lose the money in their insured accounts. Deposit insurance, however, also reduces the incentive of depositors to monitor their banks and ensure that their banks are not assuming unnecessary risks. Deposit insurance can potentially create moral hazard by neutralizing market mechanisms that penalize the banking system for taking on additional risk. In addition to other regulatory efforts taken to minimize moral hazard, deposit insurance has historically had an upper limit on the amount insured to minimize this loss of market discipline. During the financial crisis, policymakers reassessed the tradeoff between the stability and the moral hazard created by deposit insurance. Extending deposit insurance to some uninsured accounts through TAG may have strengthened the banking system by discouraging some borrowers from withdrawing their deposits during the height of the financial stress. Figure 1 shows the St. Louis Federal Reserve Financial Stress Index, an index composed of 18 data series that provides one measure of financial stress. According to this index, financial stress in 2012 is elevated compared with the lows of 2006 and 2007, but has fallen from the high points of the financial crisis in 2008 and 2009 and is closer to the historical average of the late 1990s and the early 2000s. The TAG program established by the FDIC expired on December 31, 2010, and was replaced on the same day by the TAG program as established by Section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( P.L. 111-203 ; the Dodd-Frank Act). The "TAG program," therefore, refers to two similar but distinct programs. Though both TAG programs provided unlimited deposit insurance to NIBTAs, they also differ in several ways. The TAG program created by the FDIC was a voluntary program in which eligible financial institutions were automatically registered to participate unless they opted out. The Dodd-Frank Act, however, made all FDIC-insured banks part of TAG by temporarily changing "the definition of insured deposits to include the entire balance of noninterest-bearing transaction accounts." The TAG program created by the Dodd-Frank Act also had a more restrictive definition of NIBTA than the FDIC program. Since TAG was first established, the amount of deposits insured by TAG has increased, as shown in Figure 2 . On December 31, 2008, shortly after TAG was implemented, the program guaranteed approximately $722 billion. When the FDIC extended TAG at the end of 2009, participating institutions were given the opportunity to exit the program. Many of the largest banks opted out, causing a large drop in the amount of deposits insured by TAG. On December 31, 2010, the Dodd-Frank Act's change to the definition of insured deposit became effective; all eligible NIBTAs were covered, increasing the amount of deposits insured by TAG to approximately $1.4 trillion (on December 31, 2010, there was a one-day overlap of the original FDIC TAG program and the Dodd-Frank TAG program, as illustrated below in Figure 2 ). The Dodd-Frank Act's changes to the definition of insured deposits are temporary and due to expire on January 1, 2013; the unlimited deposit insurance for NIBTAs expires on that date and returns to the FDIC's $250,000 standard maximum deposit insurance amount. As explained by Maureen Murphy in CRS Legal Sidebar WSLG37, Extending the FDIC's Transaction Account Guarantee Program Given the Uncertain Economic Outlook? , although section 1105 of Dodd-Frank provides the FDIC with authority to institute a widely available program of emergency assistance, it is limited to situations involving a liquidity crisis. Invoking the authority to institute a broad program requires a detailed determination by the FDIC and the Board of Governors of the Federal Reserve System (Fed Board) that a liquidity event exists and that failure to take action would have serious adverse effects on U.S. financial stability or economic conditions. Additionally, the authority appears to be limited to guaranteeing debt obligations rather than expanding deposit insurance coverage. Though the FDIC established TAG in 2008, changes to the FDIC's authority made by the Dodd-Frank Act may prevent the FDIC from having the option of extending TAG. An extension of TAG, therefore, may require congressional action. On November 26, 2012, Senator Harry Reid introduced S. 3637 , a bill to temporarily extend the TAG program for two years. Potential Impacts If TAG Expires NIBTAs constitute one of several cash management tools used by businesses, non-profits, governments, and other entities. They provide depositors with easy access to their money, allowing them to make transfers and to write checks to pay their vendors and employees. If TAG expires, however, depositors may change their perception of the safety of NIBTAs, causing them to reevaluate how they allocate their money across the various options in the financial system. As is discussed in the following sections, the use of NIBTAs could return to pre-TAG levels if TAG expires. Changes in the financial and regulatory environment since 2008, however, could also result in a different allocation than the pre-TAG levels. Three factors are typically important to depositors when determining where to place their money: safety, liquidity, and yield. Depositors would prefer to have more of all three, but face trade-offs. For example, generally speaking, there is a trade-off between safety and yield on an investment; the more at risk an investor's money is, the higher the possible return if the risk does not eventuate. There is also a trade-off between yield and liquidity. To have a higher return, an investor may have to sacrifice liquidity (the ease with which an asset can be converted into cash). Certificates of deposit, for example, may pay a higher interest rate than a typical savings account, but there are restrictions on when the money can be withdrawn. Depositors' preferences for safety, liquidity, and yield will determine how they allocate their money across the various options they face. If TAG expires, the options available to depositors can be simplified to two general choices: (1) depositors could leave some or all of their money in the traditional, insured banking sector or (2) they could move some or all of their money out of the traditional banking sector. Deposits Could Stay in the Traditional Banking Sector Uninsured Deposits at Same Institution If TAG expires, depositors may choose to leave their deposits as uninsured deposits at their existing banks. NIBTAs have grown by approximately $1 trillion from $1.3 trillion in the third quarter of 2008 (before TAG was implemented) to $2.3 trillion in the second quarter of 2012. NIBTAs were used at relatively high rates before TAG and their growth may not be due solely to the guarantee offered by TAG; changes in economic and financial conditions since TAG was introduced may make NIBTAs an appealing choice. The expiration of unlimited insurance may increase the risk of NIBTAs, but even without TAG, the high degree of liquidity offered by NIBTAs may incentivize some borrowers to keep their money as uninsured deposits. Insured Deposits Depositors who place a high value on safety may transfer their uninsured deposits to various accounts in different insured banks so that each account is under the maximum insured level. Although this option may minimize risk, it would increase the transaction costs for the depositor—there would be more accounts to keep track of and possibly more types of fees to be aware of at different banks. Uninsured Deposits at Safer or Larger, More Interconnected Banks Some depositors may attempt to recapture the safety they would lose if TAG expires by shifting their deposits to safer banks, which for some may mean to one of the largest or most interconnected banks. Safer banks, such as those with higher capital levels or with less concentration in a risky asset class, may be perceived as less likely to fail and, therefore, less likely to cause depositors with uninsured deposits to lose some of their deposits.  Depositors may move their accounts to one of the largest or most interconnected banks if they believe those banks are in practice "too big to fail" (TBTF). A bank is said to be TBTF if policymakers are likely to judge that its failure would cause unacceptable disruptions to the overall financial system and would act to prevent failure. If a depositor thinks policymakers would not allow a particular bank to fail, then the depositor may view their uninsured deposits as safer than if the deposits were in a bank that would be allowed to fail. Figure 3 illustrates the current distribution of TAG funds by bank size. Approximately 75% of TAG funds are in the 19 banks with more than $100 billion in assets, though those 19 banks account for 61% of total assets in the insured banking system. Table 1 shows statistics on TAG accounts by bank size. The largest banks have more accounts per institution and higher average account balances than smaller banks. Even with TAG in place, the largest banks hold a disproportionately large share of TAG accounts. The expiration of TAG may increase the concentration of deposits in the largest banks. A potential indicator of the different views of large and small banks about the usefulness of TAG is the percentage of each group that opted out of the FDIC's TAG program when given the option. As mentioned previously, the original TAG program established by the FDIC was optional; at certain points banks were given the ability to opt out. When the FDIC version of TAG expired on December 31, 2010, 31% of banks with assets over $10 billion were still participating in TAG, whereas 75% of banks with less than $10 billion in assets were in the program. The higher participation rate by smaller banks may signal that they believed they needed the program to attract funds, whereas the larger banks were less likely to view the program as necessary. Others may argue that decisions to participate in TAG may not have been driven by the actual usefulness of the program as much as by a possible stigma associated with participating in a program developed in response to the financial crisis. Either way, it is possible that since the end of 2010, both large and small banks may have changed their views on the value of the program. Uninsured Deposits at Non-TBTF Institutions Although some deposits may migrate to the largest institutions due to a perception of their implicit guarantee, it is also possible that deposits may migrate away from those institutions due to regulatory changes made by the Dodd-Frank Act. For example, the Dodd-Frank Act created a special resolution regime administered by the FDIC for failing firms that pose a threat to financial stability. Some market participants may view the steps taken by the Dodd-Frank Act to remove TBTF status as credible and think they would recover even less of their uninsured deposits at a large firm than at a smaller or less interconnected institution. In that case, uninsured depositors may move their TAG deposits away from large institutions and use smaller banks. Deposits Could Leave the Traditional Banking Sector FDIC-insured institutions comprise the traditional banking sector. The traditional banking sector, however, is not the only place depositors can deposit their money. Depositors can effectively "deposit" their money in other nonbank options by buying shares in a money market fund (MMF), by buying U.S. Treasuries, or by choosing one of the many other available options, such as commercial paper, Fannie Mae and Freddie Mac securities, repurchase agreements, enhanced cash funds, and municipal securities. As shown in Figure 4 , money market funds are the second-most popular individual form of short-term investment according to a survey of financial professionals and will be the focus of this section. Money market funds are mutual funds that invest in money market securities. Money market securities are short-term financial instruments with relatively high liquidities and short maturities of between several days and about a year. They are instruments of short-term borrowing and lending. Examples of money market securities include negotiable certificates of deposit (CDs), bankers' acceptances, U.S. Treasury bills, commercial paper, debt issued by municipalities, and repurchase agreements (repos). Money market funds, therefore, act as intermediaries between shareholders who demand liquid investments and borrowers who desire short-term funding. Money market funds attempt to keep a stable net asset value (NAV) on their shares, typically of $1.00. A stable NAV gives shareholders the impression of a high degree of safety similar to deposits but offering a higher return. If a money market fund falls below a $1.00 NAV, then the fund is said to "break the buck," and part of the fund's shareholders' invested principal is in jeopardy. Investors could actually lose money. Breaking the buck is a rare occurrence, though it happened in September 2008. In response, many withdrew their money from money market funds and deposited it in banks, as seen in Figure 5 . Figure 5 shows that since the financial crisis peaked in 2008, non-financial businesses have increased their holdings of checkable deposits and decreased their holdings of money market funds. If one of the reasons that money flowed to deposits was the presence of TAG, it is possible that the expiration of TAG could lead to a partial reversal. However, one of the often cited benefits of money market funds is that they have traditionally earned a higher yield than bank deposits; but money market funds are currently earning historically low returns, lowering the opportunity cost of holding noninterest-bearing deposits. There is also uncertainty surrounding the future regulation of money market funds. The Financial Stability Oversight Council (FSOC), a council of financial regulators that is charged with monitoring systemic risk in the financial system and coordinating several federal financial regulators, has identified structural vulnerabilities in money market funds which could affect financial stability. It is unclear if the Securities and Exchange Commission (SEC), the primary regulator of money market funds, will impose additional regulation. Although deposits could flow to money market funds if TAG expires, the uncertainty about future regulation and the low yields makes it unclear how much would leave TAG accounts. Potential Impacts If TAG Is Extended Some have raised concerns about what effect an extension of TAG would have on the FDIC's Deposit Insurance Fund (DIF). Under the program as established by the Dodd-Frank Act, TAG insurance functions as part of the FDIC's traditional insurance. FDIC institutions pay an insurance premium into the DIF based on their risk—financial institutions that pose more risk to the DIF are assessed higher deposit insurance premiums relative to those that pose lower risk. If a member institution fails, the proceeds in the DIF are used to prevent insured depositors from losing any of their insured deposits. For a risk-based insurance system to function effectively, the entity setting the insurance premium must accurately forecast future risk or be able to recoup losses ex post. If the FDIC can successfully estimate the future cost that TAG funds would impose on the DIF, then the premiums could be set to cover the expected losses. However, problems may arise if the insurance is underpriced due to an underestimation of future losses. If future losses cause the DIF to become depleted, the DIF may have to borrow from the Treasury to protect depositors, putting taxpayers at risk. Although predicting the future cost of TAG to the DIF (which is a function of the number of future bank failures, the size of banks that would fail, and the amount of TAG funds in failed banks) is beyond the scope of this report, looking at the effect of TAG on the DIF since the beginning of 2011 can inform thinking about the future cost if TAG is extended. The FDIC estimates that, for the 108 banks that failed in 2011 and the first quarter of 2012, TAG deposits amounted to 3 percent of deposits on average. Allocating DIF losses between these deposits and other deposits would result in an estimated TAG cost over these five quarters of about $270 million, or about 3 percent of the total $9.3 billion estimated cost of failures during this period. Figure 6 shows that the number of bank failures has fallen from its peak in 2010 whereas the number of institutions on the FDIC's "problem list," which is one potential indicator of the number of banks that are at risk of failing in the future, is still elevated. Most of the bank failures since January 2011 have been smaller banks which, as mentioned previously, had relatively few TAG deposits. If either the number of banks that fail or the type of banks that fail in the future is different, then estimates of future losses based on the past losses of TAG to the DIF would be inaccurate. Although extending TAG may impose additional costs on the DIF, the benefit of extending TAG, on the other hand, may be that it maintains confidence in the banking system and prevents future bank failures that would have required drawing on the DIF. The counterfactual cannot be known with certainty, making it difficult to estimate the costs and benefits of extending TAG. An additional potential cost of extending TAG would be the moral hazard associated with deposit insurance. In the context of deposit insurance, moral hazard can manifest itself in two ways: "first, explicit deposit insurance gives insured banks incentives to pursue added risks because they can capture any profits but shift any losses to the government. Second, explicit deposit insurance reduces incentives by depositors and shareholders to monitor their banks." Banks' additional incentive to take further risks and the depositors' reduced incentive to monitor could increase the likelihood that some banks may fail. More immediately, moral hazard could impair the quality of credit intermediation decisions in the economy. The reduced market discipline caused by deposit insurance could incentivize banks to issue loans that do not accurately price the underlying risk. Moral hazard can be minimized through at least two different channels. First, a bank may have other creditors who do not have insured deposits. Those creditors would still have the incentive to monitor the bank for excessive risk-taking, though having fewer uninsured depositors may potentially reduce the effectiveness of the monitoring. Second, bank regulators examine banks and attempt to prevent them from acting in a way that could put insured deposits at risk. Regulators are supposed to take prompt corrective action against institutions as necessary to minimize losses to the DIF. Legislative Proposal On November 26, 2012, Senator Harry Reid introduced S. 3637 , a bill to temporarily extend the TAG program until December 31, 2014. S. 3637 would instruct the FDIC to estimate the expected losses due to the program's extension for each calendar year and to collect an amount equal to the expected losses by September 30 of each calendar year. The assessments would be in addition to the assessments that the FDIC would otherwise collect.

The Federal Deposit Insurance Corporation's (FDIC's) initial Transaction Account Guarantee (TAG) program provided unlimited deposit insurance for noninterest-bearing transaction accounts (NIBTAs). A NIBTA is an account in which interest is neither accrued nor paid and the depositor is permitted to make withdrawals at will. NIBTAs are frequently used by businesses, local governments, and other entities as a cash management tool, often for payroll transactions. In spite of a loss of confidence in other parts of the financial system, the insured banking sector saw few bank runs during the financial crisis. The establishment of TAG in addition to the existing deposit insurance may have helped bolster depositors' confidence in banks as reliable counterparties and prevented them from suddenly withdrawing their deposits. The second TAG program, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203), was a temporary extension of the original program with some changes. This TAG program is set to expire on December 31, 2012. If the program expires, the $1.4 trillion currently insured by TAG in NIBTAs would no longer have unlimited deposit insurance but would have the $250,000 standard maximum deposit insurance amount. Changes to the FDIC's authority made by the Dodd-Frank Act make it unlikely that the FDIC could act to extend the program under its own authority. An extension may require congressional action. Opinions are divided on the merits of extending the program. Underlying the divergent policy views are contrasting opinions about the state of the economic recovery and the role of the government in guaranteeing bank liabilities and in determining the size of the traditional banking system. If the TAG program expires, depositors could keep their deposits in the traditional banking system, or they may decide to transfer some or all of their deposits to nonbank investment options. TAG deposits that remain in the banking system may migrate to the largest or most interconnected banks if large depositors view these as safer, or TAG deposits could move away from the largest banks in response to changes made by the Dodd-Frank Act. TAG deposits that go to nonbanks may flow to money market funds, which are often cited as one of the most popular short-term investment options. A decrease in deposits could affect the liquidity position of a given bank—the ability of the bank to meet its liabilities—but the overall liquidity of the banking system has increased since 2008. If the TAG program is extended, the resulting risk exposure could put additional strain on the FDIC's Deposit Insurance Fund. In addition, a TAG extension could increase moral hazard by neutralizing market mechanisms that penalize the banking system for taking on additional risk. A TAG extension could take multiple forms, ranging from a permanent extension to a temporary, voluntary extension with a short phase-out period. On November 26, 2012, Senator Harry Reid introduced S. 3637, a bill to temporarily extend the TAG program for two years.

Introduction The Americans with Disabilities Act (ADA) has often been described as the most sweeping nondiscrimination legislation since the Civil Rights Act of 1964. It provides broad nondiscrimination protection in employment, public services, public accommodations, and services operated by private entities, transportation, and telecommunications for individuals with disabilities. As stated in the act, its purpose is "to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." The ADA and its regulations require reasonable accommodation or modifications in policies, practices, or procedures when such modifications are necessary to render the goods, services, facilities, privileges, advantages, or accommodations accessible to individuals with disabilities. This concept is found in title I, regarding employment, title II, regarding public entities, and title III, regarding public accommodations. The reasonable accommodation or modification requirement has been interpreted to allow the use of service animals, even in places where animals are generally not permitted. Recently, the Department of Justice (DOJ) promulgated regulations containing specific details about service animals, including when they may be denied access, and defining service animals as trained dogs. This report focuses on these regulatory requirements. Definition of Service Animal Species Limitation Currently, the DOJ regulations for titles II and III of the ADA define service animal as "any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability." Previously, the DOJ regulations had defined service animal as a dog or other animal individually trained to do work or perform tasks for the benefit of an individual with a disability; however, the variety of animal species promoted as service animals led to DOJ's limitation of the definition. The regulations specifically exclude other species of animals whether or not they are wild or domestic or trained or untrained. DOJ notes that, at the time of the promulgation of the original regulations, "few anticipated the variety of animals that would be promoted as service animals in the years to come, which ranged from pigs, and miniature horses to snakes, iguanas, and parrots." Arguments were made by commentators on the proposed regulations for the inclusion of monkeys, particularly capuchin monkeys, who were trained to provide in-home services to individuals with paraplegia and quadriplegia. However, DOJ rejected these arguments noting the potential for disease transmission and unpredictable aggressive behavior. Work or Tasks Performed by Service Animals The DOJ regulations specifically define a service animal as "any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability." The regulations elaborate on the meaning of this requirement mandating that the "work or tasks performed by a service animal must be directly related to the handler's disability." Examples of work or tasks are provided and include the following: Assisting individuals who are blind or have low vision with navigation Alerting individuals who are deaf or hard of hearing to the presence of people or sounds Providing non-violent protection or rescue work Pulling a wheelchair Assisting an individual during a seizure Alerting individuals to the presence of allergens Retrieving items such as medicine or the telephone Providing physical support and assistance with balance to individuals with mobility disabilities Helping individuals with psychiatric and neurological disabilities by preventing or interrupting impulsive or destructive behaviors However, the fact that the presence of an animal may deter crime or provide emotional support does not constitute work or a task. DOJ emphasizes the importance of the concept of doing work or performing tasks and states that "unless the animal is individually trained to do something that qualifies as work or a task, the animal is a pet or support animal and does not qualify for coverage as a service animal." The process for determining if an animal is doing work or performing a task is described as two-part: first, the animal must recognize the problem, and second, the animal must respond. An example would be recognition by a service animal that a person is about to have a psychiatric episode, and a response to this recognition by nudging, barking, or removing the individual to a safe location. Whether or not to include "comfort animals" in the definition of service animals was controversial. DOJ recognizes that the Fair Housing Act (FHA) and the Air Carriers Access Act (ACAA) may create legal obligations for an entity to allow a comfort animal and that this difference from the ADA requirements could lead to confusion. However, DOJ notes that its distinction between a service animal and a comfort animal is based on differences in the covered entities; ADA titles II and III govern a broader range of public settings than either the FHA or the ACAA. Miniature Horses Despite the regulatory limitation in the definition to dogs, miniature horses may be allowed in certain circumstances. Although they are not included in the definition of service animal, the regulations specifically provide that a public entity (title II) or public accommodation (title III) "shall make reasonable modifications in policies, practices, or procedures to permit the use of a miniature horse by an individual with a disability if the miniature horse has been individually trained to do work or perform tasks for the benefit of the individual with a disability." DOJ notes that this provision for miniature horses was made since miniature horses are a viable alternative to dogs for individuals with allergies or who have religious beliefs that preclude the use of dogs. In addition, the longer life span of miniature horses reduces the replacement cost of an animal. In order to determine whether the modifications required for a miniature horse are "reasonable," the regulations provide that public entities or public accommodations shall consider four factors: The type, size, and weight of the miniature horse and whether the facility can accommodate these features Whether the handler has sufficient control over the miniature horse Whether the miniature horse is house broken Whether the miniature horse's presence compromises legitimate safety requirements The specific times when a service animal may be properly excluded, discussed infra, are applicable to miniature horses. In addition, ponies and full sized horses are not covered and miniature horses may be excluded if their presence results in "a fundamental alteration to the nature of the programs, activities, or services provided." Required Modification of Policies, Practices, and Procedures and Exceptions Generally, a public entity (title II) or a place of public accommodation (title III) must modify its policies, practices, and procedures to allow an individual with a disability to use a service animal. More specifically, individuals with disabilities must be permitted to be accompanied by their service animal in areas where other members of the public, or participants in programs or activities are allowed. A public entity or place of public accommodation may not ask or require a surcharge for a service animal, even if people with pets must pay an additional fee. However, there are certain limitations on these requirements, and, as noted previously, these limitations also apply to miniature horses. The animal must be under its handler's control and the public entity or place of public accommodation is not responsible for the care or supervision of the animal. The regulations specifically allow a public entity or a place of public accommodation to ask an individual with a disability to remove a service animal from the premises when the animal is out of control and its handler does not take effective action to control it, or the animal is not housebroken. In its discussion of these exceptions, DOJ observes that an animal may misbehave when provoked or injured. If there is reason to suspect this has occurred, a public entity or a place of public accommodation should determine the facts and, if provocation or injury has occurred, take steps to prevent any similar actions. When the service animal is properly excluded, the public entity or a place of public accommodation must give the individual with a disability the opportunity to participate in the service, program, or activity without the animal. A public entity or place of public accommodation may not ask about the nature or extent of an individual's disability but may ask two questions to determine if the animal is a service animal, when it is not readily apparent. These two questions are if the animal is required because of a disability, and what work or task the animal is trained to do. Other Issues Relating to Service Animals Although the DOJ title II and III regulations provide significant guidance regarding service animals, there are still some issues remaining. For example, the exact interaction between the ADA's requirements and those of other statutes, such as the Fair Housing Act, is somewhat uncertain. When a facility has a mixed use—such as a hotel which allows both residential and short-term stays but does not allocate space for these different uses in separate, discrete units—both the ADA and the Fair Housing Act may apply to the facility. Exactly how the differing service animal requirements would apply in this situation is unclear and will most likely await judicial determinations. Similarly, DOJ regulations do not address the issues involved when an individual with allergies to dogs and an individual with a disability using a service animal both attempt to use a place of public accommodation. This situation, which may occur more often given the more expansive definition of disability provided in ADA Amendments Act, was at issue in Lockett v. Catalina Channel Express, Inc . In Lockett , Catalina Channel Express (CCE), which operates a ferry between Long Beach and Catalina Island, instituted a policy of excluding animals from part of the ferry because of a request by a frequent passenger for an area free of animal dander. When an individual with a visual impairment and a guide dog attempted to buy a ticket for this part of the ferry, the CCE refused, although it changed its policy two weeks later. The court of appeals found that the CCE had made a "one-time reasonable judgment … while it investigated the competing interests" and emphasized the narrowness of its holding. Thus, there is considerable ambiguity concerning how potentially conflicting claims for accommodations relating to service animals should be addressed.

The Americans with Disabilities Act (ADA) has as its purpose providing "a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities." In order to effectuate this purpose, the ADA and its regulations require reasonable accommodation or modifications in policies, practices, or procedures when such modifications are necessary to render the goods, services, facilities, privileges, advantages, or accommodations accessible to individuals with disabilities. The reasonable accommodation or modification requirement has been interpreted to allow the use of service animals, even in places where animals are generally not permitted. The Department of Justice (DOJ) has promulgated regulations containing specific details about service animals, and this report focuses on these regulatory requirements. Generally, a public entity (ADA title II) or a place of public accommodation (ADA title III) must modify its policies, practices, and procedures to allow an individual with a disability to use a service animal. The regulations also define service animals. A service animal is "any dog that is individually trained to do work or perform tasks for the benefit of an individual with a disability, including a physical, sensory, psychiatric, intellectual, or other mental disability." (emphasis added). However, despite the regulatory limitation of the definition to dogs, miniature horses may be allowed in certain circumstances. A service animal does not need to be allowed when the animal is out of control or the animal is not housebroken. In addition, a public entity or place of public accommodation may not ask about the nature or extent of an individual's disability but may ask two questions to determine if the animal is a service animal when it is not readily apparent. These questions are, if the animal is required because of a disability, and what work or task the animal is trained to do. Several issues remain unresolved by the DOJ regulations. For example, the relationship between the ADA and Fair Housing Act in some situations is unclear. In addition, there is considerable ambiguity concerning how potentially conflicting claims for accommodations relating to service animals should be addressed.

Overview1 Climate change is generally viewed as a global issue, but proposed responses typically require action at the national level. With the 1997 Kyoto Protocol now in force and setting emissions objectives for 2008-2012, countries that ratified the protocol are implementing strategies to begin reducing their emissions of greenhouse gases. In particular, the European Union (EU) has decided to use an emissions trading scheme (called a "cap-and-trade" program), along with other market-oriented mechanisms permitted under the Protocol, to help it achieve compliance at least cost. The decision to use emission trading to implement the Kyoto Protocol is at least partly based on the successful emissions trading program used by the United States to implement its sulfur dioxide (acid rain) control program contained in Title IV of the 1990 Clean Act Amendments. The EU's Emissions Trading System (ETS) covers more than 10,000 energy-intensive facilities across the 27 EU Member countries, including oil refineries, powerplants over 20 megawatts (MW) in capacity, coke ovens, and iron and steel plants, along with cement, glass, lime, brick, ceramics, and pulp and paper installations. In addition, aviation is currently being phased into the ETS. These covered entities emit about 40%-45% of the EU's total greenhouse gas emissions, and almost two-thirds of them are combustion installations. The trading program does not cover either carbon dioxide (CO 2 ) emissions from the transportation sector (except aviation), which account for about 25% of the EU's total greenhouse gas emissions, or emissions of non-CO 2 greenhouse gases, which account for about 20% of the EU's total greenhouse gas emissions. A Phase 1 trading period ran between January 1, 2005, and December 31, 2007. A Phase 2 trading period began January 1, 2008, covering the period of the Kyoto Protocol, and a Phase 3 has been finalized to begin in 2013. Under the Kyoto Protocol, the then-existing 15 nations of the EU agreed to reduce their aggregate annual average emissions for 2008-2012 by 8% from the Protocol's baseline level (mostly 1990 levels) under a collective arrangement called a "bubble." In light of the Kyoto Protocol targets, the EU adopted a directive establishing the EU-ETS that entered into force October 13, 2003. One objective of the second phase of the ETS is to achieve 3.3 percentage points of the 8.0% reduction required by the EU-15 under the Protocol. The importance of emissions trading was elevated by the accession of 12 additional central and eastern European countries to EU membership from May 2004 through January 2007. For the new EU-27, the overall ETS emissions cap is set at 2.08 billion metric tons of carbon dioxide (CO 2 ) annually for the Kyoto compliance period (2008-2012). The second phase Kyoto compliance stage of the ETS is built on the experience the EU gained from its preliminary Phase 1. The European Commission (EC) believes that the Phase 1 "learning by doing" exercise prepared the community for the difficult task of achieving the reduction requirements of the Kyoto Protocol. Several positive results from the Phase 1 experience assisted the ETS in making the Phase 2 process run smoothly, at least so far. First, Phase 1 established much of the critical infrastructure necessary for a functional emission market, including emissions monitoring, registries, and inventories. Much of the publicized difficulty the ETS experienced early in the first phase can be traced to inadequate emissions data infrastructure. Phase 1 significantly improved those critical elements in preparation for Phase 2 implementation. Second, the ETS helped jump-start the project-based mechanisms—Clean Development Mechanism (CDM) and Joint Implementation (JI)—created under the Kyoto Protocol. As stated by Ellerman and Buchner: The access to external credits provided by the Linking Directive has had an invigorating effect on the CDM and more generally on CO 2 reduction projects in developing countries, especially in China and India, the two major countries that will eventually have to become part of a global climate regime if there is to be one. Third, according to the EC, a key result of Phase 1 was its effect on corporate behavior. An EC survey of stakeholders indicated that many participants are incorporating the value of allowances in making decisions, particularly in the electric utility sector, where 70% of firms stated they were pricing the value of allowances into their daily operations, and 87% into future marginal pricing decisions. All industries stated that it was a factor in long-term decision-making. However, several issues that arose during the first phase remained contentious as the ETS implemented Phase 2, including allocation (including use of auctions and reliance on model projections), new entrant reserves, and others. In addition, the expansion of the EU and the implementation of the linking directives created new issues to which Phase 2 has had to respond. Based on lessons learned in Phase 1 and Phase 2, the EU has taken a substantially different approach to these issues in Phase 3 that is discussed later. Results from Phase 1 and 2 It is unclear to what degree the first phase of the ETS achieved real emissions reductions. Emissions are dynamic over time; a product of a country's population, economic activity, and greenhouse gas intensity. To capture these dynamics, each Member State of the EU developed an emissions baseline from models that project future trends in the country's emissions based on these and other factors, such as anticipated energy and greenhouse gas policies. During the first phase, the emissions goal was to put the EU on the path to Kyoto compliance—not actually comply with the Protocol (which wasn't necessary until the 2008-2012 time period). Thus, countries developed "business as usual" baselines based on projected growth in emissions. Such a projected baseline suffers from two sources of uncertainty: data uncertainties, and forecasting uncertainties. On data, Phase 1 suffered from uncertainties with respect to data collection and coverage, in monitoring methods for historic data, and data verification. On projecting future emissions, Phase 1 faced uncertainties with respect to economic or sector-based growth rates. Fueled in many cases by over-optimistic economic growth assumptions, these uncertainties increased the probability of inflated business as usual baselines. The combination of these factors and modest reduction requirements resulted in the emissions allocations for the 2005-2007 trading period being higher than actua1 2005 emissions. This result raised questions about how much reductions achieved during Phase 1 were real as opposed to being merely paper artifacts. On the positive side, verified emissions in 2005 were 3.4% below the estimated 2005 baseline used during the allocation process. In addition, the allowance prices for 2005 stayed persistently high, suggesting some abatement was occurring and raising questions of "windfall" profits. As stated by Ellerman and Buchner: First, and most importantly, the persistently high price for EUAs [EU emissions allowances] in a market characterized by sufficient liquidity and sophisticated players must be considered as creating a presumption of abatement. It would be startling if power companies did not incorporate EUA prices into dispatch decisions that would have shifted generation to less emitting plants. There is plenty of anecdotal evidence that this was the case, and the prominent charges of windfall profits assume that the opportunity cost of freely allocated allowances was being passed on (without noting the implications for abatement). Similarly, it would be surprising if there were no changes in production processes that could be made by the operators of industrial plants. However, EU emissions allowances (EUAs) during Phase 1 did not maintain value. Phase 1 EUAs were basically worthless during the final six months of 2007. This decline in EUA prices at least partially reflected the general non-transferability of Phase 1 EUAs to Phase 2. Only Poland and France included limited banking in their Phase 1 implementation plans (called National Allocation Plans (NAPs)). The EC further restricted use of Phase 1 EUAs in Phase 2 with a ruling in November 2006. As a result, excess Phase 1 EUAs were worthless at the end of 2007. One consequence of the non-transferability of Phase 1 EUAs is that prices for Phase 2 EUAs remained relatively firm until the 2008-2009 recession reduced demand, as indicated by Figure 1 . Scarcity is critical for the proper functioning of an allowance market. As further indicated by Figure 1 , during 2009, the market firmed up at a much lower level as participants assessed the impact of the recession on the demand for EUAs. Looking at 2010 data for Phase 2 allowances (December 2010 settlement date) indicate prices staying in the range of 13-16 euro as the European economy slowly recovers from the recession. This is a different response than the market had during Phase 1, and may reflect Phase 2 improvements in the system. In particular, the more predictable 2009-2010 response may reflect the ability of the EC to certify Phase 2 NAPs using more verifiable baseline data than were available for Phase 1. A major reason the EC rejected ex post adjustments was fear that such adjustments would have a disruptive effect on the marketplace. Phase 1 did not firmly establish this foundation of markets; based on the Phase 2 EUA future's market, further market development appears to be occurring, although, like most commodity markets, it remains somewhat volatile at times. While the environmental performance of Phase 1 may be disputed, the need for additional reductions to achieve Kyoto is not. Projections conducted by the European Environment Agency (EEA) in 2009 indicated that for 2008, the EU-15 was 6.2% below its base-year emissions, compared with an 8% five-year average reduction commitment under the Kyoto Protocol. As indicated by Figure 2 , this represents a continuation of reductions by EU-15 over the past five years. However, as indicated by the pink line, the EEA projects that the EU-15 existing measures are insufficient to reduce EU-15 emissions to their Kyoto requirements (represented by the purple line), resulting in a projected 6.9% reduction from baseline levels. To achieve the Kyoto target the EU projects further reduction actions planned by EU-15 countries (represented by the green line in Figure 2 ), resulting in an overall reduction of 8.5% compared with baseline levels. In addition to domestic emission reductions, the EU has also projected additional reduction credits received by activities permitted under the Kyoto Protocol: (1) purchase of project-based credits by ETS participants and EU governments (e.g., Joint Implementation (JI) and Clean Development Mechanism (CDM) projects); and, (2) the use of carbon sinks. As indicated in Figure 3 , these activities provide a credit on the EU-15 baseline of 4.6 percentage points. Thus, if the EU-15 maintains its current path, it would exceed its Kyoto commitment by about 3.5 percentage points (6.9% minus 3.4%). If its planned measures result in the projected 8.5% reduction below baseline levels, the overachievement of its Kyoto commitment would be 5.1 percentage points (8.5% minus 3.4%). The EU-27 as a whole does not have an emissions target comparable to the EU-15 bubble. By 2010, EU-27 emissions are projected at 9.6% below Kyoto baseline levels assuming current policies. This reduction is projected at 11.3% if additional measures are included. Based on EEA's 2009 projections, 24 of the 25 countries with reduction requirements are projected to meet their commitments under the Kyoto Protocol. Only Austria is not projected to meet its requirements even with additional planned measures and the use of Kyoto mechanisms. After the first year of the Kyoto compliance period, seven EU-15 member countries are already in compliance with their 2008-2012 target: Belgium, Finland, France, Germany, Greece, Sweden, and the United Kingdom. For the ten of EU-12 member countries with Kyoto obligations, only Slovenia was not in compliance in 2008. Total EU-27 greenhouse gas emissions in 2008 were 4.94 billion metric tons, compared with 5.57 billion metric tons in 1990 – a drop of 11.3%. Phase 3 The European Union is committed to achieving a 20% reduction in greenhouse gas emissions by 2020 from 1990 levels (or more depending on the actions of other countries). A strategic component of the effort to achieve this target is a revised ETS that will achieve a 21% reduction from covered entities from 2005 levels. Table 1 indicates the proposed EU-wide ETS cap for the next Phase of EU greenhouse gas program (Phase 3) assuming no further international commitments. As indicated, the EC envisions a linear reduction in the ETS cap to match the reduction target under the overall 20% reduction program. These numbers will change as individual countries decide to include more facilities under the ETS and as the EC expands ETS coverage to include other sectors and non-CO 2 greenhouse gases. In July, 2010, the EC issued a decision on the EU emissions allowance cap under the EU-ETS for 2013. Set at 2,032,998,912 allowances, the cap is subject to further revisions if additional relevant information warrants a change and when a separate decision on allocations to aircraft operators is made. For Phase 3, the EU is re-shaping the ETS to improve its efficiency and eliminate some of the problems identified during Phase 1 and 2. For Phase 2, the improved emissions inventories resulting from Phase 1 allowed the EC to harmonize the types of installations covered by the ETS across the various Member States. In addition, the EC imposed a uniform rule on the Member States preventing the use of ex-post adjustments. However, Phase 2 made little advancement in harmonizing individual countries' allocations schemes. As with Phase 1, countries continue to differ widely on several key points. The critical structural change the EU would make in Phase 3 is eliminating National Allocation Plans (NAPs), and replacing them with EU-wide rules with respect to allowance availability, allocations, and auctions. NAPs are central to the EU's effort to achieve its Kyoto obligations under Phase 2. Each Member of the EU submitted a NAP that lays out its allocation scheme under the ETS, including individual allocations to each affected unit. These NAPs were assessed by the EC to determine compliance with 12 criteria delineated in an annex to the emissions trading directive. Criteria included requirements that the emissions caps and other measures proposed by the Member State were sufficient to put it on the path toward its Kyoto target, protections against discrimination between companies and sectors, and delineation of intended use of CDM and JI credits for compliance, along with provisions for new entrants, clean technology, and early reduction credits. For the second trading period, the NAP had to guarantee Kyoto compliance. This NAP structure will be replaced under Phase 3. There will be one EU-wide cap instead of the 27 national caps under Phase 1 and 2. Allowances will be allocated under EU-wide, fully harmonized rules, including those governing: (1) auctions, (2) transitional free allocations for greenhouse gas intensive, trade-exposed industries, (3) new entrants, and (4) coverage. The EC proposed a Directive to alter the EU-ETS structure for Phase 3 in January, 2008, and the Directive was amended and adopted by the European Parliament (EP) and of the Council of the European Union in April 2009. Auctions Under Phases 1 and 2, allowances generally were and are allocated free to participating entities under the ETS. During Phase 1, The 2003 EU-ETS Directive allowed countries to auction up to 5% of allowance allocations, rising to 10% under Phase 2. Under Phase 1, only 4 of 25 countries used auctions at all, and only Denmark auctioned the full 5%. The political difficulty in instituting significant auctioning into ETS allowance allocations is the almost universal agreement by covered entities in favor of free allocation of allowances and opposition to auctions. Free allocation of allowances represents a one-time transfer of wealth to the entities receiving them from the government issuing them. The resulting transfer of wealth has been described by several analysts as "windfall profits." As summarized by Ellerman and Buchner: "Allocation in the EU ETS provides one more example that, notwithstanding the advice of economists, the free allocation of allowances is not to be easily set aside." Despite concerns about windfall profits and economic distortions resulting from the free allocation of allowances, there was little change in basic allocation philosophy for Phase 2. No country proposed auctioning the maximum percentage of allowances allowed (10%). Most do not include auctions at all. The unwillingness of governments to employ auctions as an allocating mechanism revolve around equity considerations, including: (1) inability of some covered entities to pass through cost because of regulation or exposure to international competition; (2) potential drag on a sector's economic performance from the up-front cost of auctioned allowances; and (3) the potential that government will not recycle revenues to alleviate compliance costs, international competitiveness impacts, or other equity concerns, resulting in the auction costs being the same as a tax. This opposition is mostly overcome for Phase 3 through an EU-wide set of harmonized rules for allowance allocations and auctions. Under Phase 3, the Directive states: Auctioning should ... be the basic principle for allocation, as it is the simplest, and generally considered to be the most economic efficient system. This should also eliminate windfall profits and put new entrants and economies growing faster than average on the same competitive footing as existing installations. (paragraph 15) After nine eastern European Member States threatened to veto an initial proposal to auction 100% of all allowances, the EU compromised to provide for some free allocation of allowances during Phase 3 that will begin in 2013. Most covered industries will be eligible for some free allocation of allowances to cover direct emissions under the Phase 3 agreement. The introduction of auction would be differentiated by sector. In general, for the power sector, full auctioning will begin in 2013. For electric powerplants, most will receive no free allocation of allowances during Phase 3. However, in a concession to certain eastern European Member States, an optional and temporary derogation from the no-free-allocation requirement for powerplants is provided to countries that meet specific energy and economic criteria. Under the optional allocation scheme, the Member State can allocate allowances equal to 70% of the powerplant's Phase 1 emissions free; this allocation declines to zero in 2020. The auction schedule for most other covered entities is more gradual with 80% of a sector's allocation provided free in 2013, declining linearly to 30% by 2020, and zero by 2027. As stated in the Directive: For other sectors covered by the Community scheme, a transitional system should be foreseen for which free allocation in 2013 would be 80% of the amount that corresponded to the percentage of the overall Community-wide emissions throughout the period 2005 to 2007 that those installations emitted as a proportion of the annual Community-wide total quantity of allowances. Thereafter, the free allocation should decrease each year by equal amounts resulting in 30% free allocation in 2020, with a view to reaching no free allocation in 2027. (paragraph 21) Because of concern that stringent EU carbon policies may encourage production and related greenhouse gas emissions to shift to countries without carbon policies (i.e., carbon leakage), exceptions to this phase-out of free allowances will be made in sectors where carbon leakage may occur, as discussed later. Distribution of allowances to be auctioned by the Member States will be determined by a three-part formula (Article 10(2)). Eighty-eight percent of the allowances to be auctioned by each Member State is distributed to States according to their historic emissions under Phase 1 of the EU-ETS. Ten percent of the total is distributed to States mostly based in their comparative GDP per capita within the EU (Annex IIa). Two percent of the total is distributed to nine former eastern-bloc countries based on the substantial greenhouse gas reductions they have already achieved (Annex IIb). In November 2010, the EC finalized an Auction Regulation to provide for coordinated auctions of allowances during Phase 3. The rule creates a central platform to auction off the majority of allowances, beginning in 2013. While the EC would have preferred to have a single platform, some members insisted on having the option of opting out of the central platform and setting up their own platforms under specified conditions. Allowances will be auctioned on a spot basis, avoiding potential conflicts with established secondary markets (such as the ECX). The format will be a single-round, sealed bid, uniform price auction. Auctions will be held at least weekly. Auctions will be open to facility operators, and regulated investment firms and credit institutions, along with "intermediaries (such as fuel traders). The rule also includes provisions to address potential anti-competitive behavior and market abuse. Beyond the allocation of allowances, the EU Directive also provides guidelines for the allocation of revenues from allowance auctions. The Directive states that at least 50% of the proceeds should be used to fund a variety of climate change related activities, including emission reductions, adaptation activities, renewable energy, carbon capture and storage (CCS), the Global Energy Efficiency and Renewable Energy Fund, and assisting developing countries to avoid deforestation and increase afforestation and reforestation (Article 10(3)). New Entrant Reserves Unlike previous cap-and-trade programs, the EU-ETS includes provisions for allocating free allowances to new entrants to the system. The reasoning behind this decision is based on equity: (1) it isn't fair to allocate allowances free to existing entities while requiring new entrants to purchase them, and (2) the EU doesn't want to put Member States at a disadvantage in competing for new investments. These equity concerns trumped concerns about economic efficiency. As is the case for existing entities, the free allocation of allowances to new entrants is a subsidy. Under Phase 1 and Phase 2, the size and distribution of this subsidy is left to the individual Member States. For Phase 1, the reserve varied widely from the average of 3% of total allowances: Poland set aside only 0.4% of its allocation for new entrants while Malta set aside 26%. For Phase 2, the spread continues with Poland reserving 3.2% of its allowances for new entrants in contrast to 45% reserved by Latvia. The decision to employ a new entrant reserve adds complexity to Member States' allocation plans and influences the investment decisions of covered entities. Rules had to be promulgated with respect to the reserve's size, manner in which the allowances are dispensed, and how to proceed if the demand either exceeds the supply, or vice versa. As indicated, countries did not harmonize new entrant reserve rules with respect to size during Phase 1 or 2. Likewise, there is no standardization on dispensing allowances and replenishing the reserve: first-come, first-serve with no replenishment is one approach used, but a variety of procedures have been developed both to dispense allowances and to replenish the reserve if supply is inadequate. Member States also have different formulas for determining how many allowances a new entrant should receive. Member States claim to use a form of "benchmarking" to determine allowance allocations—an approach based on a standard of "best practices" or "best technology" that is applied to the new entrant's anticipated production or capacity. However, the definitions and application of the benchmarks used by the Member States are not uniform. This will change under Phase 3. Under Phase 3, the Directive sets an EU-wide cap of 5% of the total allowance cap for a new entrant reserve, and requires the harmonization of allocation rules. The EC is to adopt a harmonized rule for applying a new entrant definition contained in the Directive by December 31, 2010; the Directive expressly excludes any new electricity production from being defined as a new entrant. The EC is also to determine EU-wide benchmarks for the allocation of all free allowances. The Directive states that the starting point for setting those benchmarks shall be the average performance of the 10% most efficient installations in a sector or subsector in the EU in the years 2007-2008 (Article 10a(2)). In an attempt to stimulate development of CCS, the Directive also provides that up to 300 million allowances in the new entrants' reserve shall be available through 2015 for aiding construction and operation of up to 12 demonstration projects. No one project can receive more than 15% of the allowances allocated for this purpose (Article 10a(8)). Draft rules to harmonized free allocation of allocations through benchmarks was proposed by the EC on December 15 th , 2010. As drafted, a benchmark represents the threshold for receiving free allocations for a specific facility; it does not represent an emission limit or even an emission reduction target. The benchmarks are to be developed per product, to the extent feasible. As noted in the Directive, a product benchmark generally is based on the average greenhouse gas performance of the 10 % best performing installations in the EU producing that product. As explained by the EC: "The benchmarks are established on the basis of the principle 'one product = one benchmark', which means that the benchmark methodology does not differentiate by technology or fuel used, nor the size of an installation or its geographical location." EC Phase 3 Decision on Eligible Industries51 Most studies of the competitiveness impacts of the ETS during Phase 1 have found no impact. The International Energy Agency (IEA) cites several reasons for this situation: Experience to date with the EU-ETS does not reveal leakage for the sectors concerned—analysis of steel, cement, aluminum and refineries sectors reveals that no significant changes in trade flows and production patterns were evident during the first phase (2005-2007) of the EU-ETS. This is mostly due to the free allocation of allowances, sometimes in generous quantities, and to the still functioning long-term electricity contracts, which softened the blow of rising electricity prices. Further, the general boom in prices for most traded products subject to carbon costs—whether direct or indirect—has blurred any effects of the latter. Finally, the relatively short time span of these policies does not allow observation of the full potential effects on industry via changes in investment location decisions. This conclusion is echoed by Carbon Trust, which states that currently, free allocation of emissions allowances offset almost all of the additional costs of the ETS; and that conclusion is echoed by The Climate Group for The German Marshall Fund, which states that companies surveyed found it difficult to quantify effects on their bottom line in the first phase, or found no effect at all. For energy-intensive, trade-exposed industries, Phase 3 has provisions to provide assistance to eligible installations to address the direct and indirect impact of emissions control costs. With respect to direct emissions costs, the EC published a list of installations exposed to a significant risk of carbon leakage on December 24, 2009, as required under the Directive. The list is identical to the draft list released in September 2009. The decision lists 164 industrial sectors and subsectors deemed to be exposed sectors under the appropriate European Parliament and Council directives. Eligible installations will receive allowances sufficient to cover 100% of their direct emissions, provided they are using the most efficient technology available (based on the benchmarks provided in the draft rules discussed above). This 100% allocation contrasts with the 80% distribution of free allowances to non-carbon leakage exposed industries in 2013. Reflecting the fluid nature of the competitive situation and international negotiations, the EC was to review its decision June 30, 2010, and provide the European Parliament and Council with any appropriate proposals to respond to the situation. Consultations made by the EC with interested parties suggest the international situation has not changed sufficiently for the EC to propose changes to its Directive. Assistance for the impact of indirect emissions control costs on exposed industries from higher electricity prices would be determined by Member States. As stated by the Directive: Member States may deem it necessary to compensate temporarily certain installations which have been determined to be exposed to a significant risk of carbon leakage related to greenhouse gas emissions passed on in electricity prices for these costs. Such support should only be granted where it is necessary and proportionate and should ensure that the Community scheme incentives to save energy and to stimulate a shift in demand from grey to green electricity are maintained. (paragraph 27) Flexibility Mechanisms and Price Volatility Control The major flexibility mechanism developed under the EU-ETS has been the Clean Development Mechanism (CDM) and Joint Implementation (JI) credits permitted under the Kyoto Protocol; however, this development has proven a controversial process. A major part of the controversy has been the "supplementarity" requirement of the Kyoto Protocol to use its flexibility mechanisms. Supplementarity requires that developed countries, such as most EU countries, ensure that their use of JI/CDM credits is supplemental to their own domestic control efforts. In defining supplementarity for Phase 2, the EC used 10% of a country's allowance allocation as a rule of thumb in approving NAPs—with a greater limit possible based on a country's domestic efforts to reduce emissions. This process resulted in some significant reductions in some countries' proposed limits (e.g., Ireland, Poland, Spain), but some increase in others (e.g., Italy, Latvia, Lithuania). Although these reductions appear substantial in individual cases, most analysts agree that they do not represent a major barrier to the cost-effective use of JI/CDM. However, the EU-ETS does not accept credits from land use, land-use change and forestry (LULUCF) projects. For Phase 3, the EU maintains its ban on using LULUCF credits within the ETS. In addition, in November 2010, the EC proposed rules to ban the use of credits from two industrial gases—a rule likely to be adopted formally by the EC in Spring 2011. The ban will apply to projects which destroy trifluoromethane (HFC-23) produced as a by-product of chlorodifluoromethane (HCFC-22) production, and nitrous oxide (N2O) from adipic acid production. According to the EC, just 23 such industrial gas projects account for two-thirds of all the credits generated through the CDM; most are in China and other advanced developing countries. The ban on the use of such credits in the EU ETS will apply to all such projects undertaken under the CDM as well as any undertaken in developed countries through the JI mechanism. Essentially, the ban allows companies to use for 2012 compliance under the EU ETS, but not thereafter. However, Phase 3 will permit up to 50% of the required reductions mandated under Phase 3 to be achieved through CDM or JI credits. For existing installations, this represents a total of 1.6 billion credits over the eight-year compliance period. Limits on use of Kyoto credits will be based on a facility's 2008-2012 allocation (for an existing facilities) or its verified emissions during Phase 3 (for a new entrant or sector). The EC estimates that the minimum amount of Kyoto credits an existing facility will be able to use to comply with Phase 3 will be 11% of its 2008-2012 allocation, while new entrants and sectors will be able to use a minimum of 4.5% of their verified emissions during 2013-2020 (article 11a(8)). The precise percentages will be determined later. Another flexibility mechanism, banking, is extended by the Directive from Phase 2 to Phase 3 in order to prevent a Phase 1 style collapse of allowance prices when the ETS transitions into Phase 3. In addition, the EU hopes that extending the trading period from five years to eight years, along with the steady, linear emissions reduction schedule, will increase certainty and stability in the allowance markets. Phase 3 will introduce two other mechanisms designed to address price volatility. First, the EC is required under the Directive to examine whether the market for emission allowances is sufficiently protected from insider dealing or market manipulation. If not, the EC is to present proposals to ensure such protection to the EP and the Council (article 12(a)). Second, the Directive provides that if the allowance price is more than three times the preceding two-year average for more than six consecutive months and the price is not based on market fundamentals, one of two measures may be taken. The first would allow Member States to shift forward the auctioning of some of its auctionable allowances. The second would allow Member States to auction up to 25% of the remaining allowances in the new entrants reserve (article 29(a)). Expanding Coverage Despite the EC's interest in expanding the ETS, its coverage in terms of industries included for Phase 2 is essentially the same as for Phase 1. The exception is for aviation. In December, 2006, the EC proposed bringing greenhouse gas emissions from civil aviation into the ETS in two phases. As agreed to by the European Parliament in July 2008, all intra-EU and international flights will be included under the ETS beginning in 2012. Emissions would be capped at 97% of average 2004-2006 emissions with 85% of the allowances being allocated free to operators. The cap would be reduced to 95% in 2013. The cap and auctioning of allowances would be reviewed as a part of Phase 3 implementation. Annex I of the Directive identifies three CO 2 emitting sectors for inclusion under the ETS: petrochemicals, ammonia, and aluminum. The ETS will also expand beyond CO 2 to include nitrous oxide (N 2 O) emissions from nitric, adipic, and glyoxalic acid production, and perofluorocarbon (PFC) emissions from the aluminum sector. This would expand ETS covered emissions by 4.6% over Phase 2 allowance allocations, or about 100 million metric tons. The harmonization and codification of eligibility criteria for combustion installations is expected to increase the coverage by a further 40-50 million metric tons. To improve the cost-effectiveness of the ETS and reduce administrative costs, the Directive provides that small installations may be subject to other control regimes (such as carbon taxes) rather than included under the EU-ETS. Currently, the smallest 1,400 (10% of total installations covered) installations emit only 0.14% of total emissions covered. The Directive provides that Member States may opt to exclude installations that emit less than 25,000 metric tons annually from the EU-ETS (paragraph 11). Summary and Considerations for U.S. Cap-and-Trade Proposals The United States is not a party to the Kyoto Protocol and no legislative proposal before the Congress would impose as stringent or rapid an emission reduction regime on the United States as Kyoto would have. Likewise, U.S. proposals to reduce emissions through 2020 are not as stringent as that provided in the EU Directive. However, through five years of carbon emissions trading, the EU has gained valuable experience. This experience, along with the process of developing Phase 3, may provide some insight into current cap-and-trade design issues in the United States. Emission Inventories and Target Setting The ETS experience with market trading and target setting confirms once again the central importance of a credible emissions inventory to a functioning cap-and-trade program. The lack of credible EU-wide data on emissions was a direct cause of the ETS Phase 1 allowance market collapse in 2006. Arguably, the most important result of Phase 1 was the development of a credible inventory on which to base future targets and allocations. In the United States, Section 821 of the 1990 Clean Air Act Amendments requires electric generating facilities affected by the acid rain provisions of Title IV to monitor carbon dioxide in accordance with EPA regulations. This provision was enacted for the stated purpose of establishing a national carbon dioxide monitoring system. As promulgated by EPA, regulations permit owners and operators of affected facilities to monitor their carbon dioxide emissions through either continuous emission monitoring (CEM) or fuel analysis. The CEM regulations for carbon dioxide are similar to those for the acid rain program's sulfur dioxide CEM regulations. Those choosing fuel analysis must calculate mass emissions on a daily, quarterly, and annual basis, based on amounts and types of fuel used. As suggested by the EU-ETS experience, expanding equivalent data requirements to all facilities covered under a cap-and-trade program would be the foundation for developing allocation systems, reduction targets, and enforcement provisions. In response to FY2008 Consolidated Appropriations Act , EPA promulgated the Greenhouse Gas Reporting Rule in 2009 to expand the facilities required to report greenhouse gas emission data to EPA annually. Under the rule, 31 categories of sources begin reporting their emissions in 2011 if a source within a designated category emits 25,000 metric tons or more of carbon dioxide equivalents annually. Since promulgation, four additional categories have been added and others proposed. Coverage Despite economic analysis to the contrary, the EU decided to restrict Phase 1 ETS coverage to six sectors that represented about 40%-45% of the EU's CO 2 emissions. This restriction was estimated to raise the cost of complying with Kyoto from 6 billion euro annually to 6.9 billion euro (1999 euro) compared with a comprehensive trading program. A variety of practical, political, and scientific reasons were given by the EC for the decision. The experience of the ETS up to now suggests that adding new sectors to an existing trading program is a difficult process. As noted above, a stated goal of the EC is to expand the coverage of the ETS. However, the experience of Phase 1 did not result in the addition of any new sector until the last year of Phase 2 when aviation will be included. The EU will expand its coverage with Phase 3, but the ETS will still cover fewer sectors emitting greenhouse gases than provided under most U.S. proposals. U.S. cap-and-trade proposals generally fall into one of two categories. Most bills are more comprehensive than the ETS, covering 80% to 100% of the country's greenhouse gas emissions. At a minimum, they include the electric utility, transportation, and industrial sectors; disagreement among the bills center on the agricultural sector and smaller commercial and residential sources. In some cases discretion is provided EPA to exempt sources if serious data, economic, or other considerations dictate such a resolution. A second category of bills focuses on the electric utility industry, representing about 33% of U.S. greenhouse gases and therefore less comprehensive than the ETS. Sometimes including additional controls on non-greenhouse gas pollutants, such as mercury, these bills focus on the sources with the most experience with emission trading and the best emissions data. Other sources could be added as circumstances dictate. As noted, the EU's experience with the ETS suggests that adding sectors to an emission trading scheme can be a slow and contentious process. If one believes that the electric utility sector is a cost-effective place to start addressing greenhouse gas emissions and that there is sufficient time to do the necessary groundwork to eventually add other sectors, then a phased-in approach may be reasonable. If one believes that the economy as a whole needs to begin adjusting to a carbon-constrained environment to meet long term goals, then a more comprehensive approach may be justified. The ETS experience suggests the process doesn't necessarily get any easier if you wait. Allocation Schemes Setting up a tradeable allowance system is a lot like setting up a new currency. Allocating allowances is essentially allocating money with the marketplace determining the exchange rate. As noted above, the free allocation scheme used in the ETS has resulted in "windfall profits" being received by allowance recipients. As stated quite forcefully by Deutsche Bank Research: The most striking market outcome of emissions trading to date has been the power industry's windfall profits, which have sparked controversy. We are all familiar with the background: emissions allowances were handed out free of charge to those plant operators participating in the emissions trading scheme. Nevertheless, in particular the producers of electricity succeeded in marking up the market price of electricity to include the opportunity-cost value of the allowances. This is correct from an accounting point of view, since the allowances do have a value and could otherwise be sold. Moreover, emissions trading cannot work without price signals. The free allocation of allowances in Phase 1 and 2 of the ETS incorporates two other mechanisms that create perverse incentives and significant distortions in the emissions markets: new entrant reserves and closure policy. Combined with an uncoordinated and spotty benchmarking approach for both new and existing sources, the result is a greenhouse gas reduction scheme that is influenced as much or more by national policy than by the emissions marketplace. The expansion of auctions for Phase 3 of the ETS could simplify allocations and permit market forces to influence compliance strategies more fully. Most countries did not employ auctions at all during Phase 1 and auctions continue to be limited under Phase 2. No country combined an auction with a reserve price to encourage development of new technology. The EC limited the amount of auctioned allowances to 10% in Phase 2: a limit no country chose to meet. Efforts to expand auctions met opposition from industry groups, but attracted support from environmental groups and economists. The Phase 3 increased use of auctioning through 2020 will represent a major development for the scheme. Currently, all U.S. cap-and-trade proposals have some provisions for auctions, although the amount involved is sometimes left to EPA discretion. Most specify a schedule that provides increasing use of auctions from 2012 through the mid-2030s with a final target of 66%-100% of total allowances auctioned. Funds would be used for a variety of purposes, including programs to encourage new technologies. Some proposals include a reserve price on some auctions to create a price floor for new technology. Like the situation in the ETS, most U.S. industry groups either oppose auctions outright or want them to be supplemental to a base free allocation. Given the experience with the ETS where the EC and individual governments have been unwilling or unable to move away from free allocation, the Congress, like the EU, may ultimately be asked to consider specifying any auction requirement if it wishes to incorporate market economics more fully into compliance decisions. Flexibility and Price Volatility Despite EU rhetoric during the Kyoto Protocol negotiations, it moved into Phase 2 without a significant restriction on the use of CDM and JI credits. This embracing of project credits will significantly increase the flexibility facilities have in meeting their reduction targets. In addition, Phase 2 includes the use of banking to increase flexibility across time by allowing banked allowances to be used in Phase 3. Each of these market mechanisms is projected to reduce both the EU's Kyoto compliance costs and allowance price volatility. These flexibility mechanisms will be extended into Phase 3 with modifications. Unfortunately, Phase 1 experience with the ETS did not provide much useful information on the value of market mechanisms or financial instruments in reducing costs or price volatility. The combination of poor emissions inventories, non-use of project credits, and time-limited allowances with effectively no banking resulted in extreme price volatility in Spring 2006, and virtually worthless allowances by mid-2007. The real test for the mechanisms employed by the ETS to create a stable allowance market is Phase 2. Initial indications are that a mature market for allowances appears to be developing, although, like most commodities markets, the allowance market can still be volatile at times. Phase 3 is introducing two new mechanisms in the ETS to further respond to volatility not based on market fundamentals. However, the actual effectiveness of these mechanisms is yet to be proven. Like the ETS, U.S. cap-and-trade proposals would employ a combination of devices to create a stable allowance market and encourage flexible, cost-effective compliance strategies by participating entities. All include banking. All include use of offsets, although some would place substantial restrictions on their use. Some proposals have incorporated a "safety valve" that would effectively place a ceiling on allowance prices, while others would create a Carbon Market Efficiency Board to observe the allowance market and implement cost-relief measures if necessary. Finally, some incorporate strategic reserves auctions, similar in concept to the EU forward auctioning mechanism, to increase allowance supply without busting the emission cap. Some see this as a more flexible response with the potential for avoiding or mitigating the environmental impacts of a safety valve (i.e., increased emissions). Additionally, concern has been expressed in the United States about the regulation of allowance markets and instruments. Based on experience with the ETS, the potential for speculation and manipulation could extend beyond the emission markets. Analysis of ETS allowance prices during Phase 1 suggests the most important variables in determining allowance price changes were oil and natural gas price changes. This apparent linkage between allowance price changes and price changes in two commodities markets raises the possibility of market manipulation, particularly with the inclusion of financial instruments such as options and futures contracts. The concern is sufficient for the Directive to require the EC to examine the situation and the current protections against such activities. Congress may ultimately be asked to consider whether the Securities and Exchange Commission, Federal Energy Regulatory Commission, the Commodities Futures Trading Commission, or other body should have enhanced regulatory and oversight authority over such instruments.

The European Union's (EU) Emissions Trading Scheme (ETS) is a cornerstone of the EU's efforts to meet its obligation under the Kyoto Protocol. It covers more than 10,000 energy intensive facilities across the 27 EU Member countries; covered entities emit about 45% of the EU's carbon dioxide emissions. A "Phase 1" trading period began January 1, 2005. A second, Phase 2, trading period began in 2008, covering the period of the Kyoto Protocol. A Phase 3 will begin in 2013 designed to reduce emissions by 21% from 2005 levels. Several positive results from the Phase 1 "learning by doing" exercise assisted the ETS in making the Phase 2 process run more smoothly, including: (1) greatly improving emissions data, (2) encouraging development of the Kyoto Protocol's project-based mechanisms—Clean Development Mechanism (CDM) and Joint Implementation (JI), and (3) influencing corporate behavior to begin pricing in the value of allowances in decision-making, particularly in the electric utility sector. However, several issues that arose during the first phase were not resolved as the ETS implemented Phase 2, including allocation schemes and new entrant reserves, and others. A more comprehensive and coordinated response has been designed for Phase 3 with harmonized and coordinated rules being developed by the European Commission. The United States is not a party to the Kyoto Protocol. However, six years of carbon emissions trading has given the EU valuable experience in designing and operating a greenhouse gas trading system. This experience may provide some insight into cap-and-trade design issues as the United States debates the issue and some states and regions implement their own programs. The EU-ETS experience illustrates the importance of having reliable emissions data for all facilities covered under a cap-and-trade scheme; data that are pivotal for developing allocation systems, reduction targets, and enforcement provisions. In the United States debate continues on comprehensive versus sector-specific reduction programs; the EU-ETS experience suggests that adding sectors to a trading scheme once established may be a slow, contentious process. As with most EU industries, most U.S. industry groups either oppose auctions outright or want them to be supplemental to a base free allocation. The EU-ETS experience suggests Congress and/or states may want to consider specifying any auction requirement if it wishes to incorporate market economics more fully into compliance decisions. EU-ETS analysis suggests the most important variables in determining Phase 1 allowance price changes were oil and natural gas price changes; this apparent linkage raises possible market manipulation issues, particularly with the inclusion of financial instruments such as options and futures contracts. The EU will examine the matter in preparation for Phase 3. Congress may consider whether the government currently has sufficient regulatory and oversight authority over such instruments.

Introduction P.L. 114-94 , the Fixing America's Surface Transportation (FAST) Act, was signed by President Obama on December 4, 2015. The act reauthorizes federal highway and mass transit programs through the end of FY2020. It also authorizes to be appropriated about $305 billion for these programs, an increase of about 4.2% over current funding levels plus projected inflation for highway programs ($225.19 billion versus $216.122 billion) and 7.9% over current funding levels plus projected inflation for public transportation programs ($48.904 billion versus $45.331 billion). For example, in the first year, FAST increases current highway spending by about $2.1 billion (from $40.995 billion in FY2015 to $43.1 billion) and current public transportation spending by $753 million (from $8.595 billion to $9.348 billion). In FY2020, FAST increases highway spending by about $2.16 billion over current funding levels plus projected inflation ($47.104 billion versus $44.940 billion) and public transportation spending by $753 million ($10.150 billion versus $9.429 billion). FAST supersedes P.L. 112-141 , the Moving Ahead for Progress in the 21 st Century Act (MAP-21), which was signed into law by President Obama on July 6, 2012. It reauthorized federal highway and mass transit programs through the end of FY2014 (27 months) and authorized to be appropriated $105.2 billion for these programs in FY2013 and FY2014 (about $118 billion including already appropriated funding for FY2012). MAP-21 followed 10 short-term reauthorizations of the Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA; P.L. 109-59 ), and lengthy consideration of federalism issues in surface transportation policy. MAP-21's authorization was extended five times, most recently by P.L. 114-87 , the Surface Transportation Extension Act of 2015, Part II, through December 4, 2015. Although the federal presence, and influence, on surface transportation policy remains significant, FAST is a continuation of previous reauthorizations' emphasis on increasing state decisionmaking authority. For example, FAST provided states greater flexibility in the use of federal highway assistance by converting the Surface Transportation Program (STP) into a block grant; rolling the Transportation Alternatives Program into the STP and allowing 50% of local government transportation alternatives funding to be used on any STP-eligible project; and consolidating truck and bus safety grant programs. FAST also includes changes to the project delivery approval process in an effort to reduce the average project delivery time for highway and mass transit construction projects. The changes made by FAST and its predecessor, MAP-21, demonstrate that the nature of federalism relationships in American surface transportation policy is continuously evolving over time in reaction to changes in American culture, society, and politics. As will be shown, the federal government's role in determining the nature of American surface transportation policy has become increasingly influential, especially since the Federal-Aid to Highway Act of 1956 that authorized the interstate highway system. For many years, state and local government officials, through their public interest groups (especially the National Governors Association, National Conference of State Legislatures, National Association of Counties, National League of Cities, U.S. Conference of Mayors, and American Association of State Highway and Transportation Officials), have lobbied for increased federal assistance for surface transportation grants and increased flexibility in the use of those funds. For example, during FAST's consideration, the National Governors Association advocated a multi-year reauthorization of federal highway and mass transit programs that "provide maximum flexibility to the state for implementation and innovation because of our diversity of geography, population, and priorities." State and local government officials contend that providing them added flexibility in surface transportation policy is justified because they are better able to identify surface transportation needs in their states than federal officials and are capable of administering federal grant funds with relatively minimal federal oversight. They also argue that states have a long history of learning from one another. In their view, providing flexibility in the use of federal funds results in better surface transportation policy because it enables states to experiment with innovative solutions to surface transportation problems and then share their experiences with other states. Others argue that the federal government has a responsibility to ensure that federal funds are used in the most efficient and effective manner possible to promote the national interest in expanding national economic growth and protecting the environment. In their view, providing states increased flexibility in the use of federal funds diminishes the federal government's ability to ensure that national needs are met. Still others have argued for a fundamental restructuring of federal and state government responsibilities in surface transportation policy, with some responsibilities devolved to states and others remaining with the federal government. This report provides a historical perspective on contemporary federalism issues in surface transportation policy since the beginning of the nation. It includes a discussion of the five multi-year reauthorizations of the Federal-Highway Act since 1987: 1. the $151 billion, six-year Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240 ) signed by President George H. W. Bush on December 18, 1991. 2. the $203.4 billion, six-year Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ) signed by President Bill Clinton on June 9, 1998. 3. the $286 billion, six-year Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA; P.L. 109-59 ) signed by President George W. Bush on August 10, 2005. 4. the $118 billion ($105.2 billion for FY2013 and FY2014), 27-month, Moving Ahead for Progress in the 21 st Century (MAP-21; P.L. 112-141 ) signed by President Barack Obama on July 6, 2012. 5. the $305 billion, five-year Fixing America's Surface Transportation Act (FAST; P.L. 114-94 ), signed by President Barack Obama on December 4, 2015. The Federal Government's Role in Surface Transportation Policy: 1789-1956 When the nation was formed in 1789, there was considerable debate concerning whether Congress had constitutional authority to provide direct, cash assistance for surface transportation projects. That uncertainty created a conceptual framework that initially limited congressional options for federal involvement in surface transportation policy. Over time, that conceptual framework has evolved in response to changes in American society and in the American political system. Today, the federal government has a prominent role in surface transportation policy, providing about $51.9 billion annually for highway and mass transit grants, including about $43.1 billion for highways (in FY2016) and $10.9 billion for mass transit (in FY2016). Federal spending represents about one-quarter of total government expenditures on highways and mass transit, and nearly half (44.3%) of government highway and mass transit capital expenditures. The following section examines the evolution of the federal role in surface transportation policy since the nation's formation in 1789 to 1956, the year the Federal-Aid to Highway Act of 1956, which authorized the interstate highway system's construction, was adopted. The discussion focuses on key provisions, and arguments presented, affecting federalism issues in surface transportation policy in selected Federal-Aid to Highway Acts, starting with The Federal-Aid Road Act of 1916. Constitutional Limits on Congressional Options Article 1, Section 8 of the U.S. Constitution provides Congress authority "To establish Post Offices and post Roads." When the Constitution was ratified in 1789, the prevailing view was that because other types of transportation projects were not listed in the Constitution they were excluded purposively, suggesting that other transportation projects were either meant to be a state or local government responsibility, or outside the scope of governmental authority altogether. Nevertheless, during the 1800s there were congressional efforts, primarily from representatives from western states, to adopt legislation to provide federal cash assistance for various types of transportation projects other than post roads to encourage western migration and promote interstate commerce. Most of these efforts failed, primarily due to sectional divisions within Congress which, at that time, made it difficult to build coalitions large enough to adopt programs that targeted most of its assistance to western states; opposition from Members of Congress who viewed reducing the national debt as a higher priority; and opposition from Members who viewed the provision of cash assistance for transportation projects, other than for post roads, as a violation of states' rights, as articulated in the Tenth Amendment: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." During the 1800s, instead of authorizing cash assistance to states for internal improvements, Congress typically authorized federal land grants to states. The federal land was subsequently auctioned to raise money for internal improvements. For example, in 1823 Ohio received a federal land grant of 60,000 acres along the Maumee Road to raise revenue to improve that road. In 1827, Ohio received another federal land grant of 31,596 acres to raise revenue for the Columbus and Sandusky Turnpike. In 1841, nine states (Ohio, Indiana, Illinois, Alabama, Missouri, Mississippi, Louisiana, Arkansas, and Michigan), and, with three exceptions, all subsequent newly admitted states were designated land grant states and guaranteed at least 500,000 acres of federal land to be auctioned to support transportation projects, including roads, railroads, bridges, canals, and improvement of water courses, that expedited the transportation of the United States mail and military personnel and munitions. By 1900, over 3.2 million acres of federal land was donated to these states to support wagon road construction. Congress also authorized the donation of another 4.5 million acres of federal land to Illinois, Indiana, Michigan, Ohio, and Wisconsin to raise revenue for canal construction and 2.225 million acres to Alabama, Iowa, and Wisconsin to improve river navigation. In addition, states were provided 37.8 million acres for railroad improvements and 64 million acres for flood control. States were provided wide latitude in project selection and federal oversight and administrative regulations were minimal. Balancing Constitutional Concerns and Constituent Interests: The Federal-Aid Road Act of 1916 Congressional interest in providing federal cash assistance for surface transportation increased during the early 1900s, primarily due to the lobbying efforts of the "Good Roads" movement, initially started by bicycle enthusiasts, that gained momentum as automobile ownership in the United States increased rapidly, from 8,000 registered motor vehicles in 1900 to over 2 million by 1915. Often finding themselves stuck in the mud, the public's demand for improved roads intensified. Although most of the lobbying for public investment in roads was directed at state and local government officials, several organizations, including the American Automobile Association, formed in 1902; the National Grange, which advocated public investment in farm-to-market roads; and the American Association of State Highway Officials (AASHO, renamed the American Association of State Highway and Transportation Officials, AASHTO, in 1973) lobbied Congress for federal road assistance. In 1912, their efforts led to the establishment of the Joint Committee on Federal Aid in the Construction of Post Roads, chaired by Senator Jonathan Bourne, Jr., to consider proposals to expand federal assistance for post roads. The joint committee's final report, issued on November 25, 1914, did not recommend specific legislation. However, it created the groundwork for the Federal-Aid Road Act of 1916, named by the now defunct U.S Advisory Commission on Intergovernmental Relations (ACIR) as the federal government's most significant intergovernmental grant program enacted prior to the New Deal era. The joint committee argued that federal assistance for post roads was constitutional because "federal aid to good roads will accomplish several of the objectives indicated by the Framers of the Constitution—establish post roads, regulate commerce, provide for the common defense, and promote the general welfare. Above all, it will promote the general welfare." It also argued that federal assistance for paved post roads would generate significant economic benefits for the nation, as much as $504 million annually in reduced freight hauling costs alone, given the emergence of the "auto truck" for hauling freight short distances. The Federal-Aid Road Act of 1916 authorized $75 million over five years to improve rural, post roads. Funding was prohibited in communities with populations over 2,500 and was offered to states on a 50-50 cost matching basis. Funding was limited to post roads to avoid constitutional challenges based on the Tenth Amendment's language concerning powers reserved to states. State officials did not object to this federal intrusion into what was then considered one of their domestic policy areas because the program was voluntary and funds were directed to rural areas. At that time, state apportionment rules allocated most state legislative seats to representatives from rural areas. Also, many farmers used rural post roads to get their produce to market. It was politically difficult at that time for state politicians to object to a federal subsidy for agriculture when most constituents were farmers. Balancing States Rights, Interstate Commerce Powers, and Constituent Interests: The Federal Highway Act of 1921 Constituent demand for public investment in roads and highways continued to expand as automobile ownership increased across the nation. Motor vehicle registrations reached 10.4 million in 1921. AAA and AASHO lobbied for expanded federal assistance for road construction, but recommended that the increased funding be used in different ways. During the reauthorization of the Federal Aid Road Act of 1916 Congress faced the same fundamental question in 1921 that it faces today: what role should the federal government have in surface transportation policy? At that time, AAA advocated the creation of a federal highway commission to design and oversee the construction of a proposed 50,000-mile federal highway system. AASHO advocated the continuation of the reliance on states to design and oversee program operations and the use of the grant device to supplement state road development. AASHO argued that state officials were better positioned than federal bureaucrats to make project selection decisions, having superior knowledge of "its populations and its valuations, and a lot of intricate and small things that a commission here in Washington cannot know." Importantly, AASHO also advocated an expansion of grants-in-aid eligibility to roads "divided into two classes, primary or interstate roads and secondary or intercounty roads." AASHO argued that its plan had elements similar to a federal highway system while, at the same time, "takes care of the immediate needs of the largest number of rural communities, recognizing the fact that fully half of the wealth of this country is rural and the modern means of transportation, the automobile and truck, are half in the possession of the farmer." In a historic decision that continues to influence congressional debate today, Congress adopted AASHO's state-centered approach in the Federal Highway Act of 1921. The act left project selection in the hands of state officials and rejected the idea of creating a direct spending program for surface transportation projects. Congress rejected AAA's federal-centered approach primarily because the use of the grant device was believed to be the best means to avoid constitutional objections that could be raised in the direct provision of domestic services. Because grants are voluntary, it was generally believed that state and local government officials were much less likely to challenge the legality of a federal grant program than a federal direct spending program. Congress also increased federal funding to $75 million annually, maintained the 50-50 cost matching basis, and expanded grants-in-aid eligibility to non-post roads. In recognition of constitutional concerns, eligibility was limited to a Primary System of federal-aid highways, not to exceed 7% of all roads in the state. At least three-sevenths of this system had to consist of roads that were interstate in character. Up to 60% of federal-aid funds could be used on interstate routes. By retaining the federal-aid concept, the act appeased advocates of rural, farm-to-market roads. State highway agencies could be counted on to consider local concerns when deciding the mix of projects. Congress also established in the Federal Highway Act of 1921 that constitutional concerns about states' rights still constrained program eligibility, but that congressional authority to regulate interstate commerce and promote the general welfare also had a role in determining program eligibility. As in the past, the prevailing view was that post roads were eligible for federal assistance because they were mentioned as a federal responsibility in the Constitution. Now, the prevailing view was that highways that were interstate in character and expedited the completion of an "adequate and connected system of highways" were also eligible for federal assistance because of their connection to congressional authority to regulate interstate commerce and promote the general welfare. Indicative of the expansion of the program's scope, the program's title was changed from the Federal-Aid Road Act to the Federal Highway Act. Expanding the Federal Role: The Federal-Aid Highway Act of 1944 During subsequent reauthorizations of the Federal Highway Act AASHO and the American Municipal Association and its constituent state leagues of municipalities lobbied Congress to increase federal funding and to expand program eligibility to include secondary and urban highways. They argued that all roads were interconnected, forming a single national surface transportation system. In their view, if any portion of that system was in disrepair or lacked sufficient capacity to carry traffic, then the entire national surface transportation system was affected adversely. As Frederick MacMillin, then-executive secretary of the League of Wisconsin Municipalities, testified before the House Committee on Roads in 1944, "while rural highways may not be all that is desired, it is generally conceded now that urban links have become the bottleneck in our highway system." They also argued that Congress should add urban road construction to the program because urban motorists contributed more in federal gasoline and automotive-related excise taxes than they received in funding. Trucking organizations opposed the expansion of program eligibility to secondary and urban highways because they worried that expanding the Federal-Aid system might result in higher gasoline taxes and fees. Farm organizations also opposed the expansion of program eligibility because they worried that expanding the system might result in less money for farm-to-market roads. At that time, traffic congestion was not the nation's most pressing issue. Millions of Americans were overseas fighting in World War II, mandatory gasoline rationing was in place, and civilian automobile production had been halted in 1942 to allow automotive assembly plants to be converted to producing war materials. Nevertheless, there were more than 30 million registered motor vehicles on the nation's roads, and federal, state, and local government officials knew that traffic congestion, especially in and around the nation's largest cities, would be a salient political issue for elected officials at all levels of government once the war was over. Most highway-related organizations, led by AAA, supported the creation of an interstate system of highways, similar to those already present in several European countries, to relieve traffic congestion. The idea of creating an interstate system in the United States had been discussed for several years. For example, Thomas H. MacDonald, chief of the U.S. Bureau of Public Works, advocated the construction of a special system of direct interregional highways in 1939. However, there was no consensus on how to finance it. For example, the National Governors Conference (now the National Governors Association) opposed the use of the federal gasoline taxes to fund interstate highways as an infringement on their sovereign taxing powers. Although lobby organizations were divided on whether the highway program's scope should be expanded to include secondary and urban highways, Congress was aware that national demographic shifts in the nation had heightened the political relevance of urban areas, as Americans increasingly left rural America in search of employment in the nation's cities, and later its suburbs. At the beginning of the century, about 40% of the U.S. population lived in metropolitan areas. By the time the 20 th century ended, that figure had doubled to about 80%. As a result of the ongoing transformation of the nation from a primarily rural nation to an urban one, both major political parties sought political advantage in gaining a political foothold in urban America. Funding urban highways was one of the avenues Congress chose to achieve that goal. The three-year, $1.5 billion Federal-Aid Highway Act of 1944 expanded federal surface transportation funding eligibility by adding three new programs to the existing Federal-Aid Highway Primary System: a Federal-Aid Highway Secondary System, comprised of principal secondary and feeder routes, including farm-to-market roads, rural mail and public school bus routes, local rural roads, and county and township roads, either outside of municipalities or inside of municipalities of less than 5,000 population; urban extensions of the Federal-Aid Highway Primary System in municipalities and other urban places having a population of 5,000 or more; and an interstate highway network, not to exceed 40,000 miles, to be called the National System of Interstate Highways. The Primary System was authorized at $225 million annually, the Secondary System at $150 million annually, and the urban extension program at $125 million annually, all on a 50-50 cost matching basis. Routes for the National System of Interstate Highways were designated the following year, but budgetary pressures related to World War II precluded the expenditure of more than token amounts for the interstate system's construction. One of the more significant effects of the Federal-Aid Highway Act of 1944 on federalism relationships in surface transportation policy was Congress's abandonment of constitutional constraints on program eligibility. Congressional Members and hearing witnesses no longer mentioned states' rights as a factor limiting congressional options to the funding of post roads and roads with direct influence on interstate commerce. Now, states, through AASHO and, to an increased extent following the adoption of the Federal-Aid Highway Act of 1956, the National Governors Association, were actively lobbying Congress for increased federal assistance. The congressional focus was on determining the best means to expedite traffic flow and promote economic prosperity, within the constraints of available federal resources and a federalism framework. The result was the expansion of program eligibility, with each of the new programs focused on the needs of specific constituencies. The Primary System focused on projects that addressed county transportation needs. The Secondary System focused on projects that addressed rural America's transportation needs. The urban highway extension program focused on projects that addressed urban America's transportation needs. The Interstate Highway System, given its expansive scope, addressed transportation needs throughout the nation. The Interstate Highway System Redefines Federalism Relationships in Surface Transportation Policy: The Federal-Aid Highway Act of 1956 The $25 billion, 13-year Federal-Aid Highway Act of 1956 authorized the construction of the then-41,000 mile National System of Interstate and Defense Highways, with a 1972 target completion date. For the next 35 years, federal surface transportation policy focused on the completion of the interstate system. Financing the interstate system had been a key sticking point for many years. Motorist and trucking organizations opposed tolls to finance the system. Governors and highway-related organizations, including AAA, opposed raising federal fuel taxes to finance the system. A special panel formed by the Eisenhower Administration in 1954, the Advisory Committee on a National Highway Program, recommended that 30-year bonds, financed by federal fuel taxes, be used to finance the system. However, that proposal failed to achieve congressional approval, primarily because Senator Harry Byrd, chair of the Senate Committee on Finance, wanted a pay-as-you-go financing system that avoided interest charges. The funding impasse was resolved by The Highway Revenue Act of 1956, which created the Highway Trust Fund to finance the system. A relatively small increase in the federal gasoline tax, from two to three cents per gallon, appeased governors and AAA. Governors continued to oppose the federal fuel tax on principle, but recognized that using federal fuel taxes to fund interstate highways was the only viable political option available. One factor contributing to their support was that all Highway Trust Fund revenue was dedicated to highways. In the past, one-third to one-half of federal gasoline revenue had been diverted to other uses. Providing a 90% reimbursement for interstate system expenses also played a role in attracting gubernatorial support. Prohibiting tolls on interstate highways, with an exception for the 2,447 miles of toll roads already in operation, appeased motorist and trucking organizations. The Federal-Aid Highway Act of 1956 was a defining moment in surface transportation policy because it expanded and solidified the federal government's role in shaping the nation's transportation system. The act elevated the role of federal and state highway department officials in determining the scope and nature of the nation's highway system. Local government officials and urban planners still had a role, but the overall design and location of the interstate system, and increasingly, of primary and secondary highways, were decided by federal and state officials whose goals of promoting national economic growth and expediting traffic flow sometimes conflicted with those held by local government officials who were also interested in clearing slums and other blighted areas, and promoting local economic development. In addition, federal and state highway engineers imposed professional, uniform road construction and design standards throughout the nation. Some local government officials resented the imposition of these standards because they increased construction costs and impinged on their autonomy. The Federal Government's Role in Surface Transportation Policy: 1956-1991 From 1956 to 1991, state and local government officials focused their efforts in surface transportation policy on maximizing the provision of federal assistance and minimizing federal involvement in how they used federal funds. Specifically, they opposed efforts to increase federal fuel taxes to pay for the increasing cost to complete the interstate highway system on the grounds that any such increases infringed on their sovereign authority to tax fuel by making it more difficult for them to raise state fuel taxes. They also opposed efforts to divert federal Highway Trust Fund revenue to other uses, including mass transit and deficit reduction; and opposed the proliferation of intergovernmental crossover sanctions requiring states to take specific actions, such as limiting highway speeds, removing certain highway billboards, and imposing uniform alcohol standards for determining drunk driving, or lose a portion of federal highway assistance. States also supported efforts to increase federal surface transportation funding levels and to increase the federal share of non-interstate highway expenses. Debating Reimbursement Rates: The Federal-Aid to Highway Acts of 1970 and 1978 When the Federal-Aid Road Act of 1916 was debated, there was a general consensus that the federal reimbursement rate for expenses would be set at 50%. At that time, a 50-50 cost sharing arrangement was viewed as "an equitable apportionment of burdens, an automatic check upon the demands from the States for Federal appropriation, insures the accomplishment of tangible results, and affords a sound basis for the exercise by the Federal officials of the most searching scrutiny and a conservative policy of approval." As the federal intergovernmental grants-in-aid system matured and federal cost sharing requirements became more varied both across and within policy areas, academics, stakeholders, and policymakers became increasingly interested in the impact federal cost sharing requirements had on state and local government budgetary behavior. Critics of federal grants with state or local government cost sharing requirements (particularly federal grants that had a 50% or higher state and local government cost sharing requirement) argued that cost sharing requirements distort state and local government budgetary decisions in favor of the federally assisted activity. In their view, because state and local government officials are better positioned than federal bureaucrats to identify and respond to state and local government needs, the distortion of state and local government decisionmaking resulting from the imposition of cost matching requirements led to the non-optimal use of public funds. They argued that lowering state cost matching requirements, or eliminating them altogether, would result in less distortion of state and local government budgetary decisions and would maximize the public interest. Others argued that providing federal funds with very low or no cost matching requirements may lure state and local governments into programmatic activities that they could not afford if the federal assistance was later withdrawn, or could result in spending on projects that never could have stood on their own merits. Still others argued that the imposition of state and local government cost sharing requirements are an appropriate means to stimulate state and local government spending in areas deemed to be in the national interest. In their view, federal cost sharing requirements should be proportional to the extent to which the aided activity aligns with an identified national interest. In academic terms, "the danger of distortion and waste of resources occurs when the cost-sharing requirement is more generous to the recipient government than is justified by the degree of spillover or national interest characterizing the aided state or local government activity." In 1970, several organizations, including AASHO and the American Road Builders Association, joined state and local governments in advocating an increase in the federal share of expenses for non-interstate highways. They argued that increased highway maintenance costs and "increasing requirements for non-Federally aided state highway improvements" were making it more difficult for states to meet the federal government's 50% matching requirement for non-interstate highways. Representatives of the National League of Cities and U.S. Conference of Mayors argued that the focus on interstate highway construction had led the nation to neglect urban highway systems and that the cost of improving urban highways had increased dramatically, justifying an increase in the reimbursement rate for non-interstate highways. The National Association of Counties argued that because the interstate system was nearing completion that Congress should focus additional resources on non-interstate highways and increase the federal share of expenses to 70% for any additions to the interstate system and for all other federally aided highways. In their view, increasing the reimbursement rate to 70% was justified because "many States and most local governments are finding it increasingly difficult to come up with 50 percent matching funds." Congress subsequently increased the federal share of expenses for non-interstate highways from 50% to 70% in the Federal-Aid Highway Act of 1970. In 1978, states advocated another increase in the federal share of expenses for non-interstate highways, arguing that rising gasoline prices had led motorists to drive less and, coupled with improvements in automotive fuel economy, had caused state fuel tax revenue to fall, making it more difficult for them to find state funds to meet their 30% share of expenses. The National Association of Counties argued that some local governments were also having difficulty participating in the program because of the required matching rate. Secretary of Transportation Brock Adams indicated that the Carter Administration also supported an increase in the federal share of expenses for non-interstate highways, arguing that "we find about 70 percent is a breaking point, the States are simply unable to raise sufficient money to match Federal moneys and then the program languishes.... we would like to establish uniformity in percentages of grants, whether it is 75-25 or 80-20." Congress subsequently increased the federal share of expenses for non-interstate highways from 70% to 75% in the Federal-Aid Highway Act of 1978. The following sections discuss several efforts during this time period to "sort out" or devolve federal surface transportation programs to state and local governments. This discussion is pertinent given recent proposals to sort out federal-state responsibilities in surface transportation policy. Efforts to "Sort-out" Governmental Responsibilities in Surface Transportation Policy: Presidents Nixon's and Reagan's New Federalism Proposals During the 1960s and 1970s, the number of federal grants to state and local governments, including those provided for surface transportation, increased dramatically. The total number of federal grants to state and local governments increased from 132 in 1960 to 387 in 1968, the year before President Richard Nixon became President, and to 539 in 1981, when President Ronald Reagan become President. The number of federal surface transportation grant programs funded by the Federal-Aid to Highway Act also increased. There were nine surface transportation programs in the Federal Highway Act of 1960: forest development roads and trails, forest highways, Indian Reservation Roads and Bridges, Park Roads and Trails, Parkway, Public Land Highways, Federal Aid Primary System, Federal Aid Secondary System, and Federal-Aid Primary and Secondary Systems Extensions in Urban Areas. In 1975, there were 37 programs: Interstate Highway System; Federal-Aid Highway Primary System in Rural Areas; Federal-Aid Secondary System in Rural Areas; Federal-Aid Urban Systems; Federal-Aid Primary and Secondary Systems Extensions in Urban Areas; Emergency Relief; Forest Highways; Priority Primary Routes; Special Urban High Density Traffic Program; Motor Vehicle Diagnostic Inspection Demonstration Projects; Off-System Road Projects; Railroad Safety; Carpool Demonstration Projects in Urban Areas; Surveys, Planning, Research and Development for Highway Programs; Public Land Highways; three grant programs for Highway Beautification; Education and Training Program for Highway Personnel; four grant programs for urban mass transportation; Transportation Planning in Urban Areas; Urban Area Traffic Operations Improvements; Bridges on Federal Dams; Economic Growth Center Development Highways; and 10 grant programs for highway safety. During the 1970s and 1980s, there were several attempts to change federal, state, and local government roles in surface transportation policy. Presidents Nixon's and Reagan's efforts are particularly noteworthy as both were convinced that federal grants to state and local governments had become duplicative and wasteful, and both attempted to sort out the appropriate roles and responsibilities of each level of government in several programmatic areas, including surface transportation policy. For example, in his 1971 State of the Union speech, President Nixon announced a plan to focus federal resources on areas of national interest by consolidating 129 federal grant programs in six functional areas—33 in education, 26 in transportation, 12 in urban community development, 17 in manpower training, 39 in rural community development, and 2 in law enforcement—into six special revenue sharing programs. Unlike the categorical grants they would replace, the proposed special revenue sharing programs had no state matching requirements and relatively few auditing or oversight requirements, and the funds were distributed automatically without prior federal approval of plans for their use. President Nixon's proposal to consolidate 26 federal surface transportation programs into a special revenue sharing program failed to gain congressional approval, primarily because it generated opposition from interest groups affiliated with highway construction who worried that the programs' future funding would be compromised, and from state highway officials worried about losing programmatic influence to governors. Nonetheless, President Nixon and his successor, President Gerald Ford, continued to oppose further expansion in the number of federal surface transportation programs, and those numbers remained fairly stable for the remainder of the decade. When President Ronald Reagan entered office in 1981, there were 34 federal surface transportation programs funded by the Federal-Aid Highway Act, compared to 37 in 1975. President Reagan also wanted to change federal and state roles in surface transportation policy. In 1982, he proposed a $20 billion "swap" in which the federal government would return to states full responsibility for funding Aid to Families With Dependent Children (AFDC) (now Temporary Assistance for Needy Families) and food stamps in exchange for federal assumption of state contributions for Medicaid. He also proposed a temporary $28 billion trust fund or "super revenue sharing program" to replace 43 other grant programs, including all non-interstate highways, Appalachian highways, and urban mass transit construction and operating grants. The trust fund, and federal taxes supporting it, would begin phasing out after four years leaving states the option of replacing federal tax support with their own funds to continue the programs or allowing the programs to expire. Both the swap proposal and the proposed devolution of 43 federal programs failed to gain congressional approval. Both proposals were opposed by organizations that feared that if enacted, they would result in less funding for the affected programs. For example, the National Governors Association supported the federal takeover of Medicaid, but objected to assuming the costs for AFDC and food stamps. The economy was weakening at that time and governors worried that they would not have the fiscal capacity necessary to support the programs without continued federal assistance. President Reagan's Surface Transportation Block Grant Proposals and Opposition to Highway "Demonstration Projects" In 1983, President Reagan proposed the Federalism Block Grant Highway Act of 1983. It would have provided states the choice of continuing to receive funds for highway programs focused on local and state needs (Urban System, Secondary System, bridges other than Primary and high-cost bridges, highway safety, hazard elimination, and rail-highway crossings) under existing statutory mechanisms or receiving them in the form of a block grant. The federal role in highway programs that focused on "the federal interest" (primary and interstate highways and bridges, as well as high-cost bridges) was to be continued. In 1986, he proposed the Surface Transportation Reauthorization Act of 1986, which would have combined the Primary, Interstate reconstruction, and Interstate construction programs into a single program. It would have also created a block grant for the remaining highway programs and mass transit. Neither proposal was approved by Congress. In 1987, President Reagan vetoed the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), the last surface transportation authorization bill of the Interstate era. In the first, and only, veto of a federal-aid highway bill in the 20 th century, President Reagan cited several objections to the bill, but was especially critical of the bill's 121 "demonstration projects," which he considered wasteful. Members of Congress who wanted funds for a project in their state had adopted the practice of inventing a concept it would "demonstrate" indicating that it was part of an important research initiative. Using this idea, for example, funding for two parking lots became a demonstration of "methods of facilitating the transfer of passengers between different modes of transportation." Congress initially sustained President Reagan's veto by a single vote in the Senate on April 1, 1987, but the following day one of the Senators who had voted to sustain the veto switched his vote, and the veto was overridden. The inclusion of demonstration projects in STURAA, and the inclusion of increasing numbers of congressionally earmarked projects in subsequent reauthorizations have implications for federalism relationships in surface transportation policy. Although many Members of Congress discuss their surface transportation earmarks with their state and local government officials prior to making their requests for an earmark, earmarks, by definition, reduce state and local government flexibility. The extent of congressional earmarks' impact on state and local government flexibility is related to how the earmarks are treated in the distribution of the program's funds. For example, congressional earmarks in SAFETEA's National Corridor Infrastructure Improvement Program ($1.9 billion), Projects of National and Regional Significance ($1.8 billion), and Transportation Improvements ($2.5 billion), as well as discretionary programs earmarked during the annual appropriations process, are all outside the scope of SAFETEA's Equity Bonus (EB) program. The EB program is designed to guarantee each state at least a 92% return on payments to the Highway Account in the Highway Trust Fund for those programs listed in the EB program (which includes all of the core formula programs as well as several other programs). Because these earmarks are outside of the EB program's scope, they have no direct impact on the calculations that determine the distribution of the EB program's funds to states. As a result, although states have little discretion concerning how those earmarked funds are to be spent, the funds are considered additional funding, often referred to as being "above the line." On the other hand, SAFETEA's High Priority Project (HPP) earmarks (nearly $15 billion) are included within the scope of SAFETEA's EB program, often referred to as being "below the line." As a result, these earmarks are counted in the calculations that determine the distribution of the EB program's funds to states, reducing the amount that each state receives through the EB program. Because EB program funding is distributed to states through the program's core formula programs, states receiving HPP earmarks not only have little discretion concerning how those earmarked funds are to be spent, but also experience a reduction in the amount of formula program funds that they would otherwise receive and rely on to implement their state transportation improvement plans. The issue is whether congressional earmarks, if continued, should be inside or outside the scope of the EB program. Keeping congressional earmarks outside, as opposed to inside, the EB program would place less of a restraint on state flexibility in regard to the funding received for the core formula programs, but it would also dilute the impact of a rate-of-return guarantee. Although President Reagan's New Federalism and block grant proposals were not adopted, he continued to advocate further reductions in the number of surface transportation programs, and had some success. There were 27 federal surface transportation programs funded by the Federal-Aid Highway program at the conclusion of his second term in office, compared to 34 at the outset of his presidency. Among the programmatic changes that took place during his presidency was a reduction in mass transit operating assistance and a refocused emphasis on capital expenditures. ACIR: The Geographic Range of Benefits Argument In 1987, the now defunct U.S. Advisory Commission on Intergovernmental Relations (ACIR) recommended that Congress "move toward the goal of repealing all highway and bridge programs that are financed from the federal Highway Trust Fund, except for (1) the Interstate highway system, (2) the portion of the bridge program that serves the Interstate system, (3) the emergency relief highway program, and (4) the federal lands highway program." The commission also recommended that Congress "relinquish an adequate share of the federal excise tax on gasoline" to enable states to finance the devolved programs. ACIR was one of the first organizations to offer specific criteria for defining areas of national interest and determining roles for federal, state, and local government officials in surface transportation policy. ACIR conceded that all roads are physically interconnected. As noted earlier, the highway system's interconnectedness had been used as a rationale for expanding federal program eligibility in surface transportation policy. ACIR argued that while all roads are interconnected, "they differ systematically in the length of trips on them and in the travel purposes for which they are used." ACIR argued that "most trips on Interstate highways are much longer than trips taken on the Secondary and Urban systems" and that "this fact argues that the Interstate network provides transportation benefits over a wider geographic range than Secondary and Urban systems." ACIR went on to conclude that "This concept of the geographic range of highway benefits is a key test to determine which unit of government should bear responsibility for highway finance." ACIR argued that "roads that serve largely local purposes—helping to make quicker trips to the supermarket, for example—compete with financing for roads that provide truly national benefits—for instance, facilitating the interstate commerce and economic health on which the whole nation's welfare depends." It recommended that the approximate geographical range of benefits associated with surface transportation programs supported the idea of incremental devolution, where roads that provide virtually no national benefits were devolved first and others that, on balance, provide some national benefits could be devolved later. ACIR noted that incremental devolution was "likely to be more palatable politically than a wrenching, once-and-for-all change." ACIR also introduced the notion of interstate spillovers, or externalities, as an example of the use of the geographic range of benefits criteria. Economists use the term spillover or externality to describe the market imperfection that results when producers and consumers in a market either do not bear all of the costs or do not reap all of the benefits of an economic activity. Wastewater and air pollution treatment are often used as examples where economic spillovers occur. The primary beneficiaries of cleaner water and air are often those who live downstream or downwind from a pollution source, not those who live where the effluent or polluted air is treated. Those living at the source of the pollution have no, or little, incentive to pay for activities that primarily benefit those living downstream or downwind. Economists argue that services with spillover effects are not likely to be provided at optimal levels without some form of government intervention, typically by providing an incentive to the provider to undertake the service at optimal levels or by a mandate to do so. ACIR argued that highways, especially interstate highways, are subject to spillovers and the "best government for providing services is one with an appropriately large jurisdiction so that the jurisdiction can encompass the externalities." It argued that an interstate spillover occurs when road benefits are not fully captured in-state, or are not fully captured by taxes and other charges levied by the providing state. The state budgetary process has little reason to value fully out-of-state benefits. An all too logical consequence might be underfinancing of roads with large out-of-state benefits relative to their in-state benefits. For example, by charging tolls on Interstate 80 (which is not currently permitted), Pennsylvania could reap the savings of fuel and time gained by the highway's efficient New York to Chicago routing, with the tolls defraying maintenance costs for efficient transportation. In this case, toll finance could internalize what would otherwise be an interstate spillover, namely the region-wide advantages of a direct, swift, well-maintained superhighway. However, it the hypothetical tolls on Interstate 80 were set too high in relation to the additional cost incurred by additional use (e.g., wear or perhaps the need for extra lanes) motorists would be overcharged. In effect, they would be paying twice, through both tolls and taxes, and the interstate motorist would be exploited. ACIR also advocated the principle of fiscal equivalence to sort out surface transportation financing. It argued that "Those who benefit from the government function should pay for it" and that jurisdictions that pay for a function and receive its benefits have an incentive to make "judicious fiscal choices, neither skimping on valuable public investment nor squandering other person's tax dollars." It went on to argue that "without fiscal equivalence, highway beneficiaries who do not pay their fair share are motivated to exaggerate their demands, if successful they improve their services at the expense of others." ACIR noted that "over time, considerable national standardization has been developed in the highway transportation system" largely due to the efforts of "transportation officials (notably AASHTO)" and that such standardization "most likely would continue after devolution, even if direct, federal control were limited to the Interstate system." It argued that the benefits of standardization, such as for safety requirements, "serve both the national and local goals." Applying these principles, ACIR argued that the "great preponderance of the Interstate System ... merits continued federal support." However, the "national role of the Primary system has been greatly reduced by the Interstate system," and "with well functioning Interstate and Primary systems, the national benefits of the federal-aid Urban system are contained, by and large, within individual states or metropolitan areas." Also, "by and large, Secondary highways are even more appropriate for state-local financing and control than the Urban system" because "most Secondary roads are only lightly traveled, because of shifts in population and the presence of alternative routes that are designed to higher standards." ACIR argued that it was "doubtful" that any general principle of fiscal federalism governs the award of funds through demonstration projects but noted that highway demonstration projects "rarely convey important national benefits." It also argued that certain bridge safety programs serve a "coordinating as well as an operational safety function that is not appropriate for devolution" but programs to widen bridges to remove traffic bottlenecks may be appropriate for devolution if the bridge's traffic is primarily local in nature. The Federal Government's Role in Surface Transportation Policy: The Post-Interstate Era There have been five multi-year reauthorizations of the Federal-Aid Highway Act since 1987: the $151 billion, six-year Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240 ) signed by President George H. W. Bush on December 18, 1991; the $203.4 billion, six-year Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ) signed by President Bill Clinton on June 9, 1998; the $286 billion, six-year Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA; P.L. 109-59 ) signed by President George W. Bush on August 10, 2005; the $118 billion ($105.2 billion for FY2013 and FY2014), 27-month, Moving Ahead for Progress in the 21 st Century (MAP-21; P.L. 112-141 ) signed by President Barack Obama on July 6, 2012; and the $305 billion, five year Fixing America's Surface Transportation Act (FAST; P.L. 114-94 ), signed by President Barack Obama on December 4, 2015. The following discussion examines the major federalism issues involved in each of these reauthorizations, including efforts to sort out appropriate roles for federal, state, and local governments in surface transportation policy. ISTEA: A New Direction for Federalism Relationships in Surface Transportation Policy Although most lobbying organizations involved in the 1991 reauthorization of the Surface Transportation and Uniform Relocation Assistance Act of 1987 had not changed their positions on federal surface transportation policy, circumstances had changed a great deal. From 1956 to 1991, there had been a shared consensus among policymakers and lobbying organizations that the highway program's primary goal was to build the Interstate System. Now that the Interstate system was, for all practical matters, complete, that consensus no longer existed. During reauthorization, President George H. W. Bush, the House, and the Senate advocated fundamentally different approaches to structuring federalism relationships in surface transportation policy. President George H. W. Bush shared President Reagan's view that the intergovernmental system had become duplicative and wasteful and targeted surface transportation policy as an area in need of reform. On February 13, 1991, he announced a five-year, $105 billion reauthorization proposal for the Federal-Aid Highway program, called the Surface Transportation Assistance Act ( H.R. 1351 , S. 610 ). It included a 40% increase in funding for highways ($88.5 billion) and a marginal increase for mass transit ($16.5 billion). His proposal was guided by two fundamental principles: (1) that state and local government officials should have greater influence on project selection and (2) that federal financial assistance should reflect the program's geographic range of benefits. In his words, "Our approach will provide States and localities with flexibility to select which highways will receive targeted Federal dollars, and States and localities will be able to choose whether to spend Federal dollars on transit or highway solutions. As never before, we are encouraging creative new financing and management by the States." Using the geographic range of benefits principle, he recommended that the Interstate, Primary, Secondary, and Urban Highway programs be replaced by two programs: a $43.5 billion, 150,000-mile National Highway System (NHS) consisting of highways with significance for national defense or that carried goods and people across state lines and a $22.2 billion urban and rural highway block grant for other federally funded roads (about 716,000 miles at that time). Because the block grant consisted of roads lacking national significance, he recommended that it receive less funding than the proposed national highway system and that its reimbursement rate be lowered from 75% to 60%. The federal reimbursement rate for highways in the national highway system would remain the same, 90% for interstate highways and 75% for primary highways. He also recommended that states be allowed to shift funds between urban and rural highways, from urban and rural highways to mass transit and, with the exception for new mass transit starts, from mass transit to urban and rural highways. Because the President believed that mass transit's benefits accrue primarily within state and metropolitan areas, in addition to proposing that mass transit funding be increased only marginally, to $16.5 billion over five years, he also recommended that the federal reimbursement rate for mass transit capital expenses be reduced from 80% to 60%, and for new starts from 75% to 50%. Senator Daniel Patrick Moynihan, chair of the Senate Committee on Environment and Public Works' Subcommittee on Water Resources, Transportation, and Infrastructure, led the Senate's reauthorization effort. The Senate bill took a fundamentally different approach to federalism relationships in surface transportation policy than what was offered by the President. Senator Moynihan had a close working relationship with the Surface Transportation Project, a coalition of urban, environmental and intermodal transportation advocates, and crafted a bill, S. 965 , the Surface Transportation Efficiency Act of 1991 (later incorporated into S. 1204 with the same title), that would have shifted the focus of federal policy away from highway construction toward maintenance, placed greater emphasis on mass transit and intermodal solutions to traffic congestion, further decentralized programmatic authority to states and metropolitan planning organizations in the project development process, increased public participation in the project development process, and strengthened environmental protections. Specifically, the Senate bill authorized funding at $123 billion, with over one-third of the bill's highway funds ($44.7 billion) for a Surface Transportation Program, which would allow states to fund a broad range of surface transportation projects, including construction, restoration, and operational improvements for highways and bridges; capital and operating costs for mass transit, rail, and magnetic levitation systems; carpool projects and parking and bicycle facilities and programs; and surface transportation research and development programs. The bill also included $21 billion for mass transit. The Senate bill rejected the geographic range of benefits argument in the determination of federal reimbursement rates. Instead of lowering cost matching rates for transportation projects lacking a national interest, the Senate bill would have "leveled the playing field" by setting reimbursement rates at 80% for maintaining and improving transportation facilities, and 75% for new construction. The financial incentive to fund new construction over maintenance was to be eliminated by giving maintenance a higher reimbursement rate than new construction. The Bush Administration indicated that it could not support S. 965 because it did not include its recommended National Highway System, and did not focus federal resources on highways of national interest. Dr. Thomas Larson, Administrator of the Federal Highway Administration, testified before the Senate Committee on Environment and Public Works that "While we are moving to the post-Interstate construction era, we are not yet ready for a post-highway transportation economy." He added that "50 strong state programs will not necessarily provide a strong national program, and the experience in the European Community and the experience that we've had in working with the 50 States in response to the House Public Works [ Committee's] charge that we develop an illustrative national [highway] system suggests that there is a need for Federal oversight of coordination." To avoid a presidential veto, the Senate bill was amended on the Senate floor to include funding for a National Highway System. The House bill ( H.R. 2950 , the Intermodal Surface Transportation Efficiency Act of 1991) took yet another approach to structuring federalism relationships in surface transportation policy, incorporating some elements of the Administration's proposal and some elements from the Senate bill. It authorized $151 billion for the program, including $32 billion for mass transit. It included funding for a National Highway System (up to 155,000 miles, plus or minus 15%, to be designated within two years) and, although it did not go as far as the Senate bill in providing states additional programmatic flexibility, it would have provided states added flexibility to shift funds among existing highway programs, including for mass transit purposes. It accepted Senator Moynihan's "level playing field argument" and set federal reimbursement rates at 80% for most programs, and 90% to 95% for interstate highways, with the higher reimbursement rate offered to states with relatively large amounts of federal land. The $151 billion, six-year Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA, P.L. 102-240 ), subsequently adopted by Congress, represented a compromise between the House and Senate approaches to federalism relationships in surface transportation policy. ISTEA was authorized at the House level, $46 billion more than the President had requested, and nearly doubled the amount the Administration requested for mass transit, providing $119 billion for highways and $32 billion for mass transit. ISTEA replaced the Interstate, Primary, Secondary and Urban Highway programs with two programs: a $21 billion, 155,000 mile National Highway System (NHS), including all interstate routes, a large percentage of urban and rural principal arterials, the defense strategic highway network, and strategic highway connectors; and a $23.9 billion Surface Transportation Program (STP) for all roads not functionally classified as local or rural minor collector. ISTEA retained separate programs and authorizations for Interstate Highways ($7.2 billion), Interstate Maintenance ($17 billion), Bridge Replacement and Rehabilitation ($16.1 billion), and created a new, $6 billion Congestion Mitigation and Air Quality Improvement Program. ISTEA's impact on federalism relationships in surface transportation policy was particularly noteworthy for several reasons. First, it increased state programmatic authority to shift funds among existing programs, allowing states to shift up to half of their NHS funds to other highway programs and mass transit and up to 100% with the approval of the Secretary of the U.S. Department of Transportation. Second, ISTEA enhanced the role of Metropolitan Planning Organizations (MPOs) in project selection by requiring states to reserve approximately $9 billion of STP funds for the use of MPOs representing urban areas with populations of 200,000 or more. Third, ISTEA mandated a new style of performance planning for managing and monitoring highway pavement conditions, bridge maintenance, highway safety programs, traffic congestion mitigation, transit facility and equipment maintenance, and intermodal transportation facilities and systems. In addition, statewide transportation improvement plans, both for the long term and for a shorter term, were required for the first time, in addition to metropolitan transportation improvement plans that had been required since 1962. Fourth, ISTEA rejected the application of the geographic range of benefits argument in setting reimbursement rates. Instead, it "leveled the playing field" by retaining interstate reimbursement rates at 90% for interstate construction and maintenance (with up to 95% for states with relatively large amounts of federally owned land) and increased reimbursement rates to 80% for most non-interstate highway and mass transit projects. This change removed the financial incentive to fund highways over mass transit, and new construction over maintenance. TEA-21: Debating Program Devolution and Continuing the Expansion of State Programmatic Flexibilities In 1995, there were 633 federal grants-in-aid programs, including 618 categorical grants and 15 block grants. There were 30 surface transportation grant programs, 28 categorical grants, and 2 block grants. Several prominent members of President Bill Clinton's Administration, including Alice Rivlin, Director of the Office of Management and Budget, advocated a sorting out of intergovernmental responsibilities to reduce expenses and improve government performance. However, President Bill Clinton proposed more modest intergovernmental reforms. For example, his ISTEA reauthorization proposal, the six-year, $174.5 billion National Economic Crossroads Transportation Efficiency Act (NEXTEA; H.R. 1268 , S. 468 ), would have retained and increased funding for virtually all ISTEA programs (providing $139 billion for highways and $35.5 billion for mass transit). It also included $4.7 billion for Amtrak and would have made Amtrak eligible for STP funding. During ISTEA's reauthorization, Congress addressed efforts to devolve programmatic authority to states and to expand state authority to "flex" federal funding among existing programs, but it focused most of its attention on resolving differences related to the program's allocation of resources among states. The STEP 21 Coalition, representing the "donor" states of Alabama, Arizona, Arkansas, Florida, Georgia, Indiana, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Virginia, and Wisconsin, advocated a minimum 95 cents return per dollar their highway users contributed to the Highway Trust Fund. They also wanted to merge the interstate maintenance program and portions of the bridge program into the national highway system and create a Streamlined Surface Transportation Block Grant program which would receive about 60% of the program's highway funding and could be used for all existing program activities. The Alliance for ISTEA Renewal (U.S. Conference of Mayors, National Association of Counties, National League of Cities, American Public Transit Association, Association of Metropolitan Planning Organizations, and the Surface Transportation Policy Project) wanted to prevent the redirection of federal fuel tax revenue from the Highway Trust Fund, but otherwise recommended relatively minor changes to ISTEA. California, Ohio, South Carolina, and Michigan endorsed efforts by Representative John Kasich in the House and Senator Connie Mack in the Senate to devolve most non-interstate highway and mass transit programs to states. Their Surface Transportation and Transit Empowerment Act ( H.R. 3045 and S. 1494 ) would have returned "to the individual States maximum discretionary authority and fiscal responsibility for all elements of the national transportation systems that are not within the direct purview of the Federal Government." The proposed Surface Transportation and Transit Empowerment Act did not generate the level of congressional attention provided to the state donor-donee debate. Nonetheless, the arguments presented both for and against its adoption are relevant today given that the devolution issue may be considered during SAFETEA's reauthorization. However, current fiscal conditions are much different today than in 1997 and 1998. It could be argued that the current economic fiscal crisis may limit the states' fiscal capacity to assume responsibility for federal surface transportation projects if they were asked, as they were in 1997 and 1998, to increase state fuel taxes to fund those projects. At a House subcommittee hearing on ISTEA's reauthorization in 1997, Senator Mack defended his devolution proposal, arguing that "the simple fact is that states now have the technical capability to build their own roads and, frankly, they know better than Washington what their transportation needs are. A continued role for the federal government is appropriate in certain areas, such as the maintenance of the interstate highway system or limited coordination functions." He added, current policy has been unable to keep up with our Nation's growing infrastructure needs. One reason for this is that we have not been getting as much out of our transportation dollars as we used to. For instance, since 1956 Federal Highway Administration costs have grown from 7 percent to 21 percent today. Moreover, studies suggest the elimination of Federal mandates and restrictions would increase States' real purchasing power for transportation projects by 20 percent. Representative Kasich stated at the hearing that Ohio was one of 32 states at that time that received less from ISTEA than its highway users paid into the Highway Trust Fund. He added that the governors of Michigan, Ohio, California, South Carolina, and Florida, all states that received less ISTEA funding at that time than their highway users paid into the Highway Trust Fund, had endorsed his bill. He argued that "if you let us keep our money and get rid of all the Federal bureaucracy and all the Federal rules, we'll be able to actually have more highway construction." On April 1, 1998, Representative Kasich offered his bill as an amendment in the nature of a substitute to BESTEA (Building Efficient Surface Transportation and Equity Act of 1998), the House ISTEA reauthorization bill. During floor debate, Representative E. G. "Bud" Shuster, chair of the House Committee on Transportation and Infrastructure, rose in opposition to the amendment, arguing, while this would simply turn things back to the States, ironically there is a greater need for us to have a coordinated, tied-together national transportation system than ever. Why? Because more people and more goods are moving interstate than ever before. He also argued that "Indeed, there is a greater need to have this tied together than ever before. Our bill not only does that, but it also gives flexibilities to the States and the cities by saying that 50 percent of the funding in each category can be flexibly moved about to other categories." He added that "It is very important, also, to recognize that, of the money that comes to Washington now, only 1 percent stays here down at the Department of Transportation for administrative purposes, 88 percent goes back to the States to be spent, 5 percent goes to the Secretary of Transportation to be sent back to the States for high cost discretionary projects, 5 percent goes back to the States through the congressional projects, and only 1 percent stays in Washington."  He concluded by arguing, Further, State regulations, which in many cases are as onerous, if not more onerous, than Federal regulations, would obviously stay in place. Indeed, we have no assurance whatsoever that, if we turn this back to the States, that the States would pass and increase their gas taxes. Indeed, I am told that, on the average, each State would have to pass the State gas tax increasing it by 15 cents per gallon. So what assurance do we have? No, this is simply destroying what must be a national program which is to tie our country together from a transportation point of view. For those reasons, I say we should defeat this amendment. Representative James Oberstar also opposed the amendment, arguing that it would take us back to a time that none of us here could possibly imagine, a time when some States started roads, others did not, they built it up to a certain point and then it stopped. Bridges were started and then stopped. If we followed the gentleman's logic all the way through, we would have bridges go halfway across a river because one State would want to build it and the other State would not or would run out of money, or we would have roads that go up to a State's border and the other State would say "Well, we don't think that we want to build a road there." ... [the amendment] would have us in chaos. ... This is a vote for the past, not a vote for the future. ... If we are going to be a Nation, and if my colleagues believe in the Constitution that said a responsibility of the Congress shall be to build post roads, that it shall have authority over interstate and foreign commerce, then it is our duty to promote interstate and foreign commerce, and the way to do it is through transportation. The amendment was defeated, 98-318. Much of the remaining congressional debate on ISTEA's reauthorization focused on the state return-on-investment (state donor-donee) issue, ending the diversion of revenue generated by 4.3 cents per gallon of the gasoline tax from the Highway Trust Fund to the general revenue account for deficit reduction (enacted in 1993), and the inclusion of congressional earmarks. The $203.4 billion, six-year Transportation Equity Act for the 21 st Century (TEA-21; P.L. 105-178 ), signed by President Clinton on June 9, 1998, effectively ended the diversion of highway trust fund revenue for deficit reduction by authorizing $167.1 billion for highways and $36.3 billion for mass transit, roughly equivalent to the amount of revenue expected to be generated by the Highway Trust Fund. TEA-21 also created a three-part state minimum guarantee program. First, each state was guaranteed a percentage share (set forth in tabular form) for the apportioned programs: Interstate Maintenance Program, National Highway System Program, Surface Transportation Program, Highway Bridge Replacement and Rehabilitation Program, Congestion Mitigation and Air Quality Program, Metropolitan Planning, Recreational Trails Program, Appalachian Development Highway System Program, and Minimum Guarantee, as well as High Priority Projects. Second, each state was guaranteed at least 90.5% of the amount its highway users paid into the Highway Trust Fund (based on the most recent year for which the data are available, typically from two fiscal years before). Third, each state was guaranteed that as part of the minimum guarantee it will receive at least $1 million in minimum guarantee funds. Although efforts to devolve surface transportation programs to states failed, TEA-21 retained ISTEA's programmatic flexibilities and increased them further by reducing from 16 to 7 the number of required planning factors to be used by states and MPOs when selecting projects, and increasing the role of local elected government officials in project selection. Congress did not accept the President's proposed language making Amtrak eligible for STP funding, but it did make Amtrak eligible for Congestion Mitigation and Air Quality Improvement funding. SAFETEA: Balancing State Program Flexibilities with the Need to Address National Interests On May 14, 2003, President George W. Bush announced his Administration's TEA-21 reauthorization proposal, the six-year, $247 billion, Safe, Accountable, Flexible and Efficient Transportation Equity Act of 2003 (SAFETEA; H.R. 2088 , S. 1072 ). One of the bill's stated goals was to change federalism relationships in surface transportation policy by eliminating "program silos" that can alter state and local government decisions based on the availability of funds. The bill proposed to accomplish this by eliminating most discretionary highway grant programs and making those funds available under the core formula highway grant programs; creating a new Highway Safety Improvement Program, in place of the existing Surface Transportation Program safety set-aside; and merging several highway safety programs into a new General Performance Grant and a new Safety Belt Performance Grant. It also would have merged mass transit grants into three main programs: an Urbanized Area Formula Grant, which would have included the existing Urbanized Area Formula Grant and the Fixed Guideway Modernization program; a Major Capital Investments Program, which would have included the New Starts program and non-fixed guideway corridor improvements, such as Bus Rapid Transit; and State-Administered Programs, which would have included the Rural, Elderly and Disabled, Job Access and Reverse Commute, and New Freedom Initiative programs. Although Congress did consider proposals to change federalism relationships in surface transportation policy during TEA-21's reauthorization, most of its attention, once again, was focused on resolving disagreements over funding levels and how funds were to be distributed among states. Donor states, mainly those with growing populations located in the South and Southwest, wanted TEA-21's state minimum guarantee increased from 90.5% to 95% of the amount their highway users contributed to the Highway Trust Fund. Several donor states, including Arizona, California, Florida, North Carolina, and Texas, also wanted to increase the scope of the guarantee by increasing the range of programs included when calculating each state's share. Donee states did not object to a higher minimum guarantee in principle, but only if it did not reduce their funding. However, because the President threatened to veto any substantial funding increase above his initial recommendation of $247 billion and Congress lacked the votes to override his veto on this issue, it became virtually impossible to increase the state minimum funding guarantee without reducing funding for at least some states. Unable to reach agreement, Congress extended TEA-21 for short periods 12 times before finally passing the $286 billion Safe, Accountable, Flexible, and Efficient Transportation Equity Act—A Legacy for Users (SAFETEA) on July 29, 2005. It was signed by President Bush on August 10, 2005. It was only after the President removed his veto threat (partly due to a 2004 change in the tax treatment of ethanol fuel, which was expected to generate an additional $18.9 billion for the Highway Trust Fund) and the program's overall funding level was increased to $286 billion that the impasse over the minimum guarantee was resolved. SAFETEA created an Equity Bonus (EB) program that ensures that states receive a specified percentage of the revenue their highway users contribute to the highway account of the Highway Trust Fund for programs listed in the EB program. The guaranteed rate was set at 91.5% for FY2007, and 92% for FY2008 and FY2009. SAFETEA also includes a guaranteed overall increase for all states over the previous reauthorization bill, and a number of "hold harmless" provisions intended to mitigate the impact on certain donee states of the shift in funding to donor states. Meeting all of these requirements is done by providing a spending overlay across all of the programs listed in the EB program in a way that gives spending increases to all states, but larger increases to donor states. The EB program is the largest formula program in SAFETEA ($41 billion over five years). In an important concession to donor states, funds for Members' projects were included in the funds that are distributed by the equity bonus formula. Balancing its interest in ensuring that the program meets national needs with its interest in continuing to expand state programmatic flexibility, Congress did not adopt President Bush's recommendation to eliminate discretionary programs and reduce the number of formula programs in SAFETEA. Instead, SAFETEA added three new formula programs: the previously described core formula Highway Safety Improvement Program ($7.5 billion), the Coordinated Border Infrastructure Program, which replaced a TEA-21 discretionary program of the same name, and the Safe Routes to School Program. Also, a new discretionary transportation improvement program, a redefined national corridor infrastructure program (formerly part of the national corridor planning and development and coordinated border infrastructure program), and a new program for projects of national or regional significance were added. SAFETEA retained TEA-21's provisions that had expanded state authority to shift funds among core, formula-driven highway programs and between highways and mass transit. It also included a new provision allowing states to transfer certain discretionary program funds for administration of highway projects and mass transit projects. It also enhanced environmental streamlining regulations, changed clean air conformity regulations, funding for transit new starts, expanded reliance on innovative financing and tolls and spending on congressional high priority projects. SAFETEA Reauthorization Efforts During the 111th Congress Funding Issues In February 2009, the National Surface Transportation Infrastructure Financing Commission issued a congressionally mandated report that concluded that "the federal Highway Trust Fund faces a near-term insolvency crisis, exacerbated by recent reductions in federal motor fuel tax revenues and truck–related user fee receipts" and that baseline revenue projections for the Highway Trust Fund fall short of anticipated transportation needs by nearly $400 billion in 2010-2015, and about $2.3 trillion through 2035. It recommended a 10 cents per gallon increase in the federal gasoline tax, a 15 cents per gallon increase in the federal diesel tax, and "commensurate increases" in all special fuels taxes and indexing these rates to inflation to address the Highway Trust Fund's immediate revenue shortfalls. For the long term, it recommended a shift from the present reliance on federal fuel taxes to fund federal surface transportation programs to a "federal funding system based on more direct forms of 'user pay' charges, in the form of a charge for each mile driven (commonly referred to as a vehicle miles traveled (VMT) fee system)." The Obama Administration indicated shortly after the report's release that it was interested in exploring alternative means to ensure the long-term sustainability of the Highway Trust Fund. However, concerned that the congressional agenda already included several high-profile issues, including health care reform, global warming, and appropriations legislation, and still considering various proposed options for funding surface transportation projects, the Obama Administration later announced, on June 17, 2009, that instead of pursuing a comprehensive reauthorization of SAFETEA, it supported a cash infusion of $20 billion to replenish the Highway Trust Fund to avert a revenue shortfall later that year and the enactment of an 18-month reauthorization of SAFETEA, without major programmatic changes. The Administration asserted that an 18-month extension of existing legislation would provide "Congress the time it needs to fully deliberate the direction of America's transportation priorities." The House and Senate Disagree Over a Short-term or Long-term Reauthorization Senator Barbara Boxer, chair of the Senate Environment and Public Works, endorsed the Administration's call for a 18-month extension of SAFETEA, stating at a congressional hearing on June 25, 2009, that "we have a lot of issues on the table in terms of a long-term solution to our funding" and an 18-month extension "provided a level of funding certainty" for state and local government transportation officials that was preferable to a shorter-term extension. Representative James Oberstar, then-chair of the House Committee on Transportation and Infrastructure, and others in the House preferred a long-term, comprehensive reauthorization bill. On June 18, 2009, Representative Oberstar, then-ranking Member John Mica, and others on the House Committee on Transportation and Infrastructure released a draft of a six-year, $450 billion SAFETEA reauthorization bill. The proposal would have also authorized an additional $50 billion to develop 11 high-speed rail corridors linking major metropolitan regions within the United States. The committee's Subcommittee on Highways and Transit held a hearing on the proposal on June 24, 2009. The proposal, which was not formally introduced as a bill, would have provided $337.4 billion for highway construction, $99.8 billion for mass transit, and $12.6 billion for highway and motor carrier safety. It also would have consolidated funding in four, core formula categories: highway and bridge systems; highway safety; improved capacity; and congestion and greenhouse gas emissions; focused the majority of transit funding in four core categories: repair, restoration, mobility and access, and planning; required states and local governments to establish transportation plans with specific performance standards, measure their progress annually in meeting these standards, and periodically adjust their plans as necessary to achieve specific goals; created a national infrastructure bank to leverage transportation funding; and consolidated or terminated more than 75 transportation programs. Congress subsequently passed legislation that transferred an additional $21.7 billion in general fund revenues associated with transportation-related activities to the Highway Trust Fund. Congress also passed six short-term SAFETEA reauthorizations during the 111 th Congress. On September 6, 2010, President Obama proposed a six-year reauthorization of surface transportation programs, with $50 billion in "upfront investment in our nation's infrastructure" to "help jump-start additional job creation." The Administration did not provide an estimate for the total amount of funding for the reauthorization, but indicated that the $50 billion would represent a significant portion of any increase above current levels. The proposal called for establishing an infrastructure bank "to leverage federal funding and focus on investments of national and regional significance that often fall through the cracks in the current siloed transportation programs." integrating high-speed rail on an equal footing into the surface transportation program "to ensure a sustained and effective commitment to a national high speed rail system over the next generation." consolidating more than 100 different programs and focusing on using performance measurement and "race-to-the-top" style competitive pressures to drive investment toward better policy outcomes. increasing funding for safety, environmental sustainability, economic competitiveness, and livability projects, "helping to build communities where people have choices about how to travel, including options that reduce oil consumption, lower greenhouse gas emissions, and expand access to job opportunities and housing that's affordable." Congress did not act on the proposal. MAP-21: Increasing the States' Role In July 2011, Chairman John Mica of the House Committee on Transportation and Infrastructure (T&I) and Chairman Barbara Boxer, with Minority Ranking Member James Inhofe, of the Senate Committee on Environment and Public Works (EPW) announced separate SAFETEA reauthorization proposals. The two proposals differed in both scope and policy direction, and both were seen as works in progress because they were initially presented in outline form rather than in the form of detailed legislative language introduced in either the House or Senate. However, both proposals addressed many of the same issues, such as funding levels; program consolidation, restructuring, and elimination; the efficiency of existing programs; and the speed of project delivery and environmental review. Both proposals also eliminated all earmarks. As Congress considered these proposals, it passed four additional, short-term extensions of highway and mass transit program authorization: P.L. 112-5 , the Surface Transportation Extension Act of 2011 (reauthorized through September 30, 2011); P.L. 112-30 , the Surface and Air Transportation Programs Extension Act of 2011 (reauthorized through March 31, 2012); P.L. 112-102 , the Surface Transportation Extension Act of 2012 (reauthorized through June 30, 2012); and P.L. 112-140 , the Temporary Surface Transportation Extension Act of 2012 (reauthorized through July 6, 2012). H.R. 7, the American Energy and Infrastructure Jobs Act of 2012 Initially, the House T&I majority's draft proposal would have funded federal highway and mass transit programs at $230 billion over six years, which is roughly equivalent to the amount of revenue expected to be generated by the Highway Trust Fund during that time period. The proposal was formally introduced as a bill, H.R. 7 , the American Energy and Infrastructure Jobs Act of 2012, on January 31, 2012, and reported by the House Committee on Transportation and Infrastructure on February 13, 2012. As introduced and reported, the bill would have provided $260 billion for federal highway and mass transit programs over five years (including already appropriated funding for FY2012). H.R. 7 , included a number of changes that would have affected federalism relationships in surface transportation policy. For example, it would have provided states greater flexibility in the use of federal highway funds by reducing the number of federal highway "core" programs and reorganizing the programs that remain. Under SAFETEA, the federal highway program had seven "core" programs: Interstate Maintenance Program, Highway Bridge Program, National Highway System, Surface Transportation Program, Congestion Mitigation and Air Quality Improvement (CMAQ) Program, Highway Safety Improvement Program, and Equity Bonus (EB) Program. H.R. 7 would have folded the Interstate Maintenance and Highway Bridge programs into the National Highway System and Surface Transportation programs. The CMAQ program, Highway Safety Improvement program, and EB program would be retained, with modifications. provided states greater flexibility in the use of highway funds by consolidating or eliminating 70 federal highway and mass transit programs that are "duplicative" or "do not serve a federal purpose … such as the National Historic Covered Bridge Preservation Program and the Nonmotorized Transportation Pilot Program." While many existing federal highway and mass transit programs would be discontinued as separate entities, states would be authorized but not required, to spend their federal highway and mass transit funds for many of the same purposes. eliminated the mandated set-aside of 10% of Surface Transportation Program funding for transportation enhancement projects. Under SAFETEA, 12 activities were eligible for transportation enhancement funding, including landscaping, bikeways, historic preservation, environmental mitigation, and transportation museums. Under the bill, "states will no longer be required to spend highway funding on non-highway activities. States will be permitted to fund such activities if they choose, but they will be provided the flexibility to identify and address their most critical infrastructure needs." reduced the number of transportation enhancement activities that are eligible for federal funding, to 7 from 12, by removing the eligibility for the acquisition of scenic or historic easements, including battlefields; historic preservation; rehabilitation and operation of historic transportation facilities; preservation of abandoned railway corridors; and the establishment of transportation museums. provided states greater flexibility to toll non-interstate highways and allowed states to toll new lanes on the Interstate Highway System as a means to generate additional revenue. increased funding, to $1 billion annually from $122 million annually, for the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program. TIFIA provides public or private entities "seeking to finance, design, construct, own, or operate an eligible surface transportation project" direct loans, loan guarantees, and standby lines of credit to finance up to 33% of eligible project costs for surface transportation projects of national and regional significance. The bill also would have increased TIFIA's maximum support, to 49% from 33%, of eligible project costs. made several changes to the project delivery approval process in an effort to reduce the anticipated average project delivery time for highway and mass transit construction projects. It would have allowed "federal agencies to review transportation projects concurrently," delegate "project approval authority to states," establish "hard deadlines for federal agencies to make decisions on permits and project approvals," and expand "the list of activities that qualify for categorical exclusions ─ an approval process that is faster and simpler than the standard [environmental review] process." For example, National Environmental Policy Act requirements would no longer apply to highway or mass transit projects that cost less than $10 million, or for which federal funding constitutes 15% or less of total project costs. S. 1813, the Moving Ahead for Progress in the 21st Century (MAP-21) The Senate proposal would have retained highway and mass transit funding at current levels, with a small inflationary adjustment, for FY2012 and FY2013 ($109 billion). It was formally introduced as a bill, S. 1813 , the Moving Ahead for Progress in the 21 st Century (MAP-21), on November 7, 2011, and reported, with amendments, by the Senate Committee on Environment and Public Works on February 6, 2012. The Senate began consideration of the bill in early February. The bill remained on the Senate floor for more than a month as Senate leaders attempted to reach an agreement on offsets to pay for the bill, and to secure sufficient votes necessary for adoption. On March 14, 2012, the Senate adopted S. 1813 , as amended, by a vote of 74-22. S. 1813 included a number of changes that would have affected federalism relationships in surface transportation policy. For example, it would have increased state flexibility in the use of federal highway assistance by reducing the number of federal highway "core" programs and reorganizing those that remain. SAFETEA's seven "core" programs would have reduced to five: the existing CMAQ and Highway Safety Improvement Programs; a new National Highway Performance Program that consolidates several existing highway programs; a new Transportation Mobility Program to fund a broad array of surface transportation projects; and a new National Freight Network Program. provided states greater flexibility in the use of federal highway assistance by reducing the total number of federal highway programs from about 90 to 30. This would be accomplished mostly by shifting program eligibility to the core programs. Nearly all discretionary grant programs nominally under the control of Federal Highway Administration would be eliminated. While many existing highway programs would be discontinued as separate entities, states would be authorized, but not required, to spend their federal highway funds for many of the same purposes. retained a set-aside equal to the 10% set-aside of Surface Transportation Program funds for transportation enhancement projects apportioned in FY2009, and rolled the program into the CMAQ program. Eligible activities would be expanded to include a revised list of eligible transportation enhancement projects (i.e., some controversial activities, such as for the establishment of transportation museums, were removed from the list), recreational trails, safe routes to school projects, and planning and construction of roads largely in the right-of-way of former interstate system routes or other divided highways. As amended by the Senate, the bill would also require that 50% of these set-aside funds be obligated to local governments, Metropolitan Planning Organizations, transit and natural resources agencies, school districts, or other such entities in proportion to their relative share of the total state population. made several changes to the project delivery approval process in an effort to reduce the anticipated average project delivery time for highway and mass transit construction projects. Among other provisions, it would allow contracting agencies to issue two-phase contracts for pre-construction and construction services; and expand the list of activities that qualify for categorical exclusions ─an approval process that is faster and simpler than the standard environmental review process. increased funding, to $1 billion annually from $122 million annually, for the TIFIA loan program. It also would have increased TIFIA's maximum support, to 49% from 33%, of eligible project costs. increased the use of national performance measures by requiring states and Metropolitan Planning Organizations to set targets for highway condition and performance. S. 1813 did not include a provision, as in the House proposal, to expand state authority to use tolling as a means to generate revenue to supplement highway funding. S.Amdt. 1756, the Transportation Empowerment Act Numerous amendments were offered during Senate consideration of S. 1813 . Among them was S.Amdt. 1756 , the Transportation Empowerment Act. It would have had a major impact on federalism relationships in surface transportation policy by devolving most federal highway programs, and the taxes that support them, to states. S.Amdt. 1756 was proposed, on March 8, 2012, by Senator Dan Coats on behalf of Senator Jim DeMint. Senator DeMint had previously introduced the Transportation Empowerment Act during the 109 th Congress ( S. 2512 ), 110 th Congress ( S. 2823 ), and 112 th Congress ( S. 1164 ). The amendment would have phased-out most of the federal fuel and excise taxes that support the Highway Trust Fund over five years; preserve federal responsibility for interstate highways, transportation facilities on public lands, national transportation research and safety programs, and emergency transportation assistance; and devolve most other federal highway programs to states. During Senate floor debate on the amendment, which took place on March 13, 2012, Senator DeMint stated that it is time to get the Washington bureaucracy out of the way and empower states to be the primary decision-makers for their own local and state infrastructure. My amendment allows for states to keep their gas taxes and set their own priorities while avoiding an additional layer of Washington bureaucracy. Senator Barbara Boxer spoke against the amendment, stating that adopting the amendment would be "the end of the federal highway and transportation system … and without this transportation bill there is no guarantee that states would prioritize transportation investments that support national interests." The amendment was defeated on March 13, 2012, by a vote of 30-67. The House Response As the Senate considered MAP-21, House Speaker John Boehner attempted to secure sufficient support within the House to adopt H.R. 7 and H.R. 3864 , the American Energy and Infrastructure Jobs Financing Act of 2012. As mentioned previously, H.R. 7 would have provided $260 billion over five years for highway and mass transit programs. It also would have made a number of changes to existing programs, including consolidating or eliminating approximately 70 programs that "are duplicative or do not serve a federal purpose"; streamlining and condensing the project review process by "allowing federal agencies to review transportation projects concurrently, setting hard deadlines for federal agencies to approve projects, and delegating more decision making authority to states"; increasing the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program's funding to $1 billion per year "to provide $10 billion in low interest loans to fund at least $20 billion" per year in public-private transportation projects; eliminating the mandatory set-aside for transportation enhancements (e.g., for landscaping, beautification projects, preservation of abandoned railway corridors, bikeways), and providing states authority to "toll new capacity on the Interstate System" and provide states "greater flexibility to toll non-Interstate highways." H.R. 3864 would have supplemented Highway Trust Fund revenue with revenue from royalties generated from an expansion of domestic energy production. Unable to secure sufficient votes to pass these bills, Speaker Boehner decided to support a short-term extension of SAFETEA authority (through the end of FY2012) and to include provisions expediting the approval of the proposed Keystone XL oil pipeline project from Canada to the Gulf Coast; language in the Coal Residuals Reuse and Management Act ( H.R. 2273 ) limiting the Environmental Protection Agency's (EPA) ability to regulate coal ash; a proposed Gulf Coast Restoration Trust Fund; a proposed Harbor Maintenance Trust Fund guarantee; and the environmental streamlining provisions of Title III of H.R. 7 . The House adopted the bill ( H.R. 4348 , the Surface Transportation Extension Act of 2012, Part II) on April 18, 2012, by a vote of 293-127. Conference Committee's Compromise Increases the States' Role On April 24, 2012, the Senate agreed by unanimous consent to an amendment that struck the House-passed language from H.R. 4348 and substituted the language of MAP-21. This action enabled the House and Senate to send the measure to conference. During conference negotiations, the House reportedly agreed to drop provisions expediting the approval of the proposed Keystone XL oil pipeline project and language limiting the EPA's ability to regulate coal ash in exchange for Senate concessions concerning state flexibility in the use of transportation enhancement funds and expedited project review procedures. The final conference agreement was approved by the House and Senate on June 29, 2012, and signed into law ( P.L. 112-141 ; MAP-21) by President Obama on July 6, 2012. MAP-21 reauthorized federal highway and mass transit programs through the end of FY2014 (27 months) and authorized to be appropriated $105.2 billion for these programs in FY2013 and FY2014 (about $118 billion including already appropriated funding for FY2012). It increases state flexibility in the use of federal highway assistance by reducing the number of federal highway "core" programs and reorganizing those that remain. SAFETEA's seven "core" programs were reduced to four: National Highway Performance Program (a new "core" program to improve the condition and performance of the National Highway System, it consolidates the existing National Highway System and Interstate Maintenance programs, and aspects of the Highway Bridge Program that relate to bridges in the federal-aid system. States are required to develop a risk-based asset management plan to improve or preserve the condition and performance of the system. States that do not meet minimum condition and performance standards established by the Secretary of Transportation, in consultation with state and local government officials, for interstate highways and bridges are required to spend a portion of their funds to address any shortfalls.); Surface Transportation Program (expands the program to include aspects of the Highway Bridge Program that relate to bridges off of the federal-aid system and continues the program's broad eligibility of funding to improve the condition and performance of federal-aid highways and most bridges on most public roads. It continues to require sub-allocation to local governments based on population, but lowers that percentage to 50% from 62.5%. The lower percentage is offset by the removal of the 10% set-aside for transportation enhancement funding. It also continues the eligibility of mass transit projects.); Highway Safety Improvement Program (continues the program's support for projects related to the safety of highway infrastructure. Retains a set-aside for rail grade crossings and requires states to meet safety performance targets over time and spend a portion of their funds to address any shortfalls.); Congestion Mitigation and Air Quality Program (continues the program's support for surface transportation projects and other related efforts that contribute to air quality improvements and provide congestion relief. An exception to the prohibition on the use of CMAQ funding for the construction of single-occupancy vehicle lanes was provided if the project consists of a high occupancy vehicle facility available to single occupant vehicles only at other than peak travel times.). provides states greater flexibility in the use of federal highway assistance by eliminating 60 federal highway programs, a two-thirds reduction. This is accomplished mostly by shifting program eligibility to the core programs. Nearly all discretionary grant programs nominally under the control of Federal Highway Administration are eliminated. While many existing highway programs are discontinued as separate entities, states are authorized, but not required, to spend their federal highway funds for many of the same purposes. provides states greater flexibility in the use of mass transit assistance by reducing the number of discretionary programs through consolidation, conversion to a formula grant, or elimination. For example, the New Freedom Program was merged into the Elderly and Disabled Program; the competitive Bus and Bus Facilities program was converted to a formula grant, with each state and territory receiving a fixed amount and the remainder distributed according to population and specified bus service factors; and the Job Access and Reverse Commute program was eliminated, but job access and reverse commute projects remain eligible for funding under the urbanized area and rural formula programs. replaces the dedicated funding for the Transportation Enhancements, Safe Routes to Schools, and Recreational Trails programs with a Transportation Alternatives program. States are required to set-aside approximately 2% of their funding for eligible activities, which are expanded to include a shortened list of eligible transportation enhancement projects (i.e., some controversial activities, such as for the establishment of transportation museums, were removed from the list), recreational trails projects, safe routes to school projects, and planning and construction of roads largely in the right-of-way of former interstate system routes or other divided highways. Half of the set-aside funds must be sub-allocated to local governments, Metropolitan Planning Organizations, transit and natural resources agencies, school districts, or other such entities in proportion to their relative share of the total state population. Also, states are permitted to transfer up to 50% of the amount of Transportation Alternatives funding that is not sub-allocated within the state to other federal highway and safety programs, and, under specified circumstances, states may transfer unobligated Transportation Alternatives funding to the CMAQ program. makes several changes to the project delivery approval process in an effort to reduce the anticipated average project delivery time for highway and mass transit construction projects. Among other provisions, contracting agencies are allowed to issue two-phase contracts for pre-construction and construction services, and the Secretary of the Transportation is directed to establish a demonstration program to streamline the relocation process by permitting a lump-sum payment for acquisition and relocation if elected by the displaced occupant. To encourage the use of innovative technologies and practices, the federal share of project costs may be increased to 100% for projects that use innovative project delivery methods, capped at 10% of allowable apportionments. In addition, the list of activities that qualify for categorical exclusions, an approval process that is faster and simpler than the standard environmental review process, is expanded to include, among other activities, any project that receives less than $5 million in federal funds or has a total estimated cost of not more than $30 million that receives less than 15% of its funding from the federal government. The Transportation Secretary is also directed to consult with highway and mass transit officials at all levels of government to make recommendations on new activities that qualify for categorical exclusions. increases funding, to $750 million in FY2013 and $1 billion in FY2014 from $122 million in FY2012, for the TIFIA loan program. It also increases TIFIA's maximum support, to 49% from 33%, of eligible project costs; enables TIFIA loans to be applied to related groups of projects, rather than a single project; and includes a 10% set-aside for projects located in rural areas (defined as areas with populations less than 250,000). increases the use of national performance measures by requiring Metropolitan Planning Organizations (MPOs), in coordination with state officials and providers of mass transportation, to establish a performance-based approach to planning that supports seven national goals: reducing traffic fatalities and serious injuries on all public roads; maintaining the highway infrastructure system in a state of good repair; reducing congestion on the National Highway System; improving the efficiency of the surface transportation system; improving the national freight network; protecting and enhancing the natural environment; and reducing project delivery delays. MPOs are required to establish targets for highway condition and performance, and track progress in meeting those targets. MPOs are also required, within two years of enactment, to include representation by officials of public agencies that administer or operate public transportation systems. removes the requirement for an agreement to be executed with the Department of Transportation for each new tolling project under the "mainstream" tolling programs (but not for pilot programs), codifies the substantive requirements, and, by complying with the requirements the approval process becomes self-executing. Among other changes, it also provides states authority to toll new Interstate highways and additional capacity (lanes) on established Interstate highways, which was previously only allowed on a limited basis under the Interstate System Construction Toll Pilot Program (which is scheduled to sunset in 2015) and the (15 project) Express Lanes Demonstration Program (which was not reauthorized and expired on June 30, 2012), but only if the number of toll-free lanes after construction is not less than the number of toll-free lanes as before construction. HOV lanes may also be converted to a toll facility under specified circumstances and all toll facilities on the federal–aid highway system are required to implement technologies or business practices that provide for the interoperability of electronic toll collection programs by October 1, 2016. FAST: Continuing the Expansion of State Flexibilities As mentioned previously, MAP-21's authorization was extended five times prior to the enactment of P.L. 114-94 , the Fixing America's Surface Transportation (FAST) Act. Congressional debate throughout the reauthorization process focused on funding issues, but, as discussed below, the House and Senate also adopted numerous provisions that were designed to build upon previous reauthorizations' emphasis on expanding state decisionmaking authority. The Senate passed H.R. 22 , the Developing a Reliable and Innovative Vision for the Economy Act (DRIVE Act) on July 30, 2015. The House passed the bill in different form (substituted with language from H.R. 3763 , the Surface Transportation Reauthorization and Reform Act of 2015 [STRRA], with amendments), on November 5, 2015. The conference agreement for H.R. 22 (renamed the Fixing America's Surface Transportation [FAST] Act), was filed on December 1, 2015, passed by the House and Senate on December 3, 2015, and signed by President Obama on December 4, 2015. Both the House- and Senate-passed versions of H.R. 22 would have reauthorized these programs for six years (FY2016-FY2021), provided only three years of full funding for the HTF (requiring Congress to find new revenues and spending offsets starting in FY2019), created a new discretionary program for major projects (STRRA's Nationally Significant Freight and Highway Projects Program would be funded at a higher level, averaging $740 million annually, compared with the DRIVE Act's Assistance for Major Projects program, which would average $525 million annually), and reduced funding for the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program (from $1 billion annually under MAP-21 to $200 million annually under STRAA and $300 million annually under the DRIVE Act). Of particular interest to state and local government officials, the Senate's DRIVE Act would have expanded eligibility for TIFIA loans (e.g., to include state infrastructure banks, transit-oriented development, environmental mitigation, projects located in rural areas; smaller projects, and projects administered by local governments and public authorities); provided states greater flexibility in approving small highway improvement projects in rural areas; removed limitations on the conversion of HOV facilities on the Interstate System; removed the 80% federal cost share limitation for toll roads; authorized the establishment of a toll credit marketplace pilot program that would have allowed up to 10 participating states to sell or transfer "toll credits" among one another; required states (limited to three) participating in the Interstate System Reconstruction and Rehabilitation Pilot Program, which allows participating states to place tolls on existing Interstate highways under specified circumstances, to put the tolling project out to bid within one year of the state's acceptance into the program and under contract within two years; states already provided conditional approval have one year from enactment to put the tolling project out to bid and two to have the project under contract, otherwise the conditional approval will be canceled (use or lose provision); expanded upon MAP-21's project delivery reforms by (1) focusing on the use of "programmatic agreements" during project review to better delineate responsibilities, reduce duplication of effort, and establish clear expectations for review timeframes and processing options, (2) encouraging the expanded use of categorical exclusions (CEs) by directing the U.S. Department of Transportation to allow CEs to be implemented through a programmatic agreement, and (3) establishing review deadlines to reduce project review delays; provided additional funding for mass transit, particularly for the Bus and Bus Facilities Program; added public ports, intercity bus operators, and commuter vanpool providers as parties that Metropolitan Planning Organizations are required to give reasonable opportunity to comment on the area's transportation plan; consolidated nine existing Federal Motor Carrier Safety Administration (FMCSA) truck and bus safety grant programs into four and streamlined program requirements to reduce administrative costs and regulatory burdens on states; and eliminated the ability of states to transfer up to 50% of their Transportation Alternatives Program (TAP) to other highway programs (states would be required to sub-allocate 100% of their TAP apportionment to local areas based on population, rather than the 50% required under MAP-21). Of particular interest to state and local government officials, the House's STRRA would have renamed and modified the Surface Transportation Program (STP), the second-largest source of highway funding, as a block grant. However, unlike some other block grant programs, the STP block grant program would not provide states with unrestricted lump sums of money; created a pilot program to allow up to five states " conduct environmental reviews and make approvals for projects under state environmental laws and regulations instead of federal environmental laws and regulations," if substantially equivalent. States with an approved program, at the request of a local government, may exercise authority under the pilot program on behalf of up to 25 local governments for locally administered projects; required GAO, within two years of enactment, to conduct an assessment of the "progress made under this Act, MAP-21 ( P.L. 112-141 ), and SAFETEA-LU ( P.L. 109-59 ) ... to accelerate the delivery of federal-aid highway and highway safety construction projects and public transportation capital projects by streamlining the environmental review and permitting process"; required states (limited to three) participating in the Interstate System Reconstruction and Rehabilitation Pilot Program, which allows participating states to place tolls on existing Interstate highways under specified circumstances, to submit a complete application to the Secretary of Transportation, complete the environmental review and permitting process for the pilot project, and execute a toll agreement with the Secretary of Transportation within three years after the date the application was provisionally approved, and provides the Secretary of Transportation authority to extend the provisional approval for not more than one additional year if the state meets specified requirements; states already provided conditional approval would have one year from enactment to meet the requirements set out above, otherwise the conditional approval would be canceled (use or lose provision) unless provided an extension by the Secretary of Transportation for not more than one additional year; eliminated the seven-state set-aside High Density Bus program and transferred the funds to the nationwide Competitive Bus Grants program; consolidated nine existing Federal Motor Carrier Safety Administration (FMCSA) truck and bus safety grant programs into four and streamlined program requirements to reduce administrative costs and regulatory burdens on states; and merged TAP into the STP block grant program and allowed 50% of TAP funding in urbanized areas to be used on any STP-eligible project. FAST reauthorizes MAP-21's programs for five years (FY2016-FY2020). It includes offsets to ensure the HTF's solvency through 2020 (e.g., by changing custom fees and passport rules for applicants who have delinquent taxes; contracting out some tax collection services to private companies; replacing the current 6% dividend the Federal Reserve pays to large banks (assets over $10 billion) with a floating rate tied to the 10-year Treasury note, which is expected to be less than 6%, or 6%, whichever is less; selling oil from the Strategic Petroleum Reserve; and transferring funds from a Federal Reserve capital account to the Treasury); creates a new discretionary program for major projects (a modified version of STRRA's Nationally Significant Freight and Highway Projects Program, with higher funding levels); and reduces funding for the Transportation Infrastructure Finance and Innovation Act (TIFIA) loan program (from $1 billion annually under MAP-21 to $275 million in FY2016 and FY2017, $285 million in FY2018, and $300 million in FY 2019 and FY2020). Of particular interest to state and local government officials, FAST expands eligibility for TIFIA loans (e.g., to include state infrastructure banks, transit-oriented development, projects located in rural areas, smaller projects, and projects administered by local governments and public authorities); removes limitations on the conversion of HOV facilities on the Interstate System; provides additional funding for mass transit, particularly for the Bus and Bus Facilities Program; adds public ports, intercity bus operators, and commuter vanpool providers as parties that Metropolitan Planning Organizations are required to give reasonable opportunity to comment on the area's transportation plan; and adds all of the above-listed STRRA provisions of interest to state and local government officials, except for the elimination of the seven-state set-aside High Density Bus program and the transfer of its funds to the nationwide Competitive Bus Grants program, which was not included in the conference agreement. Also, the recommended authorization of appropriations for the four consolidated truck and bus safety grant programs reflect a compromise from the differing appropriation amounts recommended in the House and Senate-passed bills. Concluding Observations Congress has debated the federal role in surface transportation policy since the nation's formation in 1789. A review of the historical record suggests that the debate over the federal role in surface transportation policy has been influenced by factors both internal and external to the institution. Internally, the background, personalities, and ideological preferences of congressional leaders such as Senator Harry Byrd, Senator Daniel Patrick Moynihan, and Representative E. G. "Bud" Shuster have had a profound impact on the development of federal-state-local government relationships in surface transportation policy over time. The norms, customs, and traditions of the House and Senate have also had an influence. For example, the decentralized nature of decisionmaking in both the House and the Senate has compartmentalized decisions into more manageable pieces, but, arguably, has made it more difficult for Congress to develop broad-based policies that cut across committee jurisdictions or to enact proposals to consolidate programs or devolve programmatic authority to states as these actions might upset existing power relationships and require the consent of several committees and committee chairs. For example, in the House of Representatives, programmatic and funding distribution issues are under the jurisdiction of the Committee on Transportation and Infrastructure, but tax and Highway Trust Fund issues are under the jurisdiction of the Committee on Ways and Means. In the Senate, most programmatic and funding distribution issues are under the jurisdiction of the Committee on Environment and Public Works for highways and other aspects of Title 23, but are under the Committee on Banking, Housing, and Urban Affairs for transit. Tax and Highway Trust Fund issues are under the jurisdiction of the Committee on Finance. In the Senate, most safety issues are under the jurisdiction of either the Committee on Environment and Public Works or the Committee on Commerce, Science, and Transportation. Externally, interest groups representing both the private and public sectors have historically been united in their advocacy of additional federal funding, but have been divided over how program funds should be allocated, both among states and among transportation modes. Congress has tended to arbitrate the differences among these varied interests by balancing the need to promote the national interest with the recognition that, for the most part, state and local government officials have proven over time to be relatively capable administrators of surface transportation programs. As a result, Congress has rejected efforts to devolve most federal programmatic authority to states. Instead, it has adopted policies that have expanded state programmatic flexibility while, at the same time, promote the national interest by requiring state and local governments to adhere to federal guidelines for managing the project development process and monitoring highway and bridge conditions, highway safety programs, traffic congestion mitigation programs, and transit facility and equipment maintenance programs, as well as intermodal transportation facilities and systems. FAST, and its predecessor Map-21, continued this trend. For example, FAST provides states greater flexibility in the use of federal highway assistance by converting the Surface Transportation Program (STP) into a block grant; rolling the Transportation Alternatives Program into the STP and allowing 50% of local government transportation alternatives funding to be used on any STP-eligible project; and consolidating truck and bus safety grant programs. FAST also includes changes to the project delivery approval process in an effort to reduce the average project delivery time for highway and mass transit construction projects. Presidents, perhaps reflecting their role in representing the national interest as a whole and, perhaps, at least in part, because several Presidents had formerly served as governors, have tended to be more supportive of program consolidation and devolution of programmatic authority in surface transportation policy than Congress. This has been especially the case when the President's ideology favored smaller government. Typically, presidential efforts to consolidate surface transportation programs have faced strong opposition from private sector interest groups worried that program consolidation will result in less funding for the consolidated programs over time, and from Members worried that consolidation could lead to less funding for specific programs that are important to them. Perhaps the most difficult factor to account for in the development of federalism relationships in surface transportation policy over time has been the changing nature of American society and expectations concerning personal mobility. Once a rural society with relatively limited expectations concerning personal mobility, America is now a primarily urban/suburban society where automobile ownership and the personal mobility that automobile ownership brings is not only a powerful social status symbol but also viewed as a necessity. Obtaining a drivers' license is now a major life-altering event, signifying for millions of American teenagers each year the transition from childhood to adulthood. Because the American bond with the automobile is strong, moving away from a primary focus on building and constructing highways towards a "more balanced" intermodal transportation approach has been made more difficult for policymakers at all levels of government. Moreover, given the public's relatively high expectations concerning personal mobility, Congress has been reluctant to devolve surface transportation programs to states, at least in part, because some Members worry that if states are provided additional authority and fail to meet public expectations, that they might be held accountable for that failure on election day. In their view, a more prudent, risk-adverse approach is to provide states additional programmatic flexibility, but retain a federal presence through both program oversight and the imposition of federal guidelines to ensure that states do not stray too far from national objectives. It remains to be seen how all of these factors will play out in the future. One certainty is that Congress will continue to play the key role in determining the future of federalism relationships in surface transportation policy. Another is that those relationships will continue to evolve over time, adapting to changes in American society and in Congress.

P.L. 114-94, the Fixing America's Surface Transportation (FAST) Act, was signed by President Obama on December 4, 2015. The act reauthorizes federal highway and mass transit programs through the end of FY2020. It also authorizes to be appropriated about $305 billion for these programs, an increase of about 4.2% over current funding levels plus projected inflation for highway programs and 7.9% over current funding levels plus projected inflation for public transportation programs. Although the federal presence, and influence, on surface transportation policy remains significant, FAST is a continuation of previous reauthorizations' emphasis on increasing state decisionmaking authority. For example, FAST provides states greater flexibility in the use of federal highway assistance by converting the Surface Transportation Program (STP) into a block grant; rolling the Transportation Alternatives Program into the STP and allowing 50% of local government transportation alternatives funding to be used on any STP-eligible project; and consolidating truck and bus safety grant programs. FAST also includes changes to the project delivery approval process in an effort to reduce the average project delivery time for highway and mass transit construction projects. For many years, state and local government officials have lobbied for increased federal assistance for surface transportation grants and increased flexibility in the use of those funds. They argue that they are better able to identify surface transportation needs in their states than federal officials and are capable of administering federal grant funds with relatively minimal federal oversight. They also argue that states have a long history of learning from one another. In their view, providing states added flexibility in the use of federal funds results in better surface transportation policy because it enables states to experiment with innovative solutions to surface transportation problems and then share their experiences with other states. Others argue that the federal government has a responsibility to ensure that federal funds are used in the most efficient and effective manner possible to promote the national interest in expanding national economic growth and protecting the environment. In their view, providing states increased flexibility in the use of federal funds diminishes the federal government's ability to ensure that national needs are met. Still others have argued for a fundamental restructuring of federal and state government responsibilities in surface transportation policy, with some responsibilities devolved to states and others remaining with the federal government. This report provides a historical perspective on contemporary federalism issues in surface transportation policy since the beginning of the nation. It includes a discussion of the five multi-year reauthorizations of the Federal-Highway Act since 1987: 1. the $151 billion, six-year Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA; P.L. 102-240) signed by President George H. W. Bush on December 18, 1991. 2. the $203.4 billion, six-year Transportation Equity Act for the 21st Century (TEA-21; P.L. 105-178) signed by President Bill Clinton on June 9, 1998. 3. the $286 billion, six-year Safe, Accountable, Flexible, and Efficient Transportation Equity Act of 2005: A Legacy for Users (SAFETEA; P.L. 109-59) signed by President George W. Bush on August 10, 2005. 4. the $118 billion ($105.2 billion for FY2013 and FY2014), 27-month, Moving Ahead for Progress in the 21st Century (MAP-21; P.L. 112-141) signed by President Barack Obama on July 6, 2012. 5. the $305 billion, five-year Fixing America's Surface Transportation Act (FAST; P.L. 114-94), signed by President Barack Obama on December 4, 2015.

Introduction Black's Law Dictionary defines legislative history as "the background and events leading to the enactment of a statute, including hearings, committee reports, and floor debates." It also descri bes one of the primary reasons legal, policy, and legislative researchers investigate the legislative history of a particular piece of legislation: "Legislative history is sometimes recorded so that it can later be used to aid in interpreting the statute." However, the purpose of legislative history research is not limited to statutory interpretation. Questions researchers may want to answer through legislative history include Which committees and Members were involved? How was the legislative language amended as it advanced through the congressional process? How did Members vote on proposed amendments and final passage? To answer these and similar questions, researchers must identify the chronological steps the legislation followed through Congress and the materials that document what happened during each of these steps. This report briefly describes the actions a piece of legislation might undergo during the legislative process and provides information on resources for retrieving legislative history materials. The Legislative Process This report focuses on legislative history research, and therefore does not contain detailed information about the legislative process. However, because a general understanding of the legislative process is helpful when compiling a legislative history, overviews of certain congressional actions are provided. Detailed guides on the legislative process for the House and Senate are available online: How Our Laws Are Made, Revised and Updated, by John V. Sullivan Parliamentarian, United States House of Representatives Presented by Mr. Brady of Pennsylvania July 24, 2007 https://www.congress.gov/resources/display/content/How+Our+Laws+Are+Made+-+Learn+About+the+Legislative+Process Enactment of a Law by Robert B. Dove Parliamentarian, United States Senate Updated: February 1997 https://www.congress.gov/resources/display/content/Enactment+of+a+Law+-+Learn+About+the+Legislative+Process In addition, there are a number of Congressional Research Service (CRS) reports on various aspects of the legislative process referenced throughout this report and available on CRS's website at http://www.crs.gov . Legislative History Resource Material The legislative history resource materials discussed below vary in scope and availability. For example, the Government Printing Office's (GPO's) Federal Digital System (FDsys), through its website http://www.gpo.gov/fdsys/search/home.action , is an online collection of official congressional publications and databases containing texts of legislation, the Congressional Record , House and Senate calendars, committee prints, committee hearings, committee reports, and other material useful for legislative research. However, the information available on these websites is limited to more recent Congresses. By contrast, print publications may be more historically complete, but limited to only one type of document or information. For example, the Congressional Record and its predecessor publications, which are available in print going back to 1789, contain information on procedural actions for legislation and transcripts of the proceedings on the House and Senate floor, but do not contain the text of committee hearings. The references cited below are available online through government sources or in hard copy through CRS or the Law Library of Congress. They are also commonly available at local libraries, law libraries, or federal depository libraries. GPO has a website to assist patrons in finding the nearest depository library, at http://catalog.gpo.gov/fdlpdir/FDLPdir.jsp . References to commercial services that require subscriptions are limited to those available in all congressional offices. In addition, some stages of the legislative process are more fully documented than others. For example, bills are often debated and amended extensively during their consideration by congressional subcommittees, but these deliberations are not usually transcribed and made widely available. In general, information on subcommittee action is limited to discussion in news accounts or reports from the full committee. Compiled Histories In some instances, a legislative history may have already been compiled. There are a few government and commercial sources for compiled legislative histories. Online Sources Proquest Legislative Insight http://www.conquest-leg-insight.com/legislativeinsight/LegHistMain.jsp This commercial service offers compiled legislative histories that typically include bill text, Congressional Record references, committee documents, and miscellaneous publications for public laws enacted starting with the 57 th Congress (1901-1903). Users can search by public law number, Statutes at Large citation, or enacted bill number. Proquest Congressional http://web.lexis-nexis.com/congcomp Proquest Congressional, a commercial database, has legislative histories from 1969 to the present. Researchers can find legislative history compilations by keywords in the abstract, bill tracking, bill text, floor votes, public laws, United States Code or Statutes at Large . Results can be restricted by words in the title of the legislative history or the Congress. Print Sources Government Accountability Office (GAO) Legislative History Microfiche . This resource contains the legislative history for most public laws from 1921 to 1980. Reprints from the microfiche may be available from CRS, the Law Library of Congress, or at a federal depository library. Committee Prints . On occasion, committees produce legislative histories of enactments within their jurisdiction. Reprints of published copies of committee prints may be available through CRS, the Library of Congress, or at a federal depository library. Legislation Bills. Most legislation introduced by a Member of Congress (i.e., the legislation's sponsor) is introduced as a "bill," the general form used for legislation that will have the force of law if enacted. Bills are numbered sequentially in the order they were introduced. Bills introduced in the Senate are preceded by "S."; those in the House by "H.R." Bills remain pending from the time of introduction until final passage or the final adjournment of a Congress (i.e., the numbered two-year convocation of the House and Senate that begins January 3 following each biennial federal election). Bills not enacted during a Congress "die"; further legislative consideration requires that they be reintroduced in the next Congress. Joint Resolutions . While bills are used for purposes of general legislation, joint resolutions (S.J. Res. or H.J. Res.) are used to propose constitutional amendments and for a variety of special or subordinate purposes, such as continuing appropriations. Except for those proposing constitutional amendments, joint resolutions become law in the same manner as bills. If a legislative measure receives action, GPO publishes versions of the legislative text as it moves through the various stages of the legislative process. These versions include those marked reported, engrossed, engrossed House/Senate amendment, public print, and enrolled. By comparing different bill or resolution texts, researchers can determine at what stage in the legislative process revisions were made. Texts of Legislation Online Sources Government Printing Office (FDsys) http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=BILLS FDsys enables users to browse or search for bills and resolutions from the 103 rd Congress (1993-1994) forward. Legislative Information System (LIS) http://www.lis.gov Congress.gov http://www.congress.gov LIS is available to congressional researchers. Users can browse or search for bill and resolution texts starting with the 101 st Congress (1989-1990). Congress.gov is available to the general public and covers the same time period for legislative text. American Memory's A Century of Lawmaking for a New Nation: Bills and Resolutions http://memory.loc.gov/ammem/amlaw/ The American Memory website contains scanned images of some historical bills and resolutions. Coverage for the House starts with the 6 th Congress (1799-1800) through the 42 nd  Congress (1871-1872). For the Senate, coverage is from the 16 th Congress (1819-1821) through the 42 nd Congress (1871-1872). Print Sources Print versions of bills are available on microfiche or microfilm through the Law Library of Congress (1789-current) and certain federal depository libraries. Bill History and Status At its most fundamental, legislative history tracks congressional action on a piece of legislation and its status within the legislative process. When beginning a legislative history research project, one of the first steps a researcher may want to undertake is locating information on the history of the bill and citations to documents. Through the years, various government and private entities have tracked the history and status of bills. Online Sources LIS http://www.lis.gov Congress.gov http://www.congress.gov LIS is available to congressional offices and provides bill summary and status information on bills and resolutions starting from the 93 rd Congress (1973-1974) to the present. Congress.gov, a public legislative service from the Library of Congress, contains the same information on a bill's history and status. Congressional Calendars http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CCAL House and Senate calendars are published periodically during the session by the Clerk of the House and the Secretary of the Senate. The calendars provide a list of legislation. In the House calendar, the history and current status of legislation receiving action is summarized. FDsys contains final House and Senate calendars starting from the 104 th Congress (1995-1996) to the present. Print Sources Digest of Public General Bills and Resolutions. The Bill Digest, a publication of the Library of Congress from 1936 until 1990, contains summaries and status of legislation. House and Senate Calendars. Published copies of the calendars are available through CRS, the Law Library of Congress, or at a federal depository library. Congressional Information Service (CIS). A commercial service, the CIS Index lists each public law in the Annual Abstracts volume and references publications concerning the law. These references include a list of congressional hearings, reports, documents, and prints back to 1970. The Legislative Histories volume contains the legislative history information on selected public laws, including dates of congressional debate, back to 1970. The CIS Historical Index contains congressional documents from 1789 through 1972. Committee Action Legislation is usually referred to a committee after introduction, according to its subject matter. Often, a committee will further refer the legislation to one of its subcommittees. The subcommittees may request reports from government agencies or departments, hold hearings, mark up the bill (meet to propose changes), and report the legislation to the full committee. The full committee may take similar action, with or without prior subcommittee consideration, and report the legislation to its full chamber (i.e., the House or Senate). Hearings. Hearings provide a committee or subcommittee the opportunity to explore topics or legislation. Hearings may include statements of committee Members and interested parties, as well as the testimony of witnesses. GPO publishes hearings made available to them by committees. Online Sources GPO FDsys http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CHRG Through FDsys, researchers can download selected committee hearings starting with the 105 th Congress (1985-1986). Proquest Congressional Hearings Digital Collection http://web.lexis-nexis.com/congcomp Proquest Congressional, a commercial database, has scanned PDF images of published committee hearings from 1824 to the present. Print Sources Print versions of committee hearings are available through CRS and the Law Library of Congress. More recent hearings are available through the House and Senate Document Rooms. Individual hearings may be available through a federal depository library. Reports. Most legislation never proceeds through full committee consideration and remains in committee for the remainder of a Congress. However, committees may, by majority vote, report some bills and resolutions for consideration by the entire chamber. The House requires a written report on the legislation, but the Senate does not. These committee reports can be particularly useful documents for legislative history research because they often describe the purpose of the legislation and summarize or explain specific provisions. The report will also give details on the committee's actions, understandings, and conclusions about the legislation. Changes to existing laws, votes on amendments during markups, and subcommittee information are supplemental material to the committee report that may also be useful for legislative history research. If the legislation was considered by a subcommittee, that information may also be covered in the full committee's report. Committee reports are published by GPO. Sometimes, the reports are reproduced in whole or part by commercial publishers. Committee reports are identified as House Report (H. Rept. or H. Rep.) or Senate Report (S. Rept. or S. Rep.) and given a number (e.g., S.Rept. 107-31 is the 31 st report to the Senate in the 107 th Congress). Online Sources LIS http://www.lis.gov Congress.gov http://www.congress.gov LIS is available to congressional researchers and has committee reports starting from the 104 th Congress (1995-1996). Congress.gov has the same coverage for committee reports. GPO FDsys http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CRPT FDsys contains committee reports starting from the 104 th Congress (1995-1996). Proquest Congressional U.S. Serial Set Collection http://web.lexis-nexis.com/congcomp Proquest Congressional, a commercial database, has scanned PDF images of committee reports published in the Serial Set (described below) from 1817 to the present. Print Sources Print versions of committee reports are available through CRS, the Law Library of Congress, and possibly a federal depository library. More recent reports may be available through the House and Senate Document rooms. The Serial Set . This serial publication contains House and Senate documents and reports bound by session of Congress beginning in 1817. It is available through CRS, the Law Library of Congress, and may be available through a federal depository library. U.S. Code Congressional and Administrative News ("USCCAN"). USCCAN, a commercial service, reprints the major reports and conference report or portions thereof, for most public laws enacted since 1941, along with the text of the public law. This publication is available through CRS, the Law Library of Congress, and may be in the collection of a federal depository library. Prints and Documents . Committee prints and documents can be used to duplicate research papers or annual reports from executive branch agencies of interest to the committee, papers prepared by the committee staff, reports on investigative and oversight hearings and activities, and analytical information on legislation. Some committees use prints for reproducing compilations of laws that come under their legislative jurisdiction. Committee prints are identified as House Print (H. Prt.) or Senate Print (S. Prt.) and given a number (e.g. Senate Print 111-6 is the sixth numbered print for the Senate in the 111 th Congress). Committee documents are identified as House Document (H. Doc.) or Senate Document (S. Doc.) and given a number (e.g. House Document 111-2 is the second numbered document for the House in the 111 th Congress). Online Sources GPO FDsys—Committee Prints http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CPRT FDsys has House and Senate committee prints starting from the 105 th Congress (1997-1998). GPO FDsys—Committee Documents http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CDOC FDsys has House and Senate committee documents starting from the 104 th Congress (1995-1996). Proquest Congressional Research Digital Collection http://web.lexis-nexis.com/congcomp Proquest Congressional has committee prints and miscellaneous documents that were published from 1830 to the present. They also have an assortment of House and Senate documents from 1871 to the present. Print Sources Copies of committee prints and documents are available through CRS and the subject collections of the Library of Congress. More recent prints and documents may be available through the House and Senate Document rooms. Individual prints and documents may be available through a federal depository library. Floor Action Legislation may be brought to the floor of the respective chambers for consideration by the full House or Senate. The length and scope of debate on the floor of Congress (e.g., which amendments, if any, will be considered) are governed by the rules of the respective chambers. For example, in the House, the measure is sometimes considered under the terms of a "special rule," that is, a simple resolution reported by the Committee on Rules, which may be accompanied by a written report specifying which amendments can be offered on the floor. Votes on amendments and final passage may or may not be in the form of a formal recorded vote, in which the vote of each Member is identified. The debates are published in the Congressional Record . Recorded votes, called "roll call votes," are published in the Congressional Record but they can also be found through other sources, such as the Clerk of the House website, the Secretary of the Senate, and commercial publishers. After legislation is passed by one chamber, it is sent to the other chamber for action, where it is often referred to committee. If the second chamber chooses to consider the legislation and passes it without change, it is submitted to the President. Remarks on the House or Senate floor can be useful for legislative history research because Members will often speak to the purpose of the legislation, emphasize or clarify certain provisions in the legislation; or raise concerns about the potential impact in their statements. In addition to debate on passage, sponsors and cosponsors may submit introductory remarks and materials on legislation into the Congressional Record . These remarks may explain the reasons for, and expected effects of, the legislation. The Congressional Record The Congressional Record is the official record of the proceedings and debates of Congress and contains a summary of the daily proceedings of the House and Senate. Predecessor publications for the Congressional Record are the Congressional Globe (1833-1873), Register of Debates in Congress (1825-1837), and Annals of the Congress of the United States (1789-1824). Currently, there are two editions of the Congressional Record published by GPO—the daily edition and the permanent edition. The daily edition is published each day Congress is in session and the pages are lettered and numbered by chamber (e.g., Senate pages begin with "S" and House pages begin with "H"). The permanent or "bound" edition is published years later. It is continuously paginated (e.g., the pages are renumbered and the "S" and "H" designations are dropped) and the text may have been edited. Online Sources LIS http://www.lis.gov Congress.gov http://www.congress.gov LIS is available to congressional researchers only and has links to the daily edition of the Congressional Record starting from the 101 st Congress (1989-1990). Congress.gov has the same coverage for the Congressional Record . GPO FDsys— Congressional Record , Daily Edition http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CREC FDsys provides the Congressional Record from 1994 to the present. Users can search by keyword, page number, or browse by date of publication. GPO FDsys— Congressional Record , Bound Edition http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CRECB The bound edition of the Congressional Record is available through FDsys for the years December 19, 1998, through January 3, 2002. GPO FDsys— Congressional Record Index http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CRI The Congressional Record Index lists all introduced legislation by number. References in the Index are to pages in that year's Congressional Record . Each Congress spans two years and typically is divided into two sessions, with each session conducted during a separate calendar year. Legislation introduced during the first session may also be referred to in the second session of the same Congress. Coverage for the Congressional Record Index through GPO online is 1983 to the present. American Memory's A Century of Lawmaking for a New Nation: U.S. Congressional Documents and Debates http://memory.loc.gov/ammem/amlaw/ Contains scanned images of the journals and debates of Congress from 1789 through 1875. Proquest Congressional Congressional Record Permanent Digital Collection http://web.lexis-nexis.com/congcomp Proquest Congressional has scanned PDF images the Congressional Record and its predecessor publications from 1789 to 1997. Print Sources Copies of the Congressional Record and its predecessor publications are available through CRS, the Law Library of Congress, and may be available at a federal depository library. Roll Call Votes Online Sources Office of the Clerk, U.S. House of Representatives http://clerk.house.gov/legislative/legvotes.html The House Clerk's website has roll call votes from 1990 to the present. Secretary of the United States Senate http://www.senate.gov/pagelayout/legislative/a_three_sections_with_teasers/votes.htm The Secretary of the Senate's website has roll call votes from 1989 to the present. CQ.com http://www.cq.com This fee-based subscription database provides searchable roll call votes from the 102 nd Congress (1991-1992) to the present. Print Sources Congressional Quarterly Almanac . The CQ Almanac , a commercial publication, contains floor roll call votes. It also includes valuable background information as well as references to relevant material on major legislation. CQ Almanac has been published annually since 1945. These volumes may be available through CRS, the Law Library of Congress, and in the collection of a local library. Conference Committee Action If there are differences between the House and Senate versions of a piece of legislation, the last chamber to adopt its version may send its language back to the other chamber for further consideration in amended form. The first chamber may take up the amended version, or the two chambers may establish a conference committee to reach agreement on a common version. Each chamber appoints conferees, usually members of the original reporting committees, who may take up only those areas in disagreement. A majority of the Senate conferees and a majority of the House conferees must agree on what to report back to their respective chambers. Upon reaching agreement, a conference committee usually issues a report (usually printed as a House Report) that contains two parts: the agreed upon text and a joint explanatory statement. The joint explanatory statement in the conference report may discuss the differences between the House and Senate passed language, discuss the reasons certain provisions were chosen over others, and provide additional information on the purpose of the legislation. If passed by both chambers in identical form, the legislation is sent to the President. Conference Committee Reports Conference committee reports are available in the same formats and sources as regular committee reports. They can also be found in the Congressional Record . Presidential Action The President may approve a bill or resolution, veto it, or take no action. If the President signs a bill into law, he may issue a signing statement. If no action is taken, the legislation becomes public law after 10 days (Sundays excepted) unless final adjournment of Congress has occurred, in which case the legislation does not become law (known as a "pocket veto"). If the President vetoes the legislation, Congress may override the veto. Two-thirds of the House of Representatives and two-thirds of the Senate must vote to override the veto. If the two chambers vote to override the veto, the legislation becomes law without the President's signature. Presidential Signing Statements Online Sources Compilation of Presidential Documents http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=CPD The Compilation of Presidential Documents is the official publication of presidential documents issued by the National Archives and Records Administration's Office of the Federal Register. It consists of the Weekly Compilation of Presidential Documents and the Daily Compilation of Presidential Documents. Of note for legislative history researchers, it contains presidential signing statements. It is available online through the GPO's website from 1993 to the present. Print Sources Public Papers of the Presidents of the United States . Published by the National Archives and Records Administration's Office of the Federal Register, these volumes contain public messages, speeches, and statements of the Presidents beginning with President Herbert Hoover (1929) to the present. They are available through CRS, the Library of Congress, and federal depository libraries. Weekly Compilation of Presidential Documents . Published beginning in 1965 and ending with the January 26, 2009, issue, it contains statements, messages, and other presidential materials released by the White House. It is available through CRS, the Law Library of Congress, and federal depository libraries. Public Laws The United States S tatutes at Large contain public and private laws enacted since 1789. GPO publishes the official text of the public and private laws of the United States. Beginning with the 110 th Congress (2007-2008), GPO has digitally signed and certified the PDF versions of individual public laws (also called "slip laws") available from its website. Online Sources GPO FDsys— United States Statutes at Large http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=STATUTE Coverage on the GPO website is from the 82 nd Congress (1951-1952) to the 111 th Congress (2009-2010). GPO FDsys—Public and Private Laws http://www.gpo.gov/fdsys/browse/collection.action?collectionCode=PLAW Coverage on the GPO website is from the 104 th Congress (1995-1996) to the present. American Memory's A Century of Lawmaking for a New Nation: Statutes at Large http://memory.loc.gov/ammem/amlaw/ The American Memory website contains scanned images of the Statutes at Large from 1789 through 1875. Print Sources United States Statutes at Large . The Statutes at Large volumes contain public and private laws enacted since 1789. They are available through CRS, the Law Library of Congress, and at some federal depository libraries. U.S. Code Congressional and Administrative News ("USCCAN"). This commercial service reprints public laws enacted since 1941. This publication is available through CRS, the Law Library of Congress, and may be in the collection of a federal depository library.

This report provides an overview of federal legislative history research, the legislative process, and where to find congressional documents. The report also summarizes some of the reasons researchers are interested in legislative history, briefly describes the actions a piece of legislation might undergo during the legislative process, and provides a list of easily accessible print and electronic resources. This report will be updated as needed.

Introduction The medical device tax was one of a number of additional revenues proposed to offset the cost of the Affordable Care Act (ACA; P.L. 111-148 ). This excise tax is projected to raise $30.6 billion of excise tax collections over the next 10 fiscal years (FY2016-FY2025). After offsets due to the deductibility of excise taxes from income and payroll taxes, the medical device tax is estimated to raise net revenues of $24.4 billion, according to official revenue estimates from the Joint Committee on Taxation (JCT). Although some wish to preserve this revenue source, others have proposed repealing the tax. The industry and some policy institutes have commissioned studies claiming the excise tax will have significant negative consequences for jobs and innovation in the medical devices industry. Repeal of the tax has become a priority for some Members of Congress. In the 113 th Congress, the Senate voted 79-20 to include repeal of the tax as an amendment to S.Con.Res. 8 , the Senate Budget Resolution, on March 21, 2013. Bills ( H.R. 523 , H.R. 1295 , and S. 232 ) were introduced to repeal the tax. A number of Senators proposed amending H.R. 3474 (the vehicle for extending several expired and expiring tax provisions, called "extenders") to repeal the tax. The bill did not advance in the Senate, as a motion to end debate was voted down on May 15, 2014, due to restrictions on amendments. The Jobs for America Act ( H.R. 4 ), passed in the House on September 18, 2014, included a repeal of the tax along with the permanent extension of a number of expiring provisions. In the 114 th Congress, the Medical Device Access and Innovation Protection Act ( S. 149 ) would repeal the medical device tax retroactively to the first year of implementation in 2013 and provide refunds for past tax payments. On June 18, 2015, the House passed the Protect Medical Innovation Act of 2015 ( H.R. 160 ), which would repeal the tax in quarters after the date of the bill's enactment. This report reviews the issues surrounding the medical devices tax within the framework of basic principles surrounding the choice of commodities to tax under excise taxes. The next section describes the tax and its legislative origins. After that, the report analyzes the arguments for retaining and repealing the tax. A Brief Overview of the Medical Device Tax Since January 1, 2013, manufacturers and importers of final medical devices for sale in the U.S. market have been subject to an excise tax equal to 2.3% of the manufacturer's price. For the purposes of the tax, a "medical device" is defined by the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §321(h)) and pertains to devices "intended for humans." Congress exempted eyeglasses, contact lenses, and hearing aids from the tax and any other medical device determined by the Secretary of the Treasury to be of the type which is "generally purchased by the general public at retail for individual use." The internal revenue code prohibits a tax from being imposed on the sale by a manufacturer of an article for export, or for resale by the purchaser to a second purchaser for export. Thus, medical devices manufactured in the United States and exported abroad are also exempted from tax. The excise tax is deductible as an ordinary cost of business for firms subject to income tax. If the tax falls on profits this effect reduces the tax, for profitable firms, to about 1.4%. If the tax is passed forward, raising prices, the deduction would offset the firm's revenue gain from the price increase, leaving income tax revenues unchanged (absent effects on quantity) because the tax reduces the amount of income subject to federal income taxes. Legislative Origins The medical device tax was enacted by the Health Care and Education Reconciliation Act of 2010 (HCERA; P.L. 111-152 ), which modified the Patient Protection and Affordable Care Act of 2010 (ACA; P.L. 111-148 ). Like other revenue-raising measures enacted in ACA, the excise tax on medical devices was meant to help offset the expenditures associated with health care reform (e.g., subsidies for low-income households and small businesses to purchase health care, and funding for programs to promote efficiencies in the market for health care). Additionally, the medical device industry was one of the commercial interests (as well as health insurance providers and pharmaceutical firms) that stood to benefit from unanticipated profits as more people enrolled in health care, post-ACA. These industries are subject to fees that were estimated to raise $165.0 million over 10 years. This objective of the tax can be inferred from the original Senate proposal. During the early stages of the health care reform debate in 2009, the House and the Senate had different proposals to raise revenue from the medical device industry. The Senate proposed an industry-wide fee based on a firm's gross receipts, similar to the fees that were eventually imposed on drug manufacturers and health insurance providers. In contrast, the House proposed a flat excise tax across all medical device manufacturers; this framework eventually was adopted during the reconciliation process for HCERA/ACA. Even though the intent of the Senate bill might have been to impose the tax on profits, a fixed dollar fee allocated by market share closely approaches an excise tax. Revenue Effects According to the Joint Committee on Taxation (JCT), the medical device tax has been estimated to raise $24.4 billion in revenue over the FY2016 to FY2025 budget window. JCT estimates that the tax will raise $1.8 billion in FY2016 which would amount to approximately 1.4% of the projected sales of medical devices in the United States. This number is for a fiscal year, with the last quarter of calendar year 2016 appearing in FY2017 receipts. The 2016 calendar year liability is estimated at $1.85 billion. The excise tax collections are larger than JCT's net revenue estimates for budgetary purposes. Overall, excise taxes enter as a wedge between aggregate output and income. Because these taxes reduce income, they also reduce income and payroll taxes. JCT uses an offset to estimate net collections, the offset being 25.7% for FY2016. Consequently, the actual collections from the excise tax are estimated at $32.8 billion over the 10-year budget window and $2.4 billion in FY2016. Based on these figures, CRS calculates that JCT's revenue estimate projects a taxable base of $108.3 billion of manufacturers' sales in FY2016. As noted subsequently, in the " Concerns About the Tax " section of this report, data in a Treasury Inspector General for Tax Administration (TIGTA) report indicate that initial receipts were below expectations, most likely due to compliance issues. Issues Surrounding the Medical Device Excise Tax In general, tax policy is considered more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually justified on specific grounds. Before discussing these justifications, it should be noted that the medical device tax tends to be a small share of the price of the taxed product, relative to other excise taxes. Most federal excise taxes are levied on a per unit basis, although a few are ad valorem (based on value, not quantity). Fishing and hunting equipment is taxed at either 10% or 11% (except for tackle boxes taxed at 3%), transportation by air is taxed at 7.5% for persons and 6.5% for property. Large cigars are taxed at 52.75% (with a maximum of slightly over 40 cents). The unit taxes as an estimated share of value vary. Federal cigarette taxes are estimated to be around 16% of the retail price, but if measured on the same basis as the medical device and other taxes (before state and local taxes and on price net of the tax) the tax is more than 36%. Although federal alcohol taxes vary considerably across brands, they are about 4% for wine and beer, and 8% for distilled spirits as a percent of retail price and would be higher on a comparable (net of tax and markups by distributors and retailers) basis. A relatively small tax on medical devices means that economic effects are likely to be small, but also that administration costs relative to revenue are larger. Arguments for Retaining the Tax Revenue Needs Taxes, among other justifications, are primarily for the purpose of raising revenues. One issue with respect to the medical device tax, and considerations of its repeal, is how the revenue loss might be offset, given current concerns about the deficit. The tax is relatively small, but, for political reasons, it may be difficult to find an alternative revenue source. Perhaps more importantly, the medical device tax is one of a suite of taxes on particular industries adopted to finance the Affordable Care Act including fees on drug manufacturers and importers, and fees on providers of health insurance. These fees tend to have similar effects as excise taxes. The "Cadillac" tax on insurers of high cost policies is also in the form of an excise tax. The Cadillac tax becomes even more important in the future as it was delayed in taking effect. If there are justifications for eliminating the medical device tax, there may be arguments for eliminating these remaining taxes and fees. Those losses would present a more significant challenge in finding alternative revenue sources. Taxing Industries that Benefit from Health Reform A second argument offered for this tax (as well as the fees on other industries) is that the industry will benefit from the increased demand for their product due to the expansion of health insurance coverage in the health reform legislation. The tax might be seen as a way of reducing profits to the industry, as well as offsetting any negative effects of the tax on demand. The estimates of the economic effects of the tax, presented further in the report, suggest that the tax will probably not reduce profits, but will likely be passed on in price. It also suggests small effects on output and jobs, which probably would be more than offset by the expansion in demand. Concerns About the Tax Is the Tax Justified by General Rationales for Selective Excise Taxes? Excise taxes have traditionally been collected for distributional effects, as benefit taxes (gasoline taxes which are used for highway construction and maintenance), and to discourage consumption (such as taxes on alcohol and tobacco). Some of these arguments might be applied to justify the medical device excise tax. It is not the first tax to be imposed for purposes of reducing a one-time profit, as the windfall profits tax of the 1980s was in the form of an excise tax on oil. Some version of the benefit principle (that is, impose taxes on those who benefit from the spending financed by the taxes, as is the case with the gasoline tax) might apply as well. Almost all of the revenue sources in the Affordable Care Act were related to health. As a package, then, an argument may be made that taxes collected overall from consumers of health care might be appropriate to offset new as well as existing health insurance subsidies. Almost all individuals benefit from health care-related subsidies including existing benefits (from not taxing the value of employer provided insurance and Medicare, along with existing subsidies for Medicare and Medicaid) plus new benefits in the health law. The connection between the taxes and benefits, however, is very loose compared to the link between gasoline taxes and highway construction or taxes on firearms and ammunition and wildlife preservation. Some parts of the provision of health care services are not facing new taxes. It is difficult to explain the rationale for the tax based on the benefit principle. Health care may be over consumed by individuals with health insurance who may face little or no cost of treatment, and often rely on doctors (who recognize there is little cost) to make these decisions. A tax might reduce this effect. The difficulty with this last argument is that the evidence suggests such taxes will be ineffective; they are not likely to alter the weak price signals that occur because consumers rely in part on decisions about their medical care and treatment made by physicians and other health professionals, and because most of the cost is paid by insurance. This argument may be applied with the most justification to the "Cadillac" tax on excessive health insurance coverage. There are also cases where more health care might be desirable, for example in lower income families where even a deductible or copayment might be unaffordable given competing demands on the budget. Thus the efficiency case for the tax appears weak and the tax may increase inefficiency. In general, it appears that some justification for the medical device excise tax could be provided based on traditional economic principles, but the justifications, in most cases, are weak. Administrative and Compliance Costs One argument against the tax is that it imposes potentially significant administrative costs. While an extensive analysis of these costs is beyond the scope of this report, this section presents a brief overview. The medical device tax faces some of the same administrative costs as any other excise tax. Firms must (1) determine whether they are liable for the tax; (2) determine that the product is the final manufactured good (i.e., no further manufacture will occur), and thus taxable; and (3) trace the supply chain and account for exempt purchasers. In some ways, compliance with the medical device tax should be easier than compliance with other taxes. The only exempt purchasers involve exports (state and local governments and nonprofits are exempt purchasers of most other products subject to excise taxes). Compliance may be more difficult than with other excise taxes in other ways. Because the tax is ad valorem (based on value) and some firms are vertically integrated (distribute as well as produce) or sell to related parties, those firms must construct a wholesale price, as that is the price on which the tax is levied. Most excise taxes are unit rather than ad valorem. In addition, although the medical devices tax falls on products already regulated and firms registered with the FDA (which can also share data with the IRS), there are exempt products. Aside from specific exempt products, a complication of the medical device tax is the retail exemption, which is open-ended and arguably unclear. This lack of clarity introduces a different type of complication compared to most other products subject to excise taxes. On occasion, because of the heterogeneous nature of the goods, the final point of manufacture may not be clear (for example, in the assembly of kits, which is addressed in the regulations). Very little has been written about the cost of excise tax compliance and administration. There is general agreement that taxing manufacturers rather than retailers or households is less costly and limits abuse. One 1989 study in the United Kingdom found very small compliance and administrative costs, of about one-half of 1% of revenues. This relationship would depend on the concentration of the industry (large firms can spread the administrative costs over more products) and the size of the effective tax rate. As discussed earlier, the tax rate for medical devices as a percent of manufacturer's sales is low, and the lower the tax rate, the lower the revenues relative to the value of industry output. Therefore, administrative costs may be higher as a percent of the tax for that reason. Harmful Economic Effects on the Industry One argument against the tax is the potentially harmful effects on the medical device industry, including a loss of jobs (or jobs forgone), a reduction in research and development, and harmful effects on smaller businesses. Some studies have estimated large negative effects from the tax (these are discussed in the Appendix ). Based on performance data, it does not appear that effects of the magnitudes predicted in these studies have materialized, thus far, as revenue, employment, and research and development have increased after implementation of the tax. With that said, it is not possible to fully assess the impact of a tax based on a small number of years of data, as one would need to control for the effects of other variables on industry performance. The remainder of this report estimates the likely effects of the tax on prices and output in the medical device industry. This analysis uses estimates of supply and demand response, along with the size of the tax rate itself and the exempt share to project effects on prices and quantity. This analysis begins with an overview of the medical device industry. That analysis indicates that the industry faces different types of competition depending on product, and that about half of output is exempt from the tax (20% because of exemptions in the domestic market and 38% because exports are exempt). The next section of the report presents an analysis of the expected economic effects of the medical device excise tax. The analysis suggests the following: The tax is likely to be passed forward in prices, falling on consumers, not profits. The drop in U.S. output and jobs for medical device producers due to the tax is relatively small, probably no more than 0.2%. These small effects occur in part because the tax is small, in part because demand is estimated to be relatively insensitive to price, and in part because approximately half of production is exempt from the tax. With relatively small effects on the U.S. medical device industry, it is unlikely that there will be significant consequences for innovation and for small and mid-sized firms. To the extent that the tax does fall on profits, economic theory indicates that there would be no effect on output or jobs. Stockholders, however, would lose money, but that loss would be reduced because of device exemptions and income tax offsets. The tax on U.S. producers would be $0.9 billion in FY2016 if the entire tax fell on profits. The tax as a percentage of industry revenues would be 0.7%. Some of the technical detail of the analysis is in the Appendix , which also contains a section assessing the estimates in other studies of economic impact that tend to project larger effects on jobs and output than the analysis in this report. Lower-than-Expected Initial Tax Collections A July 2014 report issued by the Treasury Inspector General for Tax Administration (TIGTA) found that the number of medical device excise tax filings and the amount of associated revenue reported are lower than estimated. According to the TIGTA report, the IRS processed 5,107 tax returns with reported medical device excise taxes of $913.4 million for the quarters ending March 31 and June 30, 2013. The IRS estimated between 9,000 and 15,600 quarterly Form 720 tax returns with excise tax revenue of $1.2 billion for this same, two-quarter period. In other words, actual medical device tax collections were 76.1% of projected collections during this period. Some firms might not have known that they were subject to the tax. For example, TIGTA noted that the North American Industry Classification System (NAICS) code is unreliable for identifying businesses that may be subject to medical excise tax reporting. While most of the businesses that filed tax payments during TIGTA's observation period in 2013 were classified as being in the "medical equipment and supplies manufacturing" industry, some manufacturers were in other, nonmedical specific manufacturing categories. TIGTA recommended that the IRS take further actions to reduce noncompliance with the tax, such as issuing notices to potential non-filers. The Medical Device Industry The medical device industry produces a wide range of products. Some products have long been in existence and some are relatively new and are technologically advanced. Although there are a number of firms, output is concentrated in larger firms. Most large firms, both in the United States and abroad, operate on a global basis, and there are significant U.S. exports and imports. As a result, a significant fraction of the tax is projected to be paid on imports from foreign manufacturers (although some of those imports could be from foreign operations of U.S. firms, and some domestic production could be by subsidiaries of foreign firms). Types of Products The industry produces a broad range of conventional instruments and supplies such as syringes, needles, catheters, intravenous (IV) pumps, and surgical dressings. It also produces many advanced devices. An S&P Capital IQ ("S&P") survey identifies some specific areas where technologically advanced products have appeared. In-vitro diagnostics accounts for about 14% of the global medical devices market and involves systems to test blood, urine, tissue and other bodily fluids. Most of the market is relatively developed although there are new advances in cardiac, HIV, molecular, and companion diagnostics (protein or genetic tests). Orthopedics accounts for about 13% of the global medical devices market, where joint replacements (mainly hip and knee) and spinal products are the main products sold. Cardiology accounts for about 12% of the global medical devices market, and includes rhythm management devices (such as pacemakers), implantable defibrillators (and similar items), ventricular assist devices, advanced stents, and heart valves. Diagnostic imaging accounts for about 8% of the global medical devices market, and includes X-ray equipment, ultrasound computed tomography (CT), positron emission tomography (PET), single photon emission computed tomography (SPECT), magnetic resonance imaging (MRI), nuclear medicine, mammography, and fluoroscopy. Market Structure The market for conventional products (such as catheters and needles), according to S&P, is characterized by close competition, with limited profit margins. Many large firms produce conventional items in addition to more sophisticated devices. Products with more advanced technology may face less competition and provide larger profits. While production tends to be by large firms, there are niches for smaller and mid-sized firms. The top five global firms account for 28% of global medical device sales. They include, in order, Johnson and Johnson, GE Healthcare, Siemens, Medtronic, and Philips Healthcare. Siemens is a German company and Philips Healthcare is a Dutch firm. The next five firms accounted for 13% of global sales: Abbott Labs, Covidien, Boston Scientific, Becton Dickinson, and Stryker. Covidien is an Irish firm (but was originally a spin-off from Tyco, a U.S. firm). The next five firms account for 7% of global sales: St. Jude, Baxter, Zimmer, Smith and Nephew, and Biomet. Smith and Nephew is a British firm. Table 1 shows the distribution of U.S. firms whose principal activity is manufacturing medical supplies and equipment, based on analysis of corporate tax data collected by the Internal Revenue Service (IRS). As seen in Table 1 , while most firms are relatively small, most output is concentrated in the highest asset classes. The top 1% of firms (by asset size) accounted for approximately 78.5% of receipts in the industry in 2012. Table 2 provides 2013 Census data on U.S. medical device production, exports, and imports, which can be used to derive domestic consumption. As shown in Table 2 , 34.9% of medical devices produced in the United States were exported abroad (and exempted from the excise tax), and approximately 36.6% of U.S. consumption of medical devices was composed of foreign imports in 2013. In other words, it could be expected that 36.6% of excise revenues will be paid on products imported from foreign firms. Note, however, that some imports could come from foreign operations of U.S. firms, and some U.S. production could be from operations of foreign firms in the United States. Some production is also exempt due to the retail and specific exemptions (eyeglasses, contacts and hearing aids), as well as a mark-up for distribution. Assuming a domestic market of $169 billion in 2013, this suggests that JCT's revenue estimate assumes that approximately 20% of the value of medical devices sold in the U.S. market will be exempt from the excise tax. As noted earlier, based on the data in Table 2 showing the export share (which is exempt) and the analysis indicating 20% of sales are exempt through the retail exemptions, approximately half of U.S. production is subject to the tax. Economic Effects The price and quantity effects of an excise tax as well as how the burden of the tax is potentially divided between above normal profits and consumers is driven by supply and demand in the market and represented in the slopes of those demand and supply curves. Economists normally speak of elasticities , or the percentage change in quantity divided by the percentage change in price, when deriving demand and supply curves. In other words, elasticities measure the responsiveness of producers and consumers to changes in price. Any study of the effects of the tax contains explicit or implicit assumptions about these curves. Figure 1 depicts the market supply and demand curves assumed in this report's analysis, based on theoretical and empirical evidence. (For simplicity of exposition, the demand curve is presented as a straight line.) When a curve is relatively flat (nearly horizontal) it has a very high elasticity. When a curve is relatively steep (nearly vertical) it has a very low elasticity. In Figure 1 , the market begins at an equilibrium price (P*) and quantity (Q*). The supply curve is horizontal. Making the supply curve very elastic makes output effects in the economy larger because it leads to the full pass through of the price. However, the market is also characterized by a relatively inelastic demand which causes a small effect on output. The demand curve is almost vertical. (These supply and demand relationships are discussed in the Appendix ). The relationship in Figure 1 would occur after adjustment to the tax has taken place, and would represent the steady state. The following subsections discuss the evidence supporting a highly elastic supply curve and an inelastic demand curve. Supply Responses to Price The medical device market has not previously been subject to an excise tax, thus there are no previous studies that indicate how the firms in the industry react to a tax. Nevertheless, there is reason to believe that the supply curve for this industry is infinitely elastic or close to it in the long run, and therefore that the tax is passed forward into the price. There are several reasons to support this view. First, as discussed earlier, much of the market, producing ordinary items such as needles and catheters, is described as competitive by the S&P analysis. In the S&P report, which focuses on large publicly traded firms, there are 37 manufacturers of medical devices along with 11 additional firms that produce supplies, along with two other large firms that have a division producing these goods. IRS tax return data show 9,300 firms producing medical supplies and equipment. As shown in Table 1 , even though production is concentrated at the top, there are still 22 firms in the top asset category and 37 in the second (see Note). In a competitive market, firms earn no profit above the normal return necessary to attract capital (if they did, other firms would enter to exploit it). Economic theory indicates that the market supply curve is perfectly elastic. Since these firms are price-takers, and are not influential enough to affect prices prevailing in the market, they will initially see their normal profits fall, and firms will begin to leave the industry. As quantity contracts, the price will rise (and rise relatively quickly if demand is relatively inelastic), restoring normal profits and stemming the exit of firms. Second, to the extent that firms have market power, which may be the case for the production of more technologically advanced products, there is not a supply curve per se but an optimization of profits by firms that lead to some or all of the tax being passed on in price. As discussed in the Appendix , there are theoretical reasons that 100% of the tax could be passed on in price. The adjustment process could begin with raising prices or reducing quantity. There is also a large body of empirical research on tobacco and, to a lesser extent on alcohol and fuel excise taxes that, while the findings are mixed, tends to indicate these taxes are passed forward in price and, in some cases, with more than 100% of the tax passed forward. These taxes are per unit taxes, rather than ad valorem taxes (taxes as a percent of price), which could explain why more than 100% of the tax is passed forward (see the Appendix ). Manufacture of cigarettes, in particular, is largely concentrated in a few firms. There is one caveat to this standard analysis of supply. In the health market there are large purchasers such as hospitals, the federal government, and insurance companies that can exert market power. These buyers with market power could resist the pass through of price. However, even if these buyers have been successful in limiting the profits of medical device manufacturers, it does not mean the tax would not be passed on. For example, suppose the market power of large buyers is so great that all higher than normal profits that might be earned by medical device manufacturers are eliminated. Then these medical device firms are in the same circumstance as firms in a competitive market and must pass forward the tax in higher prices (which is a cost, just as wages are a cost) to stay in business. Or if there is market power but still some profits above the normal profit, the effect would be a more elastic individual firm demand curve which, as shown in the Appendix , should not affect price pass through. There are some anecdotal stories to suggest that the tax is being passed forward. In addition, S&P reported on a survey of firms in January 2013 that indicated 42% of firms (presumably large firms that S&P covers) were planning to increase prices, and the remainder had some type of cost cutting procedures in place. Both of these activities are consistent with passing the tax forward in price (where producers can move first on either price or quantity). Demand Responses to Price In general the effect on output depends on both supply and demand. If the tax is passed forward in price because the supply curve is perfectly elastic, the effect on output and jobs in the industry depends on the slope (or elasticity) of the demand curve. The smaller the elasticity, the smaller are the effects on output. There is reason to expect that the demand curve for medical devices is relatively inelastic. Medical devices are generally not final consumer goods, but are rather inputs into delivering health care services to individuals. An individual typically does not purchase a new hip joint directly from the manufacturer; he or she purchases a hip replacement procedure, which involves the joint, the services of doctors in diagnosing and operating, anesthesia, perhaps physical therapy, and other medical devices used in doctors' offices and surgery (e.g., needles, scalpels, and sutures). The demand for a good that is an input into the provision of the final consumer service depends, in part, on the degree to which that input can be substituted for other inputs. (The derivation of the input demand curve is shown in the Appendix .) It is necessary to estimate how the firm using the good as an input (e.g., the hospital or physician) will change its demand as price changes. If all of the components (physicians' services, medical devices, drugs, etc.) must be used in fixed proportions, then the price of any one of them simply raises the price of the final good (e.g., the hip replacement service) by the tax rate times the share of the price that reflects the cost of the input. Thus, if 10% of the cost of the hip replacement is the cost of the joint itself, a 2.3% tax on the joint would raise the overall price by 0.23%. If expressing this effect in a demand elasticity, the sensitivity of the final consumer to price would be multiplied by the share of the medical devices in total health costs to get the firm's demand. For example if the demand elasticity for health were -0.5 and the share of devices in total sales were 10%, then the demand elasticity would be -0.5 times 10%, or -0.05. Elasticities can become very small for small inputs. If other inputs can be substituted for the medical device, then demand for devices will respond to prices through this effect as well and demand for the medical device will be more elastic. The term for measuring this substitution of inputs in response to price is a factor substitution elasticity (percentage change in ratio of inputs divided by the percentage change in the ratio of input prices). As shown in the Appendix , the elasticity of demand for an input is the factor substitution elasticity times the share of other inputs plus the consumer demand elasticity for the final consumer product times the share of the input. That is, the overall input demand will be the sum of the final consumer demand elasticity weighted by the share of the input in cost and the factor substitution elasticity weighted by the share of all other inputs in cost. Factor substitution in the aggregate economy (between capital and labor) has been studied extensively. Although economists often use an elasticity of one (in absolute value) in simulation studies of the aggregate economy, empirical evidence has pointed to a lower value. One review of empirical studies places that aggregate elasticity at -0.5. Thus even the aggregate factor substitution in the economy is probably inelastic. The elasticity would be expected to be smaller in magnitude at the individual firm or industry level. Demand is less elastic for products with fewer substitutes. Thus, it is likely that the substitution elasticity between medical devices and other inputs into health procedures is extremely small, perhaps approaching zero. For a hip replacement, a joint is necessary, so the only response might be to choose a different type of joint. All joints, however, will be subject to the tax so their relative prices would not change. In addition, for many procedures there is likely little ability to economize on medical devices (for example, sutures), and also little incentive, where economizing is possible, when costs are charged to insurance and are less likely to affect doctors, who largely make these decisions. The overall demand elasticity for medical devices, therefore, requires an estimate of the consumer demand elasticity, an estimate of the factor substitution elasticity, and the share of medical devices in overall health services. One review of numerous econometric studies found the price elasticity of demand for health services, in general, to be -0.2. If the factor substitution elasticity for medical devices is zero, the demand elasticity for medical devices would be -0.008, based on estimates that medical devices account of 4% of health costs (0.04 times -0.2 is -0.008). It is likely to be smaller as more individuals become covered through health insurance since individuals with health insurance do not face the full price. (Note, however, that the share would vary by procedure. A higher share of the cost of medical devices would likely occur for a hip replacement than for hospitalization for an infection.) Potential Effects on Output, Jobs, and Innovation This section of the report analyzes the economic effects of the medical device tax under three sets of assumptions that provide sensitivity to elasticity estimates. First, the analysis considers both no pass through and full pass through of the price, which are the measures that define the possible values of the supply curve elasticity (zero and infinity). If there is no pass through of the tax, there is no effect on consumers and no change in quantity. As noted above the evidence does not appear to support this case. If some of the tax is absorbed by the firm, the firm must have above normal profits, and these profits above the amount required to attract capital will fall. In the case of full pass through, which appears more likely and where the demand response is relevant, two elasticity assumptions are considered. Both assume that final consumer demand is -0.2. In one, inputs into health services are assumed to be in fixed proportions, the factor substitution elasticity is zero and the demand elasticity is very small, -0.008. In the second case, the factor substitution elasticity is set at the same level as the consumer demand elasticity for health services, -0.2, inelastic and below the economy-wide average, but above the fixed input assumption. This assumption produces a demand elasticity of -0.2 and the demand elasticity set at -0.2. When this last assumption is made, the share of the cost attributable to medical devices is not relevant since both elasticities are the same. The demand may be more elastic for these technologically advanced products which may be a larger part of cost in the lower elasticity case, but there is somewhat more of a possibility that all of the price will not be passed forward, which has overall offsetting effects. The range of effects from these cases is shown in Table 3 . With no pass through of the tax in price, there are no effects on output, employment or innovation, since the tax presumably falls on profits. (As noted above, this outcome does not appear realistic.) The effect on profit as a percentage of revenue is reduced because only half of devices are taxed and because of savings in income taxes due to deductions for excise taxes paid. With pass through and inputs fixed and an overall 0.008 demand elasticity the factor substitution elasticity set at zero, the percentage reduction in output for U.S. medical device firms is estimated at 1/100 of 1%. With the factor substitution and overall demand elasticity set at -0.2, the effect is estimated at two-tenths of 1%. The results in Table 3 when the tax is passed on in profit indicate a range of effects on jobs of almost zero to about 1,200. These elasticities would determine effects on jobs (since there are no changes in relative factor prices for the medical device industry). For the factor substitution elasticity of zero, the job loss is 47, 1/100 of a percent of industry jobs. The effects for the -0.2 elasticity are 1,200 jobs or two-tenths of 1%. These relatively modest effects occur partly because the tax is relatively small, partly because half of output is exempt, and partly because demand is inelastic. Additionally, some have claimed that the medical device tax will lead companies to offshore operations and reduce employment in the United States as a means to avoid the tax. The tax should have no effect on production location decisions, since both domestically manufactured and imported medical devices are subject to the excise tax. A number of concerns have been raised about the effects of the tax on research and innovation in the medical device industry. The relatively small effects on the industry suggest that innovation and research would be minimally affected. Claims have also been made that the small firms in the medical device industry will be disproportionately affected by the excise tax. Particularly, critics of the tax argue that small firms will reduce innovation as cuts to thin profit margins will lead them to reduce investment in research. These critics often note the large share of firms that are small, arguing that smaller firms have greater expenditures on research. They also indicate that smaller firms' profit margins tend to be small. The analysis in this report suggests the effects on small as well as large firms will likely be minimal because the tax is expected to be passed on in price and the decrease in demand would be negligible. As in the case of virtually all industries, the share of firms is concentrated in smaller firms but output and research are concentrated in large ones. As measured by research and experimentation (R&E) credits (reflected in the general business credit) most of the research and development is performed by large firms. The 22 firms with assets of more than $2.5 billion reported in Table 1 are responsible for 53.0% of the industry's business receipts as well as 66.6% of the general business credit. Combining these firms with the 37 firms in the next category, firms with over $500 million of assets account for 73.7% of business receipts and 89.6% of the general business credit. While it is true that smaller firms (in part because they are new) have smaller profit margins, in most asset categories, firms tend to have net profits (even for tax purposes) that are larger than net deficits. In discussing innovation in the medical device industry, it is important to note that innovation for innovation's sake does not always lead to the most efficient economic growth path in the health care industry. Some have argued that the rapid adoption for high-technology equipment and medical procedures has been a significant contributor to rising health care costs in the past. While these technologies could offer absolute gains, in terms of quality-of-life and life expectancy, it is likely that the marginal cost of these new technologies begins to grow at a faster rate than the marginal benefits—resulting in higher costs for smaller gains. In summary, the analysis in this section suggests that the effects of the current tax on the medical device industry should be relatively small because of the inelastic demand, probably no more than 1,200 employees should lose their jobs in that industry, and industry output and employment should likely decline by no more than two-tenths of a percent. While such losses directly impact the employees and employers, they are negligible for the economy (about 1/1,000 of a percent of the total labor force). At the same time, one of the popular arguments for retaining the tax (that it will fall on profits of manufacturers), while still possible, appears unlikely. The nature of the industry, profit optimization, and some empirical evidence together suggest that most of the tax will be passed on to consumers in price. Some of this tax will fall on the federal government, which provides financing for some medical care. Even though there may be an expansion in demand that produces additional profits, a tax may be only partly able to offset it. Appendix. Technical Explanations and Study Reviews This appendix provides a more technical discussion and a derivation of the relationships used to capture supply and demand in this report. It is intended for the reader who is knowledgeable about economics. Three topics are addressed. The first is an exposition of the supply and demand relationships and how they can be expressed as relationships between the tax, price and quantity. The second presents a discussion of profit maximization with monopoly power (assuming the firm is in an industry characterized by market power). The final section discusses the derivation of the demand function for an intermediate good. In this appendix, the following notation is used: P (price), Q (quantity), Ed (absolute value of the demand elasticity), Es (supply elasticity) t (tax), c (marginal cost), and S (absolute value of the factor substitution elasticity). A percentage change in x is dx/x. A change in the tax is dt, equal to the tax rate. Supply and Demand Relationships Figure A-1 presents the basic supply and demand relationship, showing the shift in price (from P* to P t ) with a unit tax of t, and the shift in quantity from Q* to Q t . The net producer price, after the tax is imposed, is indicated by P t - t. To simplify, linear demand and supply curves are provided and a per unit rather than an ad valorem tax (imposed as a percentage of price) tax are presented, although in the derivations an ad valorem tax is assumed. For this purpose there is no difference between the two. To determine the formulas for price and quantity: The demand relationship is: (1) dQ/Q = -Ed (dP/P) The supply relationship where tax is imposed on P, and the net price is P(1-t): (2) dQ/Q = Es (dP/P- dt/(1-t)) To solve for dP/P, equate (1) and (2) (since the change in supply and demand must be equal) and assume the initial value of t is zero, to obtain: (3) dP/P = (Es/(Es+Ed)) dt To derive the change in output, substitute (3) into (1) to obtain: (4) dQ/Q = -(EdEs/(Ed+Es)) dt If Es is infinitely large the value Es/(Es+Ed) becomes one, the supply curve is horizontal, and the entire tax is passed on in price, as shown in Figure A-2 , on the next page. With an infinitely elastic supply curve, output change is determined by the slope of the demand curve. Contrast the effect on quantity change in Figure A-3 , which has a much more inelastic demand curve. Figure A-3 is the basic type of relationship that analysis and empirical evidence suggest may characterize the medical device market. Price Pass Through for a Firm with Market Power and Above-Normal Profits The two extremes of market structure are perfect competition and monopoly. Most market structures lie somewhere in between. In perfect competition, the supply curve is perfectly elastic as increases in output are achieved by new firms entering the industry. Firms have no profits and are price takers (i.e., cannot influence price) and ultimately must pass on any excise tax in cost. Even market structures where there is imperfect competition will still not have profits above the normal return as long as there is entry. Monopolies rarely exist and they are typically regulated. However, firms may have market power if there are barriers to entry. In this case, an individual firm can be depicted as having a downward sloping demand curve as in the case of a monopolist selling a similar or a differentiated good. Each firm assumes its market conditions are not affected by others, although a contraction in output by one firm, with aggregate demand fixed in the overall market, will expand demand for other firms. This analysis examines the optimization process for an ad valorem tax in a firm facing a downward sloping demand curve. For a firm with market power, it is reasonable to assume a constant marginal cost (whereas a natural monopoly, such a cable company, tends to have a downward sloping marginal cost curve). A constant marginal cost assumes that firms have constant returns to scale and can produce additional amounts at the same cost. A rising marginal cost curve could also be considered, but it would not change the outcome for passing through the tax. The firm's profits (Π): (5) Π = P(Q)Q(1-t) –cQ To totally differentiate this equation and obtain the maximum profit, given t: (6) (PdQ + QdP)(1-t) - cdQ =0 This analysis considers a constant elasticity of demand function: (7) Q=AP- Ed For this function, (8) dQ/Q = -Ed (dP/P), or (9) dP = -(1/Ed)(P/Q)dQ. Substitute (9) into (6) and solve for P: (10) P = (Ed/(Ed-1))c/(1-t) Compare (10) with and without the tax and the result is that P t , the price after the tax is compared to the price without the tax, or: (11) P t -P = tP/(1-t). Because the tax is an ad valorem tax, the price rises by slightly more than P t ; for a 2.3% tax, it rises by 2.35%. Textbooks sometimes teach that a monopolist passes on half of the cost of an excise tax to the consumer and the same analysis would apply to a monopolistic competitor facing a downward sloping demand curve. This outcome, however, is an artifact of a linear demand curve which must intersect the x and y axis. To solve for the effect with a linear demand curve, the demand function is: (12) P = a-bQ This function can be solved by substituting (16) directly into the profit function: (13) Π = (a-bQ)*(Q(1-t)) – cQ Differentiating (13), holding t constant, and finding the profit maximum, (14) (a-2bQ)(1-t)= c Solving (14) for Q and substituting it into (12) leads to the price equation: (15) P = a/2 +c/(2(1-t)) With an ad valorem tax the pass through is equal to (1/2) (t(1-t))*c which passes through ½ of the portion of tax on c and thus less than half of the total tax appears in price. Although the use of a linear demand function is commonly taught in discussing the pass through of taxes (perhaps because it requires simpler mathematics or can be expressed graphically), it is an unlikely demand function. It results in a quantity equal to zero at a finite price, and a quantity equal to a finite amount at a zero price. It is difficult to imagine any utility function that produces a linear demand function. A criticism of the use of this linear demand and its special attributes was made forty-five years ago by Bishop (1968), and Mixon (1986) also criticized textbook writers for continuing to use the linear examples. There are also demand curves of the log-linear type, such as: (16) Q= Ae -bP which is a log-linear function (when expressed in logs it is ln(Q) = ln(A) –bP). Without repeating the estimates, this function passes through the amount of the tax on c. Although this function is a curve, it still crosses the y axis. If the log linear relationship is reversed, all of the tax is passed forward but the quantity becomes zero at a finite price; it crosses the x axis. Given the findings with respect to the more appropriate curved demand curve used earlier, it seems more likely that the tax is passed forward in full. The individual firms' demand curves are more elastic than the aggregate market demand curve. As all firms begin to raise prices, their individual demand curves will shift out due to the actions of other firms, so they will not have to cut production as much and will reach the smaller quantity reductions consistent with a less elastic aggregate market demand. Alternatively, if they begin to adjust by reducing output, the actions of many other firms also reducing output will contribute to pushing up prices (shifting the demand curve out) leading to the appropriate market response. Derived Demand Elasticities When a product is an input into further production for a final consumer product, as in the case of medical devices, the demand elasticity in the market must account for that. For a constant returns to scale, constant elasticity of substitution production function, the first order conditions for choice of a given input Qi, as it relates to its price Pi and the price and quantity for the final product, P and Q, is, denoting S as the absolute value of the factor substitution elasticity's and A as a constant: (17) Qi/Q = A (Pi/P) -S Taking logs and differentiating: (18) dQi/Qi – dQ/Q = -S(dPi/Pi –dP/P) To substitute for dQ/Q, note that dQ/Q = -Ed dP/P Note also that the percentage change in output price is a weighted value of the percentage change in input prices. Since other input prices are held constant, (dP/P = α dPi/Pi), where α is the share of revenue paid to the Qi input. Substituting those values into (21) results in: (19) dQi/Qi = -[S(1- α) + αEd(dPi/Pi)]. Discussion of Other Studies of Economic Effects Several studies have been used to support claims that the tax would reduce employment, reduce incentives for innovation in the U.S. industry, and reduce overall economic output. One study also claimed, in addition to direct effects on the U.S. market, the tax could encourage offshoring of production. As suggested by the analysis in this report, any negative effects on supply and demand are likely to be small. Additionally, assertions that the medical device tax will encourage offshoring of production appear to have no basis in economic theory. These individual studies are reviewed in this section. Three empirical studies of job effects have been widely-cited by opponents of the medical device tax: Furchtgott-Roth and Furchtgott-Roth (hereinafter "F-R") in 2011, Battelle Technology Partnership Practice in 2012, and Ramlet, Book, and Zhong in 2012. The F-R study projects job losses of around 43,000. They begin with estimates of job effects using supply and demand analysis. A range of elasticities were considered: 0.5, 1 and 5 for supply, and -0.5, -1, -3, and -5 for demand. The result is a range of job loss from 2,300 to 23,000. They choose an absolute value of 1 for each, which is the equivalent of passing half the tax on in price and reducing output by on half of the tax change (thus output falls by 50% of the tax or 1.15%). The projected job loss from this analysis is 4,700. Their estimate is based on a lower work force size than the estimate derived above, but because of the larger elasticity and not recognizing that half of output is exempt, is four times the highest job loss estimated in this report. Their job loss of 43,000 is much higher because of an assumption that 10% of the industry's production would move abroad which accounts for almost 90% of the job loss. There appears to be no reason, however, to expect the industry to relocate because of the tax. This tax, as is the case with other excise taxes, is imposed based on consumption in the United States. As long as production serves the U.S. market, firms will be liable for the tax regardless of location. Based on their calculations, only with respect to the output effect from the supply and demand analysis, the domestic market would contract by 1%. Overall, this study has significant methodological drawbacks because its demand elasticity appears too high in absolute value (although its supply elasticity is too low) and because there is no adjustment for tax-exempt sales. However, the impact of unsupported elasticities is minor compared to the assumption that production will move abroad. The Battelle study doesn't mention the tax, but rather estimates the effects of a $3 billion loss of revenue from a hypothetical event. It is interpreted, however, as a study of the effects of the tax. They estimate a job loss of 38,000. This number includes the job losses of suppliers of the industry through an input-output analysis, and general economic effects on the economy through spending. For the direct analysis of the industry, they project a loss of 12,947 jobs. To translate the value of the tax to a change in quantity implies an implicit composite effect of supply and demand elasticity of at least one (in absolute value). This combined effect in implicit elasticities is larger than the -0.5 in the F-R study and five times the largest elasticity calculated above, -0.2). In addition to the large elasticities, this approach implicitly fails to reduce the tax by exports, which account for nearly 35% of domestic production. The extension of the job loss in the industry to jobs of suppliers and the economy in general is not considered an appropriate way to analyze a tax change that would be offset by an alternate revenue source, or to analyze longer run effects of a tax. It is important to note that this study does not claim to estimate the effect of the tax. Using the study to show the effects of the tax overstates the effect because its implicit elasticities are too large in absolute value, its measurement of the effect does not account for exports, and it is not appropriate to include multiplier effects. The Ramlet, Book, and Zhong study is very similar to the Battelle approach except that they explicitly attribute effects to the tax. They project 14,700 job losses for the medical device industry in 2022 (10,500 in 2014), and 47,100 for the economy based on estimates of suppliers. They use regression analysis to relate the change in output to the change in jobs. They have the large implicit elasticity of at least one. Their measurement of the tax using revenue projections understates the tax because it is not grossed up by income and payroll tax offset used to project the revenue loss. Their measurement overstates the tax because it does not exclude the effect of exports; these partially offsetting effects overstate the tax effect by 20%. The same criticisms of the Battelle study (if used as an indication of the effects of the tax) can be applied to the Ramlet, Book and Zhong study. In the end, based on CRS analysis, the job loss related to the tax is far less than the range projected in these studies. It is more likely to be in the range of negligible, or zero, to a high of about 1,200.

The 2.3% medical device tax imposed by the Affordable Care Act (ACA; P.L. 111-148) in 2010 was one of a number of additional revenue-raising provisions to finance health reform. This tax, which took effect in January 2013, is projected to collect approximately $30.6 billion over the next 10 fiscal years (FY2016-FY2025), resulting in $24.4 billion of net revenue raised, after accounting for offsets from other taxes. Some have called for a repeal of the medical device tax since enactment in 2010. Repeal of the tax has become such a high priority for some Members of Congress that it was one of the provisions discussed in the October 2013 negotiations over ending the federal government shutdown and increases in the federal debt ceiling. In the 114th Congress, the Medical Device Access and Innovation Protection Act (S. 149) would repeal the medical device tax retroactively to the first year of implementation in 2013. On June 18, 2015, the House passed the Protect Medical Innovation Act of 2015 (H.R. 160), which would repeal the tax in quarters after the date of the bill's enactment. The major justification offered for the medical device tax is its revenue, which helps offset the cost of the ACA. Although the tax is relatively small, no revenue replacement has been proposed and it may be difficult to find. There is also a concern among some that eliminating the medical device tax would lead to proposals to eliminate similar fees and taxes on other industries, the sum of which, including the device tax, initially totaled $165 billion over 10 years. The tax was justified partly because the medical device industry was among the commercial interests that stood to benefit from unanticipated profits as more individuals enroll in health care insurance, post-ACA. Viewed from the perspective of traditional economic and tax theory, however, the tax is challenging to justify. In general, tax policy is more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually based on specific objectives such as discouraging undesirable activities (e.g., tobacco taxes) or funding closely related government spending (e.g., gasoline taxes to finance highway construction). These justifications do not apply, other than weakly, to the medical device case. The tax also imposes administrative and compliance costs that may be disproportionate to revenue. Opponents of the tax claim that the medical device tax could have significant, negative consequences for the U.S. medical device industry and on jobs. The estimates in this report suggest fairly minor effects, with output and employment in the industry falling by no more than two-tenths of 1%. This limited effect is due to the small tax rate, the exemption of approximately half of output, and the relatively insensitive demand for health services. The analysis suggests that most of the tax will fall on consumer prices, and not on profits of medical device companies. The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices.

Introduction Funding for federal programs that is provided through the annual appropriations process in regular appropriations acts is typically available for obligation during a single fiscal year, unless otherwise specified. This period of availability most often begins on the first day of the fiscal year of the appropriations act (October 1), also referred to as the "budget year." For example, appropriations provided by the FY2007 Department of Defense Appropriations Act ( P.L. 109-289 ), which was enacted on September 29, 2006, were generally available for obligation and expenditure on October 1, 2006, the first day of FY2007, and remained available through September 30, 2007. However, a delayed period of availability that begins after the start of the fiscal year, or even during a future fiscal year, may be provided for particular programs that are funded through the annual appropriations process. Delayed periods of availability are typically provided to meet specific budgetary needs related to the purpose or structure of a program. Some of the reasons to provide such periods of availability may be more broadly applicable, such as to prevent a funding shortfall late in the fiscal year or a funding gap in the following fiscal year. Although only a comparatively small number of individual programs receive funds that are available during such periods, many of these programs have a large number of beneficiaries. For example, portions of the Medicaid program, the Veterans Health Administration (VHA), and Department of Education formula grants are funded for delayed periods of availability. The statutory authority for a particular delayed period of availability may derive from provisions authorizing a particular program, those that provide appropriations to fund it, or a combination of the two. Under congressional rules, a statutory authorization of such a period of availability must precede an appropriation for those purposes. A program's authorizing statute may specifically address such a period of availability in the authorization of appropriations or address it more generally in the provisions that govern the program. If the authorizing statute itself does not suggest a delayed schedule for the funds, the legislative history associated with that statute could anticipate that such funds will be provided. Another possibility is that Congress could decide to use a delayed period of availability during the annual appropriations process even if the program's authorization or associated legislative history is silent as to timing of future funds or only authorizes a schedule that is aligned with the budget year. On the other hand, even when the authorization anticipates that funds will be available for a delayed period, appropriations may subsequently be provided on a schedule that is aligned with the budget year. In either instance, the period of availability associated with the appropriations would be controlling. A variety of approaches have been used during the annual appropriations process to provide funds that become available at some point after the beginning of the fiscal year. These include, but are not limited to, the three periods of availability: "advance appropriations," "forward funding," and "advance funding." Advance appropriations become available for obligation starting at least one fiscal year after the budget year. Forward funding becomes available beginning late in the budget year and is carried into at least one following fiscal year. A dvance funding is funding for the following fiscal year that becomes available for obligation late in the budget year and would be in addition to the funds for that fiscal year. Any expenditure of advance funds is counted as part of the following fiscal year's appropriation. These particular periods of availability as compared to annual appropriations are illustrated in Figure 1 . While these three delayed periods of availability all share some similarities, they are distinct concepts in three regards due to the timing of the funds. First, advance appropriations become available after the end of the budget year, whereas forward funds become available during the budget year. Second, advance appropriations become available at some point after the budget year has ended, whereas advance funds are available only during the budget year. Third, forward funds are available into the following fiscal year, whereas advance funds expire once the budget year ends. Although advance appropriations, forward funding, and advance funding are each discrete concepts, they tend to have some degree of variation in how they are implemented, including the interval in advance for which funds are provided and the duration of availability for those funds. For example, advance appropriations may be provided one or two fiscal years prior to when they become available for obligation and be available during a single fiscal year or multiple fiscal years or with no fiscal year limitation. In addition, a program may receive funds on a combination of timetables. Providing funds for a delayed period of availability may have budget process implications for Congress. Funds provided for such periods are generally subject to both procedural and statutory budget enforcement, and their budgetary effects are attributed (or "scored") to particular fiscal years for such purposes. Since FY2001, the budget resolution has also imposed limits for the House and Senate on advance appropriations for discretionary spending. For FY2014, these limits were established through the enactment of the Bipartisan Budget Act (Division A, H.J.Res. 59 ). As was previously mentioned, congressional rules require a statutory authorization that allows a delayed period of availability to precede an appropriation for those purposes. If a delayed period of availability for a program is not authorized by existing law, providing funding in a general appropriations bill or amendment thereto for such a period may subject that bill or amendment to a point of order. This report examines concepts, practices, and procedural implications associated with the particular delayed periods of availability described above. The following three sections discuss the origins, relevant budgetary concepts, and practices associated with advance appropriations, forward funding, and advance funding. The fourth section explains the budget process implications that are associated with these funding approaches. The scope of this report is generally restricted to an analysis of advance appropriations, forward funding, and advance funding in the context of the budget process. The program-specific considerations and potential consequences of these funding approaches are not discussed. For information on particular programs, see the CRS reports on those issue areas. Advance Appropriations Advance appropriations is a form of budget authority that becomes available one or more fiscal years after the budget year covered by the appropriations act. For example, in an appropriations act for FY2016, funds would generally become available for obligation on October 1, 2015. Advance appropriations in the FY2016 act would not become available until the start of FY2017 or later. According to the Congressional Budget Office (CBO), advance appropriations were first provided in 1962 for grants-in-aid that funded airport construction. Other early uses included grants for urban renewal and the Department of Education. Currently, this period of availability is used for a wide variety of programs funded by discretionary and appropriated mandatory spending. Perhaps the most significant implication of advance appropriations relates to funding gaps. The congressional budget process currently requires that annual appropriations be enacted by the beginning of the fiscal year (October 1). If such appropriations are not enacted by that time, one or more continuing resolutions (CRs) may be enacted to prevent a funding gap from occurring until regular appropriations are completed or the fiscal year ends. Programs that are funded through the appropriations process are at risk of a funding gap at the beginning of the fiscal year if annual appropriations or a CR is not enacted or at any point during the fiscal year when a CR expires and has not been replaced by a further CR or annual appropriations. However, if a program's appropriations for all or part of a fiscal year are enacted in the previous year's appropriations act, the program might not experience a funding gap, assuming that such appropriations were available during that period and were unexpended. A related implication, but one that is more generally associated with a program's annual operations, is that advance appropriations may enable that program to avoid the need for any continuing appropriations during periods when the regular appropriations bills for that fiscal year have not yet been enacted. The potential consequences of CRs on program operations have been noted by a variety of observers, including funding levels, program delivery, management support, and revenue collection. The extent to which a program has previously been provided advance appropriations that are available at the start of a fiscal year, that program would not be reliant on funding that would otherwise be provided through a CR. Some have argued that programs that receive advance appropriations may be better able to engage in advance planning. Enacting funding for a program in advance may enable it to make long-term commitments related to its internal operations or the population that it serves. Similarly, advance appropriations may assist agencies in planning and carrying out multi-year capital expenditures by spreading the cost over a number of fiscal years. However, others argue that the ability to make such commitments may be limited by the extent to which programmatic needs can be forecasted in advance. Congress may also prefer to exercise control over programs through regular annual appropriations in certain circumstances. Recent Funding Practices27 Advance appropriations are typically enacted at an interval of one fiscal year prior to when such appropriations become available. For example, FY2013 funds for the "medical facilities" (VHA—Department of Veterans Affairs) account were provided one year in advance in the FY2012 appropriations act: For necessary expenses for the maintenance and operation of hospitals, nursing homes, domiciliary facilities, and other necessary facilities of the Veterans Health Administration; for administrative expenses in support of planning, design, project management, real property acquisition and disposition, construction, and renovation of any facility under the jurisdiction or for the use of the Department; for oversight, engineering, and architectural activities not charged to project costs; for repairing, altering, improving, or providing facilities in the several hospitals and homes under the jurisdiction of the Department, not otherwise provided for, either by contract or by the hire of temporary employees and purchase of materials; for leases of facilities; and for laundry services, $5,441,000,000 , plus reimbursements, shall become available on October 1, 2012, and shall remain available until September 30, 2013 . Less frequently, accounts receive advance appropriations for the second fiscal year succeeding the budget year of the appropriations law in which they are enacted. For example, the Corporation for Public Broadcasting account received FY2014 appropriations two years in advance in the FY2012 appropriations act: For payment to the Corporation for Public Broadcasting (referred to in this Act as "CPB"), as authorized by the Communications Act of 1934, an amount which shall be available within limitations specified by that Act, for the fiscal year 2014, $445,000,000 . Because advance appropriations are defined by when they make funds first available for obligation, a range of options exists under recent practice for the duration of their availability—from one quarter of the fiscal year to no fiscal year limitation. For example, the advance appropriation for the "payments for foster care and permanency" (Administration for Children and Families—Department of Health and Human Services) account was available for the first quarter of the fiscal year only: For making payments to States or other non-Federal entities under title IV-E of the Social Security Act, for the first quarter of fiscal year 2013, $2,100,000,000. A further example of a no-year advance appropriation was the Public and Indian Housing—tenant-based rental assistance (Department of Housing and Urban Development) account: For activities and assistance for the provision of tenant-based rental assistance authorized under the United States Housing Act of 1937, as amended (42 U.S.C. 1437 et seq.) ("the Act" herein), not otherwise provided ... $4,000,000,000, to remain available until expended, shall be available on October 1, 2012 . Adjustments to Funding in the Budget Year For accounts that receive advance appropriations, the amount of budget authority that will be available once the fiscal year commences is sometimes adjusted in subsequent appropriations acts. In some instances, an account is appropriated some funds a year in advance, and then the remainder of the funds are appropriated for the budget year. Those advance appropriated funds provided through the prior appropriations act may be reduced through a rescission. In the example below, which was excerpted in the prior subsection, the account for Public and Indian Housing—tenant-based rental assistance (Department of Housing and Urban Development) received additional funding to the prior year's advance in the budget year plus an advance appropriation for the succeeding fiscal year: For activities and assistance for the provision of tenant-based rental assistance authorized under the United States Housing Act of 1937, as amended (42 U.S.C. 1437 et seq.) ("the Act" herein), not otherwise provided for, $14,914,369,000, to remain available until expended, shall be available on October 1, 2011 (in addition to the $4,000,000,000 previously appropriated under this heading that became available on October 1, 2011), and $4,000,000,000, to remain available until expended, shall be available on October 1, 2012 . An additional provision in this appropriations act also adjusted downward the amount that was advance appropriated in the FY2011 appropriations act. Of the unobligated balances remaining from funds appropriated under the heading "Tenant-Based Rental Assistance" under the "Full-Year Continuing Appropriations Act, 2011", $650,000,000 are rescinded from the $4,000,000,000 which are available on October 1, 2011 . As an effect of these provisions, the amount of new budget authority available for this account as of October 1, 2011, was the $4,000,000,000 advance appropriation plus the $14,914,369,000 budget year appropriation minus the $650,000,000 rescission for a total of $18,264,369,000. Forward Funding Forward funding is a period of availability that begins during the last quarter of the budget year and continues into at least the following fiscal year. For example, in an appropriations bill for FY2016, budget authority that is forward funded would become available during FY2016 but not until July 1, 2016, or later and would remain available through all or part of FY2017. This budget authority is often available for a period of more than 12 months, in which case it can be classified as multi-year budget authority but may also be provided in shorter increments. While the first use of forward funding is unknown, the modern practice appears to have begun around the same time as the change in the federal fiscal year from July 1 to October 1, which occurred in fiscal year 1976. As a consequence of this new schedule, the ability to obligate funds for certain activities became difficult, for example, if the activities required obligations to be made in the summer and remain available through the fall. At least partially in response to this issue, some programs were provided forward funding to allow such obligations to occur during the summer months and the funds to remain available into the following fiscal year. Under current practice, this period of availability is used only for programs that are funded by discretionary spending. The main implication associated with forward funding relates to the seasonal timing of obligations that it may enable. The following two departments currently receive forward funding. 1. The Department of Education, for the largest formula grant programs to states; and 2. The Department of Labor, for vocational training programs. These particular programs require significant obligations during the summer to prepare for activities that coincide with the school year. Although advance appropriations might enable these programs to plan ahead based on those budgetary resources, such advance appropriations could not be obligated until they became available at the beginning of the fiscal year. Forward funding part or all of a program, in contrast, allows for obligations to occur up to three months prior to that time so that the availability of funds coincides with the program year. Recent Funding Practices42 Forward funds tend to become available at an interval that starts on July 1. Funds are available during at least two fiscal years, but the duration of these funds may be for one year or multiple years, depending on whether the funds are available for more or fewer than 12 months. For example, the Community Service Employment for Older Americans (Employment and Training Administration—Department of Labor) account provided funds for one-year duration (12 months): To carry out title V of the Older Americans Act of 1965 (referred to in this Act as "OAA"), $449,100,000, which shall be available for the period July 1, 2012 through June 30, 2013 . In contrast, funds of a multi-year duration (15 months) were provided by the School Improvement Programs (Department of Education) account: For carrying out school improvement activities authorized by parts A and B of title II, part B of title IV, parts A and B of title VI, and parts B and C of title VII of the ESEA; the McKinney-Vento Homeless Assistance Act; section 203 of the Educational Technical Assistance Act of 2002; the Compact of Free Association Amendments Act of 2003; and the Civil Rights Act of 1964, $4,550,018,000, of which $2,725,246,000 shall become available on July 1, 2012, and remain available through September 30, 2013 . Mixed Approaches While forward funding is sometimes provided as the only schedule of availability for an account, it is typically combined with either budget year or advance appropriations. This allows for only the portion of the program that requires summer obligations to be funded in this manner, while the remaining aspects can be funded through regular annual or advance appropriations. For example, the Office of Job Corps (Employment and Training Administration—Department of Labor) account contained both forward funding and annual appropriations: To carry out subtitle C of title I of the WIA, including Federal administrative expenses, the purchase and hire of passenger motor vehicles, the construction, alteration, and repairs of buildings and other facilities, and the purchase of real property for training centers as authorized by the WIA, $1,706,171,000, plus reimbursements, as follows: (1) $1,572,049,000 for Job Corps Operations, which shall be available for the period July 1, 2012 through June 30, 2013 ; (2) $104,990,000 for construction, rehabilitation and acquisition of Job Corps Centers, which shall be available for the period July 1, 2012 through June 30, 2015 ... and (3) $29,132,000 for necessary expenses of the Office of Job Corps, which shall be available for obligation for the period October 1, 2011 through September 30, 2012 . Forward funding combined with advance appropriations was provided by the Education for the Disadvantaged (Department of Education) account: For carrying out title I of the Elementary and Secondary Education Act of 1965 (referred to in this Act as "ESEA") and section 418A of the Higher Education Act of 1965 (referred to in this Act as "HEA"), $15,750,983,000, of which $4,817,117,000 shall become available on July 1, 2012, and shall remain available through September 30, 2013 , and of which $10,841,177,000 shall become available on October 1, 2012, and shall remain available through September 30, 2013 , for academic year 2012-2013. Advance Funding Advance funding is a form of budget authority provided for a small number of accounts that allows for additional obligations late in the budget year that are counted as a part of the succeeding fiscal year's funding. In essence, advance funds have three defining characteristics. First, advance funds are provided for an account in addition to the appropriation for the budget year in that account. Second, advance funds become available only after the budget year has begun, usually during the last two months of that year, and are no longer available once the budget year ends. Third, any expenditure of the advance funds is directed in the appropriations act to be charged to the succeeding fiscal year's appropriation. For example, an appropriations act for FY2016 provides $100 million for an account in annual appropriations and additional budget authority for such sums as may be necessary for obligations after September 1, 2016. Legislative language in that account further directs that any expenditure of the "such sums" budget authority is to be charged to the next fiscal year's appropriation for FY2017. At the end of FY2016, the obligations of the advance funds total $1 million. Subsequent appropriations for FY2017 total $100 million plus advance funding for that account, and the $1 million in obligations of the FY2016 advance funding is charged against that $100 million for FY2016. Effectively, then, FY2017 budget authority for new obligations is $99 million plus the advance funds for FY2017. As with forward funding, the first time that advance funds were provided in an appropriations act is not known. Provisions that display the essential characteristics of advance funding date back to at least FY1967, when such additional funds were provided for the Unemployment Compensation for Federal Employees and Ex-Servicemen account. Historically, advance funding has tended to be provided for certain accounts that fund payments based on an entitlement formula. The practice of providing for such entitlements through advance funding, as opposed to other funding mechanisms, appears to be a legacy of earlier funding practices that pre-date the current conceptualization of budget enforcement and execution. It has limited application in the present day, as only two accounts currently receive advance funding: 1. Office of Workers Compensation Programs—Special Benefits (Department of Labor); and 2. Federal Unemployment Benefits and Allowances (Employment and Training Administration—Department of Labor). The total amount of payments that are funded by these and similar accounts may be particularly sensitive to changes in eligible beneficiaries or difficult to predict more than a year in advance. In such instances, providing extra funds that become available late in the fiscal year might lessen or eliminate the potential for a funding shortfall and the need for separate supplemental appropriations. However, because any obligations of such funds must be charged to the succeeding fiscal year, any use of this budget authority technically reduces base appropriations that are available in that future year. Recent Funding Practices52 Both the date of initial availability and consequent duration of the advance funds for the two accounts vary slightly. The first account, Office of Workers Compensation Programs—Special Benefits (Department of Labor), is provided advance funds for about the last seven weeks of the fiscal year: For the payment of compensation, benefits, and expenses (except administrative expenses) accruing during the current or any prior fiscal year authorized by 5 U.S.C. 81; continuation of benefits as provided for under the heading "Civilian War Benefits" in the Federal Security Agency Appropriation Act, 1947; the Employees' Compensation Commission Appropriation Act, 1944; sections 4(c) and 5(f) of the War Claims Act of 1948; and 50 percent of the additional compensation and benefits required by section 10(h) of the Longshore and Harbor Workers' Compensation Act, $350,000,000, together with such amounts as may be necessary to be charged to the subsequent year appropriation for the payment of compensation and other benefits for any period subsequent to August 15 of the current year. The second account, Federal Unemployment Benefits and Allowances (Employment and Training Administration—Department of Labor), which funds the Trade Adjustment Assistance for Workers program, is provided advance funds for about the last two weeks of the fiscal year: For payments during fiscal year 2012 of trade adjustment benefit payments and allowances under part I of subchapter B of chapter 2 of title II of the Trade Act of 1974, and section 246 of that Act; and for training, employment and case management services, allowances for job search and relocation, and related State administrative expenses under part II of subchapter B of chapter 2 of title II of the Trade Act of 1974, including benefit payments, allowances, training, employment and case management services, and related State administration provided pursuant to section 231(a) of the Trade Adjustment Assistance Extension Act of 2011, $1,100,100,000, together with such amounts as may be necessary to be charged to the subsequent appropriation for payments for any period subsequent to September 15, 2012. Budget Process Implications Using a delayed period of availability to fund a program may also have budget process implications. These implications derive from scorekeeping rules that govern the fiscal year to which such funds are attributed for the purposes of budget enforcement. The congressional budget resolution has also imposed various limits on advance appropriations for discretionary spending since FY2001. For FY2014 and FY2015, these limits were established in the Bipartisan Budget Act of 2013. If a delayed period of availability has not been authorized by law, making funds available on such a schedule in a general appropriations bill or amendment thereto may subject it to a point of order under House and Senate rules. Scorekeeping Considerations Both statutory processes and congressional procedures enable previously agreed-upon fiscal goals to be enforced, both during the consideration of budgetary measures and once they have been enacted. This enforcement is based upon estimated budgetary effects that are attributed (i.e., "scored") by fiscal year. Under longstanding scorekeeping guidelines, new budget authority is attributed to the first fiscal year that it is available for obligation. Consequently, advance appropriations are not scored against the budget year covered by the bill in which they are enacted but instead against the first fiscal year for which they are provided (one or more years after the budget year). Forward funding, in contrast, is scored against the budget year of the bill in which it is enacted, because it becomes available during the budget year. Similarly, because advance funding is for mandatory spending, CBO attributes the total projected budget authority and outlays that will be required for the budget year to that account. Limits on Advance Appropriations Associated with the Budget Resolution Congress has imposed procedural controls to limit the overall level of advance appropriations in response to concerns that such appropriations may affect future budgetary resources and that they might be used to circumvent other budgetary controls. Between FY1991 and FY2002, statutory spending limits restricted the amount of discretionary spending for each fiscal year. Because budget authority is scored against the first year it is available, advance appropriations could be enacted for future fiscal years that would not count against the current fiscal year's limits. Previously enacted advance appropriations would, however, count against those limits if they were first available during that budget year. As a consequence, some observers became concerned that an increase in the use of advance appropriations could affect flexibility in future budgetary decisions. Because of this, the FY2001 budget resolution, and every budget resolution thereafter, has contained provisions limiting future advance appropriations. The first limits on advance appropriations created points of order on the House and Senate floor against the consideration of future legislation that would enact such appropriations above a specified dollar amount. These provisions also provided procedures for a supermajority waiver and appeal in the Senate. Similar restrictions were in the FY2002 budget resolution, which also included new provisions exempting advance appropriations for the Corporation for Public Broadcasting from these limits. The FY2004 and FY2006 budget resolutions both carried similar language to FY2002, except that advance appropriations were further restricted to a list of eligible accounts. In FY2008 and FY2009, the House discontinued the exemption for the Corporation for Public Broadcasting, although the Senate continued to include it in its procedures for advance appropriations. The FY2010 budget resolution added the Department of Veterans Affairs for the Medical Services, Medical Support and Compliance, and Medical Facilities accounts of the Veterans Health Administration to the list of accounts that were explicitly exempt in the House and Senate from the advance appropriations cap. Although the House and Senate did not agree on a budget resolution for FY2011, FY2012, FY2013, or FY2014, the Bipartisan Budget Act of 2013 (Division A, H.J.Res. 59 , 113 th Congress) reinstated procedural limits on advance appropriations in the House and the Senate. Section 112 of the Bipartisan Budget Act limited the aggregate total of advance appropriations in the Senate for FY2015 and FY2016. Section 113 deemed the provisions of the House-adopted version of the budget resolution ( H.Con.Res. 25 ) to be enforceable in the House for the remainder of the 113 th Congress, including the provisions therein that limit FY2015 advance appropriations (Section 601). Most recently, the FY2016 budget resolution ( S.Con.Res. 11 ) imposed separate procedural limits for the House and Senate on advance appropriations. The form of the limit in the House was the same as the FY2014 limit associated with the Bipartisan Budget Act. The form of the Senate restriction, however, differed from previous fiscal years in that it was specific to advance appropriations in discretionary accounts. The full text of the provisions limiting advance appropriations since FY2001 is provided in the Appendix . Legislating on Appropriations As was previously discussed, delayed periods of availability for funds can be established either in the corresponding authorization law or through the annual appropriations process. The way in which such schedules are established has implications for points of order related to legislating on appropriations. Both House and Senate Rules contain provisions that restrict the content of appropriations measures. In general, such rules restrict the inclusion of appropriations not previously authorized by law or other "legislative provisions" that have the effect of changing existing law under certain circumstances. Precedents associated with these rules may prohibit advance appropriations or forward funding when it is not authorized by law. House precedents generally prohibit appropriations for durations that are beyond the fiscal year covered by the bill, such as appropriations that are made "available until expended," except when "existing law can be interpreted to permit that availability." Because both advance appropriations and forward funds are by definition available for a duration that is beyond the budget year, it appears that these periods of availability would need to be authorized, or at least permitted, by law in order for such subsequent appropriations to be in order under House rules. Senate precedents are more ambiguous. However, as was the case for the House, those that prohibit no-year appropriations when no authorization for such availability exists may be applicable to advance appropriations and forward funding. There appear to be no House or Senate precedents that directly address the issue of advance funding. Such provisions could be considered to be legislative if they are determined to improperly restrict the timing of expenditures, the authority for which has been conferred under existing law to both the Office of Management and Budget and the agency. On this and other matters, the rules of the House and Senate are not self-enforcing. A Member must raise a point of order against a measure or amendment to trigger the procedures described above. In addition, the House may waive clause 2(b) and (c) of Rule XXI through the adoption of a special rule, unanimous consent, or suspension of the rules. The Senate, likewise, may waive paragraphs (2) and (4) of Rule XVI through unanimous consent or suspension of the rules. Restrictions on Advance Appropriations in Congressional Budget Resolutions and the Bipartisan Budget Act of 2013 FY2001 (H.Con.Res. 290) SEC. 203. ENHANCED ENFORCEMENT OF BUDGETARY LIMITS. (b) PROHIBITION ON USE OF ADVANCE APPROPRIATIONS— (1) It shall not be in order in the House to consider any reported bill or joint resolution, or amendment thereto or conference report thereon, that would cause the total level of discretionary advance appropriations provided for fiscal years after 2001 to exceed $23,500,000,000 (which represents the total level of advance appropriations for fiscal year 2001). (2) As used in this subsection, the term 'advance appropriation' means any discretionary new budget authority in a bill or joint resolution making general appropriations for fiscal year 2001 that first becomes available for any fiscal year after 2001. (c) EFFECTIVE DATE—This section shall cease to have any force or effect on January 1, 2001. SEC. 204. MECHANISMS FOR STRENGTHENING BUDGETARY INTEGRITY. (b) POINT OF ORDER WITH RESPECT TO ADVANCE APPROPRIATIONS— (1) IN GENERAL—It shall not be in order in the Senate to consider any bill, resolution, amendment, motion or conference report that— (A) provides an appropriation of new budget authority for any fiscal year after the budget year that is in excess of the amounts provided in paragraph (2); and (B) provides an appropriation of new budget authority for any fiscal year subsequent to the year after the budget year. (2) LIMITATION ON AMOUNTS—The total amount, provided in appropriations legislation for the budget year, of appropriations for the subsequent fiscal year shall not exceed $23,500,000,000. (d) WAIVER AND APPEAL—Subsections (b) and (c) may be waived or suspended in the Senate only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required in the Senate to sustain an appeal of the ruling of the Chair on a point of order raised under this section. (e) FORM OF THE POINT OF ORDER—A point of order under this section may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (f) CONFERENCE REPORTS—If a point of order is sustained under this section against a conference report, the report shall be disposed of as provided in section 313(d) of the Congressional Budget Act of 1974. (i) SUNSET—Except for subsection (g), this section shall expire effective October 1, 2002. FY2002 (H.Con.Res. 83) SEC. 201. RESTRICTIONS ON ADVANCE APPROPRIATIONS IN THE HOUSE. (a) IN GENERAL— (1) In the House, except as provided in subsection (b), an advance appropriation may not be reported in a bill or joint resolution making a general appropriation or continuing appropriation, and may not be in order as an amendment thereto. (2) Managers on the part of the House may not agree to a Senate amendment that would violate paragraph (1) unless specific authority to agree to the amendment first is given by the House by a separate vote with respect thereto. (b) EXCEPTION—In the House, an advance appropriation may be provided- (1) for fiscal year 2003 for programs, projects, activities or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $23,159,000,000 in new budget authority; and (2) for the Corporation for Public Broadcasting. (c) DEFINITION—In this section, the term 'advance appropriation' means any discretionary new budget authority in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2002 that first becomes available for any fiscal year after 2002. SEC. 202. RESTRICTIONS ON ADVANCE APPROPRIATIONS IN THE SENATE. (a) IN GENERAL—Except as provided in subsection (b), it shall not be in order in the Senate to consider any reported bill or joint resolution, or amendment thereto or conference report thereon, that would provide an advance appropriation. (b) EXCEPTION—An advance appropriation may be provided— (1) for fiscal year 2003 for programs, projects, activities or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $23,159,000,000 in new budget authority; and (2) for the Corporation for Public Broadcasting. (c) APPLICATION OF POINT OF ORDER IN THE SENATE— (1) WAIVER AND APPEAL—In the Senate, subsection (a) may be waived or suspended in the Senate only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required in the Senate to sustain an appeal of the ruling of the Chair on a point of order raised under subsection (a). (2) FORM OF THE POINT OF ORDER—A point of order under subsection (a) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (3) CONFERENCE REPORTS—If a point of order is sustained under subsection (a) against a conference report in the Senate, the report shall be disposed of as provided in section 313(d) of the Congressional Budget Act of 1974. (d) DEFINITION- In this section, the term 'advance appropriation' means any discretionary new budget authority in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2002 that first becomes available for any fiscal year after 2002. (e) SENSE OF CONGRESS—It is the sense of Congress that the Budget Enforcement Act of 1990 should be amended to address procedures for advance appropriations for fiscal years beginning with fiscal year 2003. FY2004 (H.Con.Res. 95) SEC. 501. RESTRICTIONS ON ADVANCE APPROPRIATIONS. (a) IN THE HOUSE— (1)(A) In the House, except as provided in paragraph (2), an advance appropriation may not be reported in a bill or joint resolution making a general appropriation or continuing appropriation, and may not be in order as an amendment thereto. (B) Managers on the part of the House may not agree to a Senate amendment that would violate subparagraph (A) unless specific authority to agree to the amendment first is given by the House by a separate vote with respect thereto. (2) In the House, an advance appropriation may be provided for fiscal year 2005 for programs, projects, activities or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations, Part A' in an aggregate amount not to exceed $23,158,000,000 in new budget authority, and an advance appropriation may be provided for fiscal year 2006 for any program identified in such statement under the heading 'Accounts Identified for Advance Appropriations, Part B'. (3) In this subsection, the term 'advance appropriation' means any discretionary new budget authority in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2004 that first becomes available for any fiscal year after 2004. (b) IN THE SENATE— (1) Except as provided in paragraph (2), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, or conference report that would provide an advance appropriation. (2) An advance appropriation may be provided for fiscal years 2005 and 2006 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $23,158,000,000 in new budget authority in each year. (3)(A) In the Senate, paragraph (1) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under paragraph (1). (B) A point of order under paragraph (1) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (C) If a point of order is sustained under paragraph (1) against a conference report in the Senate, the report shall be disposed of as provided in section 313(d) of the Congressional Budget Act of 1974. (4) In this subsection, the term 'advance appropriation' means any discretionary new budget authority in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2004 that first becomes available for any fiscal year after 2004 or making general appropriations or continuing appropriations for fiscal year 2005 that first becomes available for any fiscal year after 2005. FY2006 (H.Con.Res. 95) SEC. 401. RESTRICTIONS ON ADVANCE APPROPRIATIONS. (a) IN THE HOUSE— (1)(A) In the House, except as provided in paragraph (2), an advance appropriation may not be reported in a bill or joint resolution making a general appropriation or continuing appropriation, and may not be in order as an amendment thereto. (B) Managers on the part of the House may not agree to a Senate amendment that would violate subparagraph (A) unless specific authority to agree to the amendment first is given by the House by a separate vote with respect thereto. (2) In the House, an advance appropriation may be provided for fiscal year 2007 or 2008 for programs, projects, activities or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $23,158,000,000 in new budget authority. (3) In this subsection, the term 'advance appropriation' means any new budget authority provided in a bill or joint resolution making general appropriations or any new budget authority provided in a bill or joint resolution continuing appropriations for fiscal year 2006 that first becomes available for any fiscal year after 2006. (b) IN THE SENATE— (1) Except as provided in paragraph (2), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, or conference report that would provide an advance appropriation. (2) An advance appropriation may be provided for the fiscal years 2007 and 2008 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $23,158,000,000 in new budget authority in each year. (3)(A) In the Senate, paragraph (1) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under paragraph (1). (B) A point of order under paragraph (1) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (C) If a point of order is sustained under paragraph (1) against a conference report in the Senate, the report shall be disposed of as provided in section 313(d) of the Congressional Budget Act of 1974. (4) In this subsection, the term 'advance appropriation' means any new budget authority provided in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2006 that first becomes available for any fiscal year after 2006, or any new budget authority provided in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2007, that first becomes available for any fiscal year after 2007. FY2008 (S.Con.Res. 21) SEC. 206. POINT OF ORDER AGAINST ADVANCE APPROPRIATIONS. (a) Senate— (1) IN GENERAL— (A) POINT OF ORDER—Except as provided in paragraph (2), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, or conference report that would provide an advance appropriation. (B) DEFINITION—In this subsection, the term 'advance appropriation' means any new budget authority provided in a bill or joint resolution making appropriations for fiscal year 2008 that first becomes available for any fiscal year after 2008, or any new budget authority provided in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2009, that first becomes available for any fiscal year after 2009. (2) EXCEPTIONS—Advance appropriations may be provided— (A) for fiscal years 2009 and 2010 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading `Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $25,158,000,000 in new budget authority in each year; and (B) for the Corporation for Public Broadcasting. (3) SUPERMAJORITY WAIVER AND APPEAL— (A) WAIVER—In the Senate, paragraph (1) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. (B) APPEAL—An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under paragraph (1). (4) FORM OF POINT OF ORDER—A point of order under paragraph (1) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (5) CONFERENCE REPORTS—When the Senate is considering a conference report on, or an amendment between the Houses in relation to, a bill, upon a point of order being made by any Senator pursuant to this subsection, and such point of order being sustained, such material contained in such conference report shall be deemed stricken, and the Senate shall proceed to consider the question of whether the Senate shall recede from its amendment and concur with a further amendment, or concur in the House amendment with a further amendment, as the case may be, which further amendment shall consist of only that portion of the conference report or House amendment, as the case may be, not so stricken. Any such motion in the Senate shall be debatable. In any case in which such point of order is sustained against a conference report (or Senate amendment derived from such conference report by operation of this subsection), no further amendment shall be in order. (6) REPEAL—In the Senate, section 401 of H.Con.Res. 95 (109 th Congress), the concurrent resolution on the budget for fiscal year 2006, shall no longer apply. (b) House— (1) IN GENERAL—In the House, except as provided in paragraph (2), a bill or joint resolution making a general appropriation or continuing appropriation, or an amendment thereto may not provide for advance appropriations. (2) ADVANCE APPROPRIATION—In the House, an advance appropriation may be provided for fiscal year 2009 or 2010 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $25,558,000,000 in new budget authority. (3) DEFINITION—In this subsection, the term 'advance appropriation' means any new discretionary budget authority provided in a bill or joint resolution making general appropriations or any new discretionary budget authority provided in a bill or joint resolution continuing appropriations for fiscal year 2008 that first becomes available for any fiscal year after 2008. FY2010 (S.Con.Res. 13) SEC. 402. POINT OF ORDER AGAINST ADVANCE APPROPRIATIONS. (a) In General— (1) POINT OF ORDER—Except as provided in subsection (b), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, or conference report that would provide an advance appropriation. (2) DEFINITION—In this section, the term 'advance appropriation' means any new budget authority provided in a bill or joint resolution making appropriations for fiscal year 2010 that first becomes available for any fiscal year after 2010, or any new budget authority provided in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2011, that first becomes available for any fiscal year after 2011. (b) Exceptions—Advance appropriations may be provided— (1) for fiscal years 2011 and 2012 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $28,852,000,000 in new budget authority in each year; (2) for the Corporation for Public Broadcasting; and (3) for the Department of Veterans Affairs for the Medical Services, Medical Support and Compliance, and Medical Facilities accounts of the Veterans Health Administration. (c) Supermajority Waiver and Appeal— (1) WAIVER—In the Senate, subsection (a) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. (2) APPEAL—An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under subsection (a). (d) Form of Point of Order—A point of order under subsection (a) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (e) Conference Reports—When the Senate is considering a conference report on, or an amendment between the Houses in relation to, a bill, upon a point of order being made by any Senator pursuant to this section, and such point of order being sustained, such material contained in such conference report shall be deemed stricken, and the Senate shall proceed to consider the question of whether the Senate shall recede from its amendment and concur with a further amendment, or concur in the House amendment with a further amendment, as the case may be, which further amendment shall consist of only that portion of the conference report or House amendment, as the case may be, not so stricken. Any such motion in the Senate shall be debatable. In any case in which such point of order is sustained against a conference report (or Senate amendment derived from such conference report by operation of this subsection), no further amendment shall be in order. (f) Inapplicability—In the Senate, section 313 of S.Con.Res. 70 (110 th Congress) shall no longer apply. SEC. 424. POINT OF ORDER AGAINST ADVANCE APPROPRIATIONS. (a) In General—In the House, except as provided in subsection (b), any bill, joint resolution, amendment, or conference report making a general appropriation or continuing appropriation may not provide for advance appropriations. (b) Exceptions—Advance appropriations may be provided— (1) for fiscal year 2011 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers to accompany this resolution under the heading 'Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $28,852,000,000 in new budget authority, and for 2012, accounts separately identified under the same heading; and (2) for the Department of Veterans Affairs for the Medical Services, Medical Support and Compliance, and Medical Facilities accounts of the Veterans Health Administration. (c) Definition—In this section, the term 'advance appropriation' means any new discretionary budget authority provided in a bill or joint resolution making general appropriations or any new discretionary budget authority provided in a bill or joint resolution making continuing appropriations for fiscal year 2010 that first becomes available for any fiscal year after 2010. FY2014 and FY2015 (Bipartisan Budget Act, Senate only) SEC. 112. LIMITATION ON ADVANCE APPROPRIATIONS IN THE SENATE. (a) Point of Order Against Advance Appropriations in the Senate— (1) IN GENERAL— (A) POINT OF ORDER—Except as provided in paragraph (2), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, amendment between the Houses, or conference report that would provide an advance appropriation. (B) DEFINITION—In this subsection, the term `advance appropriation' means any new budget authority provided in a bill or joint resolution making appropriations for fiscal year 2014 that first becomes available for any fiscal year after 2014 or any new budget authority provided in a bill or joint resolution making appropriations for fiscal year 2015 that first becomes available for any fiscal year after 2015. (2) EXCEPTIONS—Advance appropriations may be provided— (A) for fiscal years 2015 and 2016 for programs, projects, activities, or accounts identified in a statement submitted to the Congressional Record by the Chairman of the Committee on the Budget of the Senate under the heading `Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $28,852,000,000 in new budget authority in each fiscal year; (B) for the Corporation for Public Broadcasting; and (C) for the Department of Veterans Affairs for the Medical Services, Medical Support and Compliance, and Medical Facilities accounts of the Veterans Health Administration. (3) SUPERMAJORITY WAIVER AND APPEAL— (A) WAIVER—In the Senate, paragraph (1) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. (B) APPEAL—An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under paragraph (1). (4) FORM OF POINT OF ORDER—A point of order under paragraph (1) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974. (5) CONFERENCE REPORTS—When the Senate is considering a conference report on, or an amendment between the Houses in relation to, a bill, upon a point of order being made by any Senator pursuant to this subsection, and such point of order being sustained, such material contained in such conference report or amendment between the Houses shall be stricken, and the Senate shall proceed to consider the question of whether the Senate shall recede from its amendment and concur with a further amendment, or concur in the House amendment with a further amendment, as the case may be, which further amendment shall consist of only that portion of the conference report or House amendment, as the case may be, not so stricken. Any such motion in the Senate shall be debatable. In any case in which such point of order is sustained against a conference report (or Senate amendment derived from such conference report by operation of this paragraph), no further amendment shall be in order. (6) INAPPLICABILITY—In the Senate, section 402 of S.Con.Res. 13 (111 th Congress) shall no longer apply. (b) Expiration—Subsection (a) shall expire if a concurrent resolution on the budget for fiscal year 2015 is agreed to by the Senate and House of Representatives pursuant to section 301 of the Congressional Budget Act of 1974. FY2014 ( H.Con.Res. 25 , House only) SEC. 601. LIMITATION ON ADVANCE APPROPRIATIONS. (a) Findings—The House finds the following: (1) The Veterans Health Care Budget and Reform Transparency Act of 2009 provides advance appropriations for the following veteran medical care accounts: Medical Services, Medical Support and Compliance, and Medical Facilities. (2) The President has yet to submit a budget request as required under section 1105(a) of title 31, United States Code, including the request for the Department of Veterans Affairs, for fiscal year 2014, hence the request for veteran medical care advance appropriations for fiscal year 2015 is unavailable as of the writing of this concurrent resolution. (3) This concurrent resolution reflects the most up-to-date estimate on veterans' health care needs included in the President's fiscal year 2013 request for fiscal year 2015. (b) In General—In the House, except as provided for in subsection (c), any bill or joint resolution, or amendment thereto or conference report thereon, making a general appropriation or continuing appropriation may not provide for advance appropriations. (c) Exceptions—An advance appropriation may be provided for programs, projects, activities, or accounts referred to in subsection (d)(1) or identified in the report to accompany this concurrent resolution or the joint explanatory statement of managers to accompany this concurrent resolution under the heading 'Accounts Identified for Advance Appropriations'. (d) Limitations—For fiscal year 2015, the aggregate level of advance appropriations shall not exceed— (1) $55,483,000,000 for the following programs in the Department of Veterans Affairs— (A) Medical Services; (B) Medical Support and Compliance; and (C) Medical Facilities accounts of the Veterans Health Administration; and (2) $28,852,000,000 in new budget authority for all programs identified pursuant to subsection (c). (e) Definition—In this section, the term `advance appropriation' means any new discretionary budget authority provided in a bill or joint resolution, or amendment thereto or conference report thereon, making general appropriations or any new discretionary budget authority provided in a bill or joint resolution making continuing appropriations for fiscal year 2015. FY2016 ( S.Con.Res. 11 ) SEC. 3202. POINT OF ORDER AGAINST ADVANCE APPROPRIATIONS IN THE SENATE. (a) In General- (1) POINT OF ORDER- Except as provided in subsection (b), it shall not be in order in the Senate to consider any bill, joint resolution, motion, amendment, amendment between the Houses, or conference report that would provide an advance appropriation for a discretionary account. (2) DEFINITION- In this section, the term `advance appropriation' means any new budget authority provided in a bill or joint resolution making appropriations for fiscal year 2016 that first becomes available for any fiscal year after 2016, or any new budget authority provided in a bill or joint resolution making general appropriations or continuing appropriations for fiscal year 2017, that first becomes available for any fiscal year after 2017. (b) Exceptions- Advance appropriations may be provided— (1) for fiscal years 2017 and 2018 for programs, projects, activities, or accounts identified in the joint explanatory statement of managers accompanying this concurrent resolution under the heading `Accounts Identified for Advance Appropriations' in an aggregate amount not to exceed $28,852,000,000 in new budget authority in each fiscal year; (2) for the Corporation for Public Broadcasting; and (3) for the Department of Veterans Affairs for the Medical Services, Medical Support and Compliance, and Medical Facilities accounts of the Veterans Health Administration. (c) Supermajority Waiver and Appeal- (1) WAIVER- In the Senate, subsection (a) may be waived or suspended only by an affirmative vote of three-fifths of the Members, duly chosen and sworn. (2) APPEAL- An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under subsection (a). (d) Form of Point of Order- A point of order under subsection (a) may be raised by a Senator as provided in section 313(e) of the Congressional Budget Act of 1974 (2 U.S.C. 644(e)). (e) Conference Reports- When the Senate is considering a conference report on, or an amendment between the Houses in relation to, a bill or joint resolution, upon a point of order being made by any Senator pursuant to this section, and such point of order being sustained, such material contained in such conference report or House amendment shall be stricken, and the Senate shall proceed to consider the question of whether the Senate shall recede from its amendment and concur with a further amendment, or concur in the House amendment with a further amendment, as the case may be, which further amendment shall consist of only that portion of the conference report or House amendment, as the case may be, not so stricken. Any such motion in the Senate shall be debatable. In any case in which such point of order is sustained against a conference report (or Senate amendment derived from such conference report by operation of this subsection), no further amendment shall be in order. SEC. 3304. LIMITATION ON ADVANCE APPROPRIATIONS IN THE HOUSE OF REPRESENTATIVES. (a) In General- In the House of Representatives, except as provided for in subsection (b), any bill or joint resolution, or amendment thereto or conference report thereon, making a general appropriation or continuing appropriation may not provide for advance appropriations. (b) Exceptions- An advance appropriation may be provided for programs, projects, activities, or accounts identified in the report to accompany this concurrent resolution or the joint explanatory statement of managers to accompany this concurrent resolution under the heading— (1) GENERAL- `Accounts Identified for Advance Appropriations'. (2) VETERANS- `Veterans Accounts Identified for Advance Appropriations'. (c) Limitations- The aggregate level of advance appropriations shall not exceed— (1) GENERAL- $28,852,000,000 in new budget authority for all programs identified pursuant to subsection (b)(1). (2) VETERANS- $63,271,000,000 in new budget authority for programs in the Department of Veterans Affairs identified pursuant to subsection (b)(2). (d) Definition- The term `advance appropriation' means any new discretionary budget authority provided in a bill or joint resolution, or any amendment thereto or conference report thereon, making general appropriations or continuing appropriations, for the fiscal year following fiscal year 2016.

Federal programs that are funded through the annual appropriations process in regular appropriations acts may typically obligate those funds during a period that starts at the beginning of that fiscal year. For certain programs, however, the period of availability for some or all of their funds may be delayed until after the start of the fiscal year or even until a future fiscal year. Three types of delayed periods of availability are discussed in this report: "advance appropriations," "forward funding," and "advance funding." Advance appropriations become available for obligation one or more fiscal years after the budget year covered by the appropriations act. Although advance appropriations are provided in order to manage specific planning concerns, they also have implications for the prevention of funding gaps and the avoidance of continuing appropriations for those programs. Advance appropriations are typically enacted at an interval of one fiscal year prior to when such appropriations become available. For accounts that receive advance appropriations, the amount of budget authority that will become available once the fiscal year commences is sometimes adjusted in subsequent appropriations acts through supplemental appropriations or rescissions. Forward funding becomes available beginning late in the budget year and is carried into at least one following fiscal year. This period of availability's main implication is that it facilitates obligations during the summer months for programs that start their activities during the fall, particularly for the Department of Education and Department of Labor. Forward funds tend to become available at an interval that starts on July 1 and are available during at least two fiscal years. Typically, this schedule of availability is combined with annual or advance appropriations so that only the portions of the program that require summer obligations are funded in this manner. Advance funding becomes available late in the budget year and is in addition to the funds for that entire fiscal year; any expenditure of the advance funds is charged to the following fiscal year's appropriation. This period of availability has tended to be used for accounts that fund mandatory payments to individuals. The aggregate amount of such payments may be particularly sensitive to changes in eligible beneficiaries or difficult to predict more than a year in advance. In such instances, providing extra funds that become available late in the fiscal year might lessen or eliminate the potential for a funding shortfall and the need for separate supplemental appropriations. In the two cases where advance funds are currently used, they are available only during the final weeks of the fiscal year. Choosing a delayed period of availability when funding a program may have budget process implications due to the scorekeeping rules that govern the fiscal year to which such funds are attributed. The congressional budget resolution has also imposed various limits on advance appropriations for discretionary spending since FY2001. For FY2014, these limits were established in the Bipartisan Budget Act of 2013. In certain circumstances, making funds available for a delayed period of availability may also violate House and Senate rules that prohibit unauthorized appropriations and other types of legislative provisions.

Background The Food Safety and Inspection Service (FSIS) within the U.S. Department of Agriculture (USDA) has monitored numerous recalls of meat and poultry products sold in the United States. The recalls have involved beef products possibly contaminated with E. coli O157:H7, beef and poultry products possibly contaminated with Salmonella , and canned meat products possibly contaminated by botulism. A recall is "a firm's voluntary removal of distributed meat or poultry products from commerce when there is reason to believe that such products are adulterated or misbranded...." Recalls received heightened attention in February 2008, when USDA announced the largest-ever recall—143.4 million pounds of fresh and frozen beef products from a California slaughterer-processor. The Class II recall was in response to evidence that nonambulatory ("downer") cattle had been mistreated and periodically slaughtered for food, in violation of a federal humane slaughter law and of meat safety regulations, respectively. (See " Recall Classifications ," below, for a definition of Class II.) Recalls raise issues of consumer confidence in the meat industry and questions of the adequacy of the USDA oversight. A 2004 Government Accountability Office (GAO) report criticized the adequacy of efforts to monitor and ensure compliance with recalls, noting that "concerns that contaminated food could reach consumers have also intensified because of the potential susceptibility of food to deliberate contamination." Although recalls are voluntary, USDA may withhold products from the food supply through its regulation of imports, its inspection and approval process, and its power to seize and detain products that are in violation of its regulations. This report provides an overview of USDA's statutory authority to regulate meat, poultry, and their products. Specifically, the report discusses the requirements of USDA relating to inspections and import regulations, as well as USDA's role in product recalls, including its power to seize and detain products in commerce. This report also addresses issues surrounding the debate over expansion of USDA authority to require recalls of products known or suspected to be adulterated and legislative proposals to change the current recall process. Information about recent recalls and analysis of recall data can be found in the Appendix of the report. Current Statutory Authority to Regulate Meat and Poultry Products USDA does not currently have statutory authority to issue mandatory recalls of contaminated products. Recalls, which withdraw products from the food supply, must be voluntarily initiated by a manufacturer or distributor, and these entities generally bear the cost of any recall. USDA does have statutory authority to perform other regulatory functions involving meat and poultry under the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA), respectively. These acts authorize USDA to regulate the safety, wholesomeness, and proper labeling of domestic and imported meat, poultry, and their products sold for human consumption. USDA has assigned its authority to FSIS, which carries out USDA's authority under the acts. Though FSIS may not mandate recalls, it can keep some products from entering the food supply through its role in importation regulation and inspections. Authority to Regulate Imports Meat, poultry, and their products may not be imported if they do not comport with the standards provided by U.S. law. FMIA prohibits importation of any carcasses, meat or meat food products that are meant for human consumption if they are adulterated, misbranded, or do not comply with other inspection and facilities standards provided in the act. PPIA prohibits importation of "slaughtered poultry, or parts or products thereof" if they are not healthful, wholesome, unadulterated or fit for human consumption or if they do not comply with the standards provided in the act. Imported items must comply with U.S. domestic sanitary protection standards. Specifically, poultry imports must be "subject to inspection, sanitary, quality, species verification, and residue standards" and must have been "processed in facilities and under conditions that achieve a level of sanitary protection equivalent to that achieved under United States standards." Meat imports are subject to the same standards. These requirements are enforceable through random inspection and testing of products by FSIS. Imported items that do not comply with these requirements can be refused entry into the United States. Items that are refused entry into the United States and not exported within the designated time period are subject to destruction by FSIS. Inspection Authority The FMIA requires FSIS to inspect all cattle, sheep, swine, goats, horses, mules, and other equines before they enter any plant to be slaughtered and processed for human consumption. The PPIA requires inspection of any domesticated birds that might be processed for human consumption. These statutes provide for ante mortem and post mortem inspections. Livestock and poultry covered under the statutes must be examined and inspected before entry into a plant for slaughtering or processing (ante mortem inspection). The carcasses must also be examined after the animals are slaughtered (post mortem inspection). Inspectors are responsible for inspecting the methods of slaughtering, handling, and processing, as well as the facilities in which these activities take place. They also inspect the establishment's sanitation quality. In order to conduct these inspections, inspectors must have access at all times to the entire facility in which the animals are slaughtered or processed. This inspection process regulates the entry of meat and poultry products into the food supply. If inspectors find that an establishment or animals do not meet FSIS standards, the FSIS may cease or refuse inspection services. Products inspected and approved as unadulterated must be clearly labeled before entry into the food supply. Products inspected and not approved must be destroyed. Current USDA Regulations and Guidance Regarding Recalls While USDA has statutory authority to prevent meat and poultry products from entering the food supply, it lacks authority to withdraw products already in the food supply. Rather, recalls of meat and poultry products are voluntary actions taken by food companies. USDA has long relied on this voluntary, cooperative approach between FSIS and meat and poultry establishments. If an establishment conducts the recall, FSIS provides assistance and monitors the recall. If an establishment does not conduct the recall, FSIS is limited to its authority to detain and seize the products in question. Recall policies are spelled out in FSIS Directive 8080.1. Authority for Detentions and Seizures If a firm does not follow FSIS' recommendation to conduct a recall, "FSIS personnel are to detain any product found in commerce that would have been subject to a recall as set out [by an internal procedure directive]." FSIS has the authority to detain any meat or poultry product after making two determinations. First, it must find that the product is being held for distribution, in the process of being distributed, or already distributed in commerce. Second, FSIS must have reason to believe that any such article: (a) "is adulterated or misbranded and is capable of use as human food;" (b) "has not been inspected;" or (c) "has been or is intended to be, distributed in violation of [any federal or state law]." Under these regulations, the authorized detention period cannot exceed 20 days. If FSIS detains a product, the agency will "issue a Press Release informing the public that product that appears to be adulterated or misbranded has been shipped by the responsible firm and that the Agency is detaining the product in commerce." Industry-Initiated Recalls FSIS provides recall guidelines for firms that wish to voluntarily recall a product. The guidelines suggest identifying a recall coordinator, developing a recall plan, and issuing recall communications and notifications. FSIS also notes that it "expects that, once it is determined that a recall will be undertaken, the recalling firm will immediately notify FSIS." The enacted 2008 farm bill included a requirement that an establishment subject to inspection "promptly notify" FSIS when it believes or has reason to believe that adulterated or misbranded products have entered commerce. FSIS notes that "[t]here is no regulatory requirement that an establishment includes this recall plan in its HACCP plan or as a prerequisite program; however, FSIS believes that prudent establishments will." HACCP (Hazard Analysis and Critical Control Points) is the safety prevention plan that FSIS requires of every inspected establishment. Recall Recommendations FSIS monitors and oversees voluntary recalls. FSIS oversight begins when it learns of a potential recall. FSIS may learn of a potential recall from various sources: (1) the manufacturer or distributor of the product; (2) test results from FSIS sampling programs; (3) observations or inquiries by FSIS inspection program personnel; (4) consumer complaints; (5) epidemiological data submitted by various federal, state, and local agencies; or (6) information from other agencies. If a recall may appear appropriate, FSIS assembles a Recall Committee and responds to any threats or hazards posed by the recall. The Recall Committee makes a preliminary evaluation to determine whether to recommend a recall of the product. In this evaluation, FSIS considers the nature of the defect, the actual occurrence of any illnesses or injuries, and the likelihood and type of illness or injury that may result. If FSIS issues a recall recommendation, the recommendation will contain the following information: (1) the reason for the recall and any reason to believe the product is adulterated or misbranded; (2) the recall classification; (3) the ability of distributors and consumers of the product to identify it; and (4) the estimated amount of the product in distribution. Recall Classifications Recall classifications are based on the public health risk posed by the product in question. One of three levels, or classes, of recalls can be designated. Class I recalls are the most serious and would involve a "situation where there is a reasonable probability that the use of the product will cause serious, adverse health consequences or death." Pathogens like Listeria monocytogenes or Salmonella on ready-to-eat products, or E. coli O157:H7 on raw beef products are examples of Class I recalls. Class II recalls would involve a "situation where there is a remote probability of adverse health consequences from the use of the product." The undisclosed presence of a small amount of a potentially allergenic substance or the presence of a nonsharp-edged foreign material like plastic are examples of Class II recalls. Class III recalls would involve a "situation where the use of the product will not cause adverse health consequences." The presence of excess water in a product might lead to a Class III recall. Extent of Recall The depth of the recall identifies the level of distribution to which the recall extends. If a recall extends to the consumer level, the recall applies to household consumers, as well as all other levels of distribution. If the recall extends to the retail level, the product is recalled from all retail sales. If it extends to the HRI level (formerly known as the user level), the recall applies to user entities, including "hotels, restaurants, and other food service institutional customers." If the recall applies to the wholesale level, it involves "the distribution level between the manufacturer and the retailer." Communication Regarding Recalls FSIS uses press releases and recall notification reports to inform the public of recalled products. FSIS issues press releases known as recall releases for Class I or Class II recalls but generally not for Class III recalls. The press release and a photo of the product are posted on FSIS' website, and the information is disseminated to stakeholders (including Congress), news media, and public health officials. The press release includes a detailed description (and photo, if possible) of the product, the reason it is being recalled and the risk associated with the product's use. It also instructs the public about the appropriate responses to be taken after the product is identified and provides contact information for questions. The press release also indicates the product's destination to better alert potential consumers. If FSIS verifies that "the recalled product has not been distributed beyond the wholesale level and ... it is not likely to be sold directly to consumers," FSIS issues recall notification reports with general information about the recall, including information similar to recall recommendations. Recall notification reports are issued for all classes of recalls and are also posted on the FSIS website. Under a regulation effective in August 2008, FSIS now publishes on its website the retail stores receiving meat and poultry products involved in Class I recalls. Some of the retail stores subject to the regulation include supermarkets and grocery stores, convenience stores, meat markets, wholesale clubs and supercenters. FSIS noted that the listing is intended to better inform consumers about products that have the greatest potential for serious health consequences. Monitoring and Termination of Recalls FSIS monitors the recall process through effectiveness checks. The effectiveness checks verify the diligence and success of the recalling firm in notifying consignees (those entities or individuals to whom the product has been delivered) of the recall and the response of the consignees. They are based on the risk involved, the recall classification, and the number of consignees. FSIS personnel contact consignees to determine the effectiveness of a recall. When the number of consignees that are found to have the product available to the public exceeds the critical limit provided in FSIS sampling plans, the recall cannot be deemed effective. If the number is equal to or less than the critical limit, the recall is deemed effective. If FSIS finds a lack of prompt action by a firm or a lack of response by consignees to a firm's request, the agency may exercise its authority to detain any product found in commerce. When a firm does not or cannot implement a proper recall strategy, FSIS may intervene under its detention authority or provide public warnings in order to mitigate the risk posed by the product. FSIS issues a recall termination report after it completes effectiveness checks and determines that all reasonable efforts have been made to recall the product. FSIS may close a recall case "if data indicate that no additional illnesses associated with the recalled product are being reported, and there are no signs that recalled product remains in commerce." Selected Issues and Bills69 Proposals have been debated in past sessions of Congress to provide FSIS with the authority to order companies to recall meat and poultry. However, none has been enacted. Following is a brief discussion of selected issues that have been raised in the debate about amending FSIS recall authority. Is Mandatory Authority Needed? Consumer and food safety advocacy groups have long argued that FSIS (as well as FDA) should be granted explicit statutory authority to impose mandatory recalls of adulterated and misbranded products. These advocates contend that FSIS (and FDA) needs such authority to ensure products can be quickly removed from the market any time a company declines to do so voluntarily, is reluctant to act swiftly, or fails to conduct a comprehensive recall. Mandatory authority would expedite the current process, make it clear that public health is the agencies' top priority, reduce companies' exposure to lawsuits, and bolster consumer confidence in the food supply, they maintain. In 2004, GAO concluded that FSIS and FDA do not know how well companies carry out recalls, and have not effectively tracked them. As a result, most recalled food products are not recovered and thus may be consumed, GAO found. Others, including meat and poultry industry trade associations, have countered that current authorities are sufficient. Few if any meat or poultry establishments have refused to comply with an FSIS recommendation to recall a suspected contaminated product, they argue. (Critics contend that this claim is based upon anecdotal reports rather than a factual accounting.) Industry representatives assert that FSIS's existing authority to suspend or withdraw its inspection service, which effectively denies a plant the right to market its products, is a strong incentive for establishments to ensure their products are safe to consume. FSIS' authority also enables it to detain meat and poultry products of concern for up to 20 days, and the agency can, with a court's permission, seize, condemn and destroy unsafe food as well. These implicit threats, along with the potential for adverse publicity and legal liability, make the current system effective, its proponents maintain. It is also argued that voluntary procedures encourage cooperation between industry and its regulators, whereas mandatory recall authority might discourage it. Mandatory authority would foster a more adversarial system of mistrust and possible litigation, making recalls less rather than more effective, they argue. Responsibility Questions Among other components that might be considered for a "sensible" mandatory food recall system, according to the Roberts article, are: extension of due process protection to food companies (i.e., a hearing before an administrative law judge); and possibly some limitation on the liability of companies that comply with a government recall request, to protect them from civil actions. These particular aspects of the issue apparently have not been widely discussed among stakeholders, at least not publicly. More specifically, if Congress empowered FSIS with mandatory recall authority, would it also be shifting—whether implicitly or explicitly—the burden of proof from the companies to the agency? Might FSIS's reasons for ordering a recall be subject to protracted challenge during the hearing proceedings, potentially undermining the recall's effectiveness? What if FSIS erroneously ordered a recall "out of an abundance of caution" that ultimately caused a business to fail, on the one hand? If, on the other hand, FSIS waited until it had additional evidence of problems, would it be jeopardizing consumer safety? Notification Requirements FSIS does not have explicit statutory authority to require a company to notify it when the company has distributed an unsafe product or knows that such a product is in commerce. Many, including Roberts, believe that such a mandate for prompt notification is a prerequisite for an effective recall policy. In the enacted 2008 farm bill, Section 11017 ("Food Safety Improvement") amends both the FMIA and PPIA to require any establishment subject to inspection to "promptly notify" USDA if it believes, or has reason to believe, that an adulterated or misbranded meat or poultry product has entered commerce. Section 11017 also requires meat and poultry establishments to prepare and maintain recall plans and any reassessments of their process control plans and to have them available for USDA inspectors to review and copy. Traceability Effective recalls require that industry and government officials have the means to easily trace the movement of products. Some argue that improved traceability capabilities would facilitate determining a product's source and whereabouts, and better prevent or contain foodborne illness outbreaks. Recovery Rates and Recall Effectiveness Recalls rarely recover all products. Between 1994 and 2007, for example, the quantity of products actually found have constituted anywhere from 17% to 28% annually of the total pounds recalled. (Recoveries did reach 64% in 2004, 40% in 1997 and 58% in 1996.) Among the reasons that many products are not recovered is that they likely have been consumed or destroyed by purchasers, according to FSIS. One issue is whether recoveries offer evidence that recalls are effective. FSIS officials have asserted on several occasions that "pounds recovered" is not a reliable measure of recall effectiveness, preferring to evaluate its success on such factors as whether the number of illnesses associated with an outbreak has been halted since a recall was announced and "whether or not the product has stopped flowing through the distribution chain." Notwithstanding these assertions, the 2004 GAO report claims that both FSIS and FDA "told us recovery was an important indicator of a successful recall." FSIS testified that it has improved the effectiveness of the recall process since the release of the critical OIG report. The agency also stated that it has increased the number of effectiveness checks and shortened their completion times. Such checks rely on ... a risk-based statistical sampling plan to determine the number of consignees that FSIS program personnel will contact during the effectiveness checks. For a recall to be deemed effective or successful, the number of consignees found to have a product in commerce must be equal to or less than a critical number established in the FSIS risk-based recall effectiveness checks sampling plan. FSIS also published a final rule on July 17, 2008, providing for the agency to post on its website a list of all retail outlets to which a recalled product has been distributed. In response to comments received, FSIS limited the application of the rule to Class I recalls only. The agency believes that this would enable consumers to identify, and return or destroy, more products than currently are found. Significance of Recall Data Another issue is the usefulness of recall data generally. Does a high number of recalls indicate that current food safety measures are ineffective in keeping unsafe products off the market? Or, rather, does it signify that industry and the federal government have heightened testing, improved their ability to find the sources of more foodborne illness outbreaks, and have otherwise become more vigilant in their oversight, even after the products leave the plants? In arguing that their own inspection programs provide at least as much safety at the federal program, states have long made the claim that they experience far fewer recalls of their inspected products than does FSIS. However, might it be argued that states conduct fewer recalls because they maintain a different level of vigilance than FSIS? One consumer advocate told CRS that most recalls of federally inspected products are announced after routine FSIS or plant testing finds instances of bacterial contamination or potential contamination—not necessarily in response to a foodborne illness outbreak. By contrast, she asserted, neither states nor state-inspected plants have done as much testing. A representative of the state agencies, on the other hand, speculated that states tend to hold products until testing is completed and verified, so that contamination may more likely be discovered before a product enters commerce. Appendix. Information Regarding Meat and Poultry Product Recalls Recent Recalls FSIS reported approximately 890 meat and poultry recalls, representing nearly 323 million pounds of products, from January 1, 1994, through December 31, 2009, the period of time examined by CRS. Of the total, approximately three-fourths were Class I recalls, with the remainder either Class II or Class III recalls (CRS calculation based on FSIS recall data). Listeria monocytogenes , usually on various ready-to-eat products, and E. coli O157:H7, almost always involving ground beef, hamburger patties, and other raw cuts of beef, together constitute the majority of reasons for recalls. Measured by volume of products, these two pathogens alone accounted for nearly 80% of the total pounds recalled during the period. More specifically, Listeria concerns were associated with 266 or 30% of all recalls (and by volume, nearly 109 million pounds or 45%) from 1994 through 2009. E. coli O157:H7 concerns were associated with 176 or 20% of all recalls (and a total of nearly 109 million pounds or 34%). Of the total number of recalls, 191 or 21% were a variety of products found to be misbranded, often because they contained an undeclared substance or ingredient. These substances were frequently allergens such as undeclared nuts in a processed product. Another 75 or 9% of all recalls during the period, again of a variety of products, were due to reports of foreign materials—from sharp objects such as glass or metal to potentially less hazardous matter such as pieces of plastic wrap. Another 179 recalls or 20% were from a number of different causes, ranging from processing defects like undercooking to ineligible imports (i.e., from countries or foreign plants not determined to have equivalent safety systems). As Figure A-1 shows, recall volumes have varied significantly from year to year. Years with large overall volumes typically were because just one or two of the total recalls for that year involved a large quantity of products produced by a single company. For example, 25 million pounds, of the total of 28.3 million pounds of recalled products in 1997, can be attributed to a Hudson Foods recall of ground beef products on August 12 of that year due to E. coli O157:H7 contamination. This was one of the eight largest recalls during the period examined (see Table A-3 ). Four of these recalls are discussed following the tables. Recall 005-2008, Beef Products On February 17, 2008, USDA announced that Westland/Hallmark Meat Co. of Chino, California, was recalling 143.4 million pounds of fresh and frozen beef products dating to February 1, 2006. Approximately 50 million pounds were distributed to the school lunch and several other federal nutrition programs in 45 states. This was the largest U.S. meat or poultry recall ever. It came after FSIS found evidence that the establishment had a practice of occasionally allowing the slaughter of cattle that had become nonambulatory after they had been inspected, but before they were slaughtered for human food. FSIS regulations explicitly prohibit nonambulatory ("downer") cattle in human food because they are more likely to have bovine spongiform encephalopathy (BSE, or "mad cow disease"). The recall was so-called Class II, indicating a remote possibility that consumption of the products could cause adverse health effects. (Most large recalls are Class I, with a reasonable probability that the product could cause serious health consequences or death.) USDA stated that most of the recalled beef likely had been consumed, and that schools and other nutrition outlets had been instructed to hold and eventually destroy all remaining products. FSIS had suspended inspection at the plant on February 4, 2008, three days after the plant voluntarily ceased operations pending an investigation of inhumane practices there. These came to light after animal welfare advocates secretly videotaped what they described as employees inhumanely handling downer cattle before slaughter. USDA inspectors reportedly had failed to detect that these animals became nonambulatory after they had received antemortem inspection—causing some to question the effectiveness of recent increased appropriations from Congress for more aggressive enforcement of the federal Humane Methods of Slaughter Act (7 U.S.C.1901 et seq .). The act requires meat establishments to handle and kill livestock using prescribed humane practices. Recall 040-2007, Ground Beef Products On September 25, 2007, FSIS announced that Topps Meat Company, LLC, an Elizabeth, NJ, establishment, was voluntarily recalling approximately 331,582 pounds of frozen ground beef products because they might be contaminated with E. coli O157:H7. On September 29, the recall was expanded to 21.7 million pounds; on October 6, FSIS notified the public that several more product labels (but no additional pounds of products) were being added to the recall. FSIS officials said that this recall case was unusual in that it arose from a patient-reported illness (forwarded on August 31, 2007) thought to be caused by E. coli . The same day, according to FSIS, a field investigator collected a sample of leftover product from the patient's freezer for testing, and the laboratory returned a positive finding of E. coli O157:H7 from that sample on September 7. It took a series of follow-up tests and meetings before FSIS was ready to tie the illness—and other similar illnesses—to the Topps plant, with the recall announced on September 25. By October 6, the Centers for Disease Control (CDC) had cited 32 illnesses that appeared to be related to the recall. According to trade press reports, the initial (September 25) recall covered three days of ground beef production (June 22, July 12, and July 23, 2007). The expansion to 21.7 million pounds covered one year of production (back to September 25, 2006), because the plant was carrying over (reworking) each day's production to the next, rather than processing the ground meat in separate batches, which would create a clean break in production, a critical control stressed by industry experts and FSIS officials. In addition, the plant had not followed its own HACCP plan, according to the reports. More specifically, for example, reports indicated that the plant appeared to be grinding meat that did not carry the necessary documentation showing that it had been tested by the supplier for contamination. At the same time, the FSIS inspector who visited the plant daily (but was not there continuously), did not uncover the problem, either. As of this writing, it is not clear whether the company, which has since ceased operations, had a recall plan in the plant's HACCP plan. Recall 055-2002, Beef Trim and Fresh and Frozen Ground Beef Products On June 30, 2002, FSIS announced that ConAgra Beef Company of Greeley, CO, was voluntarily recalling approximately 354,200 pounds of fresh and frozen ground beef products that may have been contaminated with E. coli O157:H7. On July 19, 2002, FSIS announced that the recall had been expanded to approximately 19 million pounds (later re-estimated to be 18 million pounds) of fresh and frozen ground beef products, along with beef trim. The recall was initiated after at least 46 people in 16 states became ill from contaminated meat, beginning in mid-June 2002. Testing confirmed that many of the illnesses were from the same strain of E. coli that had been found in beef tested at the Greeley plant as early as April 12, 2002 and as late as July 12, 2002. The USDA Office of Inspector General (OIG) report critiqued FSIS's oversight of the recall, characterizing it as "ineffective and inefficient because adequate controls and processes were not in place to timely identify the source (establishment) of the contaminated product or provide reasonable assurance that recovery of the recalled product was maximized or enforcement actions taken, as necessary." OIG noted that only about 3 million pounds of 18 million pounds were recovered. Among problems observed by OIG: "Neither FSIS nor the processing plants involved ... were prepared for the possibility of a recall. Although FSIS encourages all establishments to prepare recall plans, HACCP plans for two of the grinders using ConAgra beef did not address recall procedures. One of these grinders was unable to readily determine from its records which of its customers received the recalled product." Recall 090-2002, Turkey and Chicken Products On October 9, 2002, FSIS announced that Pilgrim's Pride Corporation (Wampler Foods) of Franconia, PA, was recalling 295,000 pounds of fresh and frozen ready-to-eat poultry products due to possible contamination with Listeria monocytogenes . The announcement came after FSIS found that a sample taken from the plant on October 2 had tested positive for Listeria . On October 12, the recall was expanded to approximately 27.4 million pounds of the products, produced between May 1 and October 2, 2002, which Pilgrim's Pride had distributed throughout the country and overseas. Some went to school feeding agencies. Although product samples from various days of production were all negative for the bacteria, environmental sampling in the plant itself matched the strain of Listeria found in the October 9 recalled product, according to FSIS. Operations had been suspended at the plant but resumed on November 14, 2002. This recall was terminated on July 11, 2003, after the reported recovery of more than 5.5 million pounds (much of the rest was likely consumed or discarded by consumers), and FSIS declared it effective. However, OIG found that FSIS's oversight was ineffective, finding "an overwhelming number of significant discrepancies on the agency's effectiveness check forms that call [FSIS's] conclusion into question." Recall 015-1997, Frozen Ground Beef Patties On August 12, 1997, FSIS announced that Hudson Foods of Rogers, AR, was recalling approximately 20,000 pounds of frozen ground beef patties distributed nationwide because the product might be contaminated with E. coli O157:H7. This occurred after several Colorado consumers were reported to have become ill from the bacterium after consuming the Hudson product, and subsequent testing found the same strain in a Hudson patty. The recall was expanded to over 1.2 million pounds on August 15 and reached 25 million pounds by the time it was officially ended on February 9, 1999. The plant that produced the patties in Columbus, NE, was closed. Approximately 10.1 million pounds of beef were eventually recovered. The initial recall was limited to 20,000 pounds even though the plant produced 400,000 pounds per shift—and though meat from one day was being reworked into hamburger being produced on subsequent days, which led to the greatly expanded recall. (This was the same problem that re-emerged 10 years later in the Topps recall.) "The Hudson recall was viewed as an example of the breakdown of the voluntary food recall system. Critics noted that FSIS's lack of recall authority results in dangerous delays when companies such as Hudson question the extent or basis for a recall and wait before acting," Roberts wrote, suggesting it was an argument for mandatory recall authority.

The U.S. Department of Agriculture's (USDA's) Food Safety and Inspection Service (FSIS) has monitored numerous recalls of meat and poultry products sold in the United States. The recalls have involved beef products possibly contaminated with E. coli O157:H7, beef and poultry products possibly contaminated with Salmonella, and canned meat products possibly contaminated by botulism. These recalls raise issues of consumer confidence in the meat industry and questions about the adequacy of the USDA oversight of these products. In February 2008, USDA announced the largest-ever recall, of 143.4 million pounds of fresh and frozen beef products from a California slaughterer-processor. The Class II recall (meaning only a remote possibility of adverse health effects) was in response to evidence that nonambulatory ("downer") cattle had been mistreated and periodically slaughtered for food, in violation of a federal humane slaughter law and of meat safety regulations, respectively. Following these recalls, Congress included in the 2008 farm law (P.L. 110-246) new requirements for establishments to promptly notify USDA about potentially adulterated or mislabeled meat and poultry products and also to develop and maintain plans for conducting a recall. Other recall-related issues for Congress include whether USDA should be given mandatory recall authority; whether notification and/or recall planning rules should be more prescriptive; and whether new recordkeeping and product traceability requirements are needed. Currently, USDA does not have authority to mandate a recall of meat and poultry products. Rather, USDA, through FSIS, monitors food companies' recalls. When FSIS learns of a potential recall, it convenes a recall committee, which makes recommendations based on information such as any pertinent production and distribution data provided by the company. Once the company initiates a recall, FSIS immediately issues a press release to notify the public, posts it on its website, and provides information directly to stakeholders—including Congress, the media, federal, state, and local officials, and constituents—via e-mail and faxes. At the conclusion of the recall, FSIS conducts an effectiveness check to determine whether all appropriate parties were properly notified and all reasonable efforts were made to retrieve, destroy, or return the recalled product to the firm. This report provides an overview of USDA's authority to regulate meat, poultry, and their products. Specifically, it discusses the requirements of USDA inspections and import regulations, as well as USDA's role in product recalls. This report also addresses some of the issues that arise when considering possible changes to recall authority that may be of interest as the 112th Congress may consider related food safety issues. The Appendix of this report provides information regarding recent recalls and the significance of the recall data.

Introduction On March 21, 2012, the Supreme Court resolved a long-simmering issue of federal environmental enforcement. The issue in Sackett v. Environmental Protection Agency involved the "administrative compliance order" (ACO), a device frequently used by the Environmental Protection Agency (EPA) to enforce statutes it administers. The Court held that the Administrative Procedure Act makes available "pre-enforcement review" of ACOs under Section 404 of the Clean Water Act (CWA), which establishes the federal wetlands permitting program. Simply put, recipients of Section 404 ACOs no longer have to wait until the EPA files a civil action to enforce the ACO before they can have jurisdictional objections to the order heard by a court. A second issue in the case, whether a bar on pre-enforcement review of Section 404 ACOs would comport with due process, did not have to be reached by the Court. The importance of this ruling is suggested by the fact that, combining all of EPA's statutes, the agency issues over 1,000 ACOs a year—1,302 in FY2010, for example. The EPA statutes under which the largest number of ACOs are issued each year are the CWA, Safe Drinking Water Act, Superfund Act, and Clean Air Act. As will be discussed, however, the applicability of Sackett beyond CWA Section 404 is an open question. In an ACO, EPA directs the recipient to comply with a specified statutory, regulatory, or permit requirement by a stated deadline, and recites the penalties that noncompliance may entail (the order itself imposes no penalties). It is often described as a quick, flexible enforcement tool that serves as an advance warning allowing the recipient to sit down with EPA to negotiate a reasonable settlement that generally avoids penalties. It is said to be less confrontational, and less expensive for all parties, than EPA's other enforcement options. Under the CWA, Clean Air Act, and Safe Drinking Water Act, those other options are three. First, the agency may assess a civil money penalty —in which case the alleged violator is entitled to be heard and present evidence to the agency, the public is entitled to comment, and any assessed penalty is subject to judicial review. Second, EPA can file a civil enforcement action in federal district court. And third, in limited circumstances the agency can seek criminal penalties in federal district court. For all their advantages, however, ACOs sometimes come with a distinct downside from the recipient's vantage point: for ACOs issued under Section 404, the lower courts had barred pre-enforcement review. Thus, if the recipient disagreed with the facts or legal conclusions on which the ACO is based, he/she/it faced a difficult dilemma. The recipient could do nothing, challenging the order only later when EPA filed an enforcement action in court. If so and the challenge failed, the recipient faced the prospect of large civil penalties—in the case of the CWA, up to $37,500 per day for each violation of the act and an additional $37,500 per day for violating the ACO. Alternatively, the recipient could comply with the order even though disagreeing with it, at sometimes substantial cost, then apply for a permit and challenge any denial thereof (or unacceptable conditions therein) in court. This dilemma—forcing the Section 404 ACO recipient, in the absence of pre-enforcement review, to risk large penalties or incur substantial compliance costs for an ACO the recipient disputes—has long attracted interest in the legal literature and in the lower courts. Very likely, it is also what prompted the Supreme Court to take the Sackett case. And while Sackett concerned ACOs under only Section 404 of the CWA, the implications of the holding for ACOs under other statutes have been lost on no one. Facts and Lower Court Decisions in Sackett Michael and Chantelle Sackett own a 0.63 acre undeveloped lot in Idaho near a lake. In the spring of 2007, they filled in most of the lot with dirt and rock to prepare it for house construction. Months later, EPA issued them an ACO alleging that the parcel was a "jurisdictional wetland"—that is, was within the coverage of CWA Section 404, which requires a permit to fill in wetlands constituting "waters of the United States." The ACO required the Sacketts to remove the fill material and restore the lot to its pre-fill condition, and set out a compliance schedule. The order also encouraged the Sacketts "to engage in informal discussion of the terms and requirements of this Order" and indicated that the order could be amended to provide for alternative methods of complying with the CWA. Finally, it stated that failure to comply with the order could trigger "(1) civil penalties of up to $32,500 per day of violation pursuant to section 309(d) of the [CWA] ... ; (2) administrative penalties of up to $11,000 per day for each violation pursuant to section 309(g) of the [CWA] ... or (3) civil action in federal court for injunctive relief pursuant to section 309(b) of the [CWA]." The Sacketts sought a hearing to challenge the jurisdictional finding, which EPA denied. They then sued in federal district court. Holding that the CWA precludes judicial review of ACOs before EPA has filed an enforcement action in court, the district court dismissed the case. In support, the court noted that all federal circuits to address that question (a total of four), and all district courts to do so ("over ten," the court said), have ruled against pre-enforcement review of CWA ACOs as well. On appeal, the Ninth Circuit affirmed, holding both that the CWA prohibits pre-enforcement review of ACOs, and that the Due Process Clause is not offended thereby. In granting certiorari, the Supreme Court posed a statutory question and a constitutional one: (1) whether pre-enforcement review of the ACO issued against the Sacketts is available under the Administrative Procedure Act (APA), and (2) if not, whether this inability to seek pre-enforcement review violates the Due Process Clause. Widely noted was the fact that while granting certiorari in Sackett , the Court denied a contemporaneous petition for certiorari raising the due process issue in connection with "unilateral administrative orders" under the Superfund Act. Though the Court's certiorari process is famously opaque, one may speculate that the Court's greater receptiveness to the Sackett petition may have stemmed from the opportunity it afforded the Court to resolve the ACO pre-enforcement issue statutorily rather than constitutionally. Some also surmise that the different treatment of the two petitions may have turned on the concerns of the Court's conservative wing as to what it seems to regard as an over-expansive definition of wetlands by the federal agencies that administer CWA Section 404. Supreme Court Decision in Sackett In resisting the ACO, the Sacketts had sued EPA under the APA provision making judicial review available for "final agency action for which there is no other adequate remedy in a court." The Supreme Court's holding was unambiguous and narrow, confined to CWA Section 404: "We conclude that the compliance order in this case is final agency action for which there is no adequate remedy other than APA review, and that the Clean Water Act does not preclude that review." Given this ruling, the Sacketts now may seek judicial review of EPA's jurisdictional determination underlying the ACO and need not await the agency's enforcing the order in a court. The decision shows every sign of having been an easy one for the Court: the questioning at oral argument tilted heavily against EPA's arguments, the decision came down only 10 weeks after oral argument, and most obviously, it was unanimous. The Court gave not even passing mention to the substantial lower-court precedent holding to the contrary of its ruling, other than the Ninth Circuit decision it reversed. The Court needed to resolve three issues to reach its holding, and had little difficulty with any of them. First, it held that the Section 404 ACO against the Sacketts was "final agency action," required by the APA for judicial review under that act. The ACO, said the Court, "has all of the hallmarks of APA finality that our opinions establish." It determines rights and remedies since it imposes a duty on the Sacketts to restore their property, requires them to give EPA access, exposes them to penalties, and limits their ability to obtain a Section 404 permit. Nor was the order's invitation to the Sacketts to "engage in informal discussion" of the order with EPA seen to undermine that finality, since "it confers no entitlement to formal agency review." Second, the Court determined that there is "no other adequate remedy in a court" for a Section 404 ACO, another prerequisite for APA review. EPA argued that there is indeed "adequate remedy in a court"—namely, when EPA enforces the ACO in federal district court. The Court saw it differently, pointing out that the Sacketts have no control over when the civil action is filed, while in the meantime civil penalties accrue at up to $75,000 per day. Nor is applying to the Corps of Engineers for a permit and then suing under the APA if the permit is denied or unacceptably conditioned an "adequate remedy." A remedy for a Corps action is not, said the Court, adequate to remedy an action by EPA, a different agency. Finally, the Court saw nothing in the CWA that precludes judicial review of Section 404 ACOs, the final prerequisite for APA review. Invoking the well-established presumption favoring judicial review of agency action, the Court found EPA's arguments against reviewability based on the structure of the CWA not to overcome this presumption. For example, EPA argued that because the CWA gives EPA the choice between going to court and acting on its own, it would undercut the latter course of action to allow pre-enforcement review by a court. Responded the Court: "[t]here are eminently sound reasons other than insulation from judicial review why compliance orders are useful." Not reached by the Court's opinion in Sackett was the second, constitutional question in the grant of certiorari: whether a bar on pre-enforcement review here satisfies procedural due process. This was unsurprising, since the Court's ruling that pre-enforcement review is available for CWA ACOs made reaching the constitutional question unnecessary. Under the doctrine of constitutional avoidance, courts are particularly resistant to taking on constitutional issues in a case when unnecessary. Even at the oral argument, the constitutional question was barely mentioned. Not reached as well, because not raised by the Sacketts on appeal, is the merits issue. The Sacketts sued because they argue that their property does not, as EPA contends, contain a wetland subject to permitting under CWA Section 404. On remand to the district court, the Sacketts will now be able to press this issue, and nothing in the Supreme Court's decision intimates what the lower court's answer should be. Analysis The wetlands permit requirement that EPA sought to enforce through the ACO against the Sacketts has not been a stranger in the Supreme Court. On no less than three occasions, the Court has grappled with the geographic scope of this program—where federal authority ends and exclusively state authority applies. It is one of the most vexing issues in all of federal environmental law. Though the geographic scope of Section 404 was not directly before the Court in Sackett , one may imagine that if there were a clear definition of the act's reach the Sacketts might not have found cause to bring this suit in the first place. As noted in the preceding section, the Supreme Court decision is hardly the final hurdle for the Sacketts. Should they still wish to build on their property, they must now litigate in district court their claim that their tract contains no jurisdictional wetlands. If the court agrees, they are home free, at least as far as CWA permitting is concerned. Section 404 does not apply. However, if the court finds jurisdictional wetlands on their land, they must then apply to the Corps of Engineers for a Section 404 permit. If that is denied, or granted with conditions unacceptable to the Sacketts, their building prospects will depend on their returning to district court in a new suit, this time against the Corps, arguing that the denial or conditions should be invalidated. The following comments speak to the wider implications of the ruling— EPA's enforcement options . In response to Sackett , EPA will have to decide which of at least three enforcement options to pursue under Section 404, and possibly other statutes involving ACOs. The first, most restrained, option is simply to make sure that ACOs are backed up by an administrative record that makes legal challenge unlikely. Litigation is expensive, and government agencies have the advantage that courts defer to their determinations. Thus, a full record supporting an ACO may hold challenges by recipients of such orders to a small number. Of course, under this option, EPA faces a trade-off between preparation of full administrative records and the number and timeliness of ACOs it can issue. For this reason, commentators have predicted that after Sackett , EPA will issue fewer ACOs, perhaps concentrating them on the most egregious violators. A second option is that the agency could forego compliance orders in some instances and proceed directly to civil enforcement actions in court seeking money penalties. This would reduce opportunities for negotiating with the recipient, who, under ACOs, typically does not wind up paying penalties. Because it also would require a greater commitment of government enforcement resources, this option is unlikely to be a major response to Sackett . The third option might be increased EPA use of noncompliance letters, sometimes called notices of violation. These inform recipients of a suspected violation, instruct on how to come into compliance, and invite negotiations. In sharp contrast with ACOs, however, they have no direct legal consequences. In particular, no penalties attach to failing to heed the letter, only to violating the underlying statute. Not being the consummation of the agency's decision-making process nor determining any rights or obligations, a noncompliance letter of this kind would not likely be deemed "final agency action" under the APA and thus entitled to review. At the same time, a prudent landowner notified by letter that he is believed by EPA to be violating a statute with potentially large daily fines arguably would be inclined to contact the agency, as under an ACO, and determine what corrective behaviors would satisfy EPA. Breadth of application . The significance of Sackett turns to some extent on how widely it is applied by the lower courts, given the opinion's narrow language confined to CWA Section 404. The number of Section 404 ACOs issued by EPA during any given year is but a small fraction of the total number issued by the agency (in FY2011, they constituted 97 out of 1,324). And reportedly, a very large fraction of the Section 404 ACOs are negotiated with the agency to a mutually acceptable solution (though this fraction may drop as ACO recipients, after Sackett , consider litigation options). Thus, the legacy of Sackett will be greater if the decision is viewed by lower courts as applying elsewhere in the CWA outside Section 404, and outside the CWA entirely. No glib prediction can be made as to this extra-section-404 application, since every statute varies. While most of EPA's regulatory statutes grant authority to issue ACOs, a preliminary survey reveals that in at least some instances, the courts already have ruled (or assumed) that pre-enforcement review is available. Two examples are Safe Drinking Water Act emergency orders and Clean Air Act compliance orders. As well, some statutes come replete with their own internal directive that a "final action" by EPA is reviewable, obviating resort to the more complex APA standard at issue in Sackett . Contrariwise, the Superfund Act expressly states that pre-enforcement review of orders is not available, teeing up the constitutionality argument left unaddressed by Sackett . Parenthetically, there may be a question as to Sackett 's applicability even within the Section 404 program. In a solo concurrence, Justice Ginsburg states her understanding that the Court's opinion speaks only to pre-enforcement challenges to EPA determinations whether a given property contains covered wetlands, not to the terms of the compliance order. Joint EPA-Corps of Engineers responsibility under Section 404 . Within the Section 404 permitting program, it may be speculated whether changes will be made after Sackett in the current divvying up of enforcement responsibilities between EPA and the Corps of Engineers. Under a 1989 memorandum of agreement between the two agencies, EPA generally has responsibility for Section 404 enforcement where, as in Sackett , the landowner fails to apply for a permit—so-called "unpermitted discharges." The Corps, by contrast, issues Section 404 permits and enforces against noncompliance with permit terms—that is, "permit violations." Reviewability of Corps jurisdictional determinations. Sackett should be contrasted with current case law denying judicial reviewability for Corps of Engineers formal jurisdictional determinations. Such determinations may be made by Corps district offices at the request of those contemplating a project on their land and unclear as to whether a Corps permitting authority such as CWA Section 404 applies. They are separate from and prior to the permit application process. Corps regulations declare that these jurisdictional determinations "shall constitute a Corps final agency action," suggesting reviewability under the APA. However, the Corps' characterization as final is not binding on courts, which uniformly have held that Corps regulations notwithstanding, the agency's formal jurisdictional determinations are not final agency action entitled to review. It seems unlikely, though not unthinkable, that Sackett would be deemed to undermine this line of case authority. Sackett , in finding finality, focused on the fact that ACOs are the consummation of the agency's decision-making process and fix rights and obligations. While a Corps formal jurisdictional determination arguably fixes obligations—the landowner must apply for a permit if the landowner elects to proceed with the project—it is not easily characterized as the consummation of the agency's decision-making process. Still, in the wake of Sackett one may expect efforts by landowners to reopen the question of the reviewability of Corps jurisdictional determinations. Conclusion In sum, Sackett is unlikely to be the last word in the ancient debate over when pre-enforcement review of ACOs is or should be available. There are legitimate interests of both government agency and order recipient to be balanced. One may expect future developments on both the judicial and administrative fronts, wrestling with, among other issues, the precedential reach of the Court's decision. Congress, for its part, may wish to devote renewed attention to the concern expressed by the Court in Sackett as to the vagueness of current criteria for determining when a wetland is jurisdictional, leaving interested parties, as the Court put it, "to feel their way on a case-by-case basis."

On March 21, 2012, the Supreme Court resolved a long-simmering issue of federal environmental enforcement. The issue in Sackett v. Environmental Protection Agency involved the "administrative compliance order" (ACO), frequently used by the Environmental Protection Agency (EPA) to enforce statutes it administers. The Court held that the Administrative Procedure Act makes available "pre-enforcement review" of ACOs under Section 404 of the Clean Water Act (CWA), which establishes the federal wetlands permitting program. Recipients of Section 404 ACOs no longer have to wait, while penalties accrue, until EPA files an action to enforce the ACO before they can have jurisdictional objections to the order heard by a court. In an ACO, EPA directs the recipient to comply with a statutory, regulatory, or permit requirement and recites the penalties that noncompliance may entail should EPA file an enforcement action in court. ACOs are often described as a quick, flexible enforcement tool that serves as an advance warning allowing the recipient to sit down with EPA to negotiate a reasonable settlement that generally avoids penalties. From the recipient's vantage point, however, there is a distinct downside: for ACOs issued under CWA Section 404, the lower courts had barred pre-enforcement review. Thus, if the recipient disagreed with the facts or legal conclusions on which the ACO was based, the recipient faced a dilemma. The recipient could do nothing, challenging the order only later when EPA brought an enforcement action. If so and the challenge failed, the recipient faced the prospect of large civil penalties—up to $75,000 per day. Or, the recipient could comply with the order at sometimes substantial cost, even though disagreeing with it, then apply for a permit later and challenge any denial thereof. This was the dilemma faced by the petitioners in Sackett. The Sacketts filled in a lot to prepare it for house construction. EPA then claimed they should have first obtained a wetlands fill permit and so issued an ACO ordering them to restore the lot to its pre-fill condition, even if they intended at some point to apply for a permit. EPA denied the Sacketts' request for a hearing as to whether their land was a wetland covered by the CWA. The couple then sued, but the lower courts found that pre-enforcement review of ACOs issued under Section 404 was unavailable. The Supreme Court reversed unanimously, holding as described above. Though the Sackett decision was written narrowly to apply only to ACOs under CWA Section 404, it has wider implications. First and most importantly, it may serve as precedent for establishing the availability of pre-enforcement review under other CWA sections, or outside the CWA entirely. Second, EPA would seem to have at least three enforcement options following Sackett. It may simply prepare fuller administrative records supporting each jurisdictional determination, a course involving a trade-off between ensuring the defensibility of its ACOs and the number of ACOs it can issue. Or it might forego ACOs occasionally and proceed directly to civil enforcement actions seeking money penalties, an option offering less opportunity for landowners to sit down and negotiate with the agency, avoiding penalties in many cases. Or EPA could turn increasingly to sending out nonbinding noncompliance letters. Unlike an ACO, these would have no direct legal consequences and thus likely would be deemed unreviewable. Third, Sackett might lead to a reappraisal of the current allocation of Section 404 enforcement responsibility between EPA and the Corps of Engineers. And finally, it may prompt litigation efforts to reverse current case law under which jurisdictional determinations by the Corps under Section 404 are deemed nonfinal, hence unreviewable in the courts.

Introduction The 1995 Dayton Peace Accords, brokered primarily by the United States, ended three yearsof war in Bosnia and Herzegovina, which had cost hundreds of thousands of lives and created over2 million refugees and displaced persons. Under the Dayton Peace Accords, Bosnia-Herzegovinaremains an internationally recognized state within its pre-war borders. Internally, it consists of twosemi-autonomous "entities:" the (largely Bosniak and Croat) Federation of Bosnia-Herzegovina andthe (Bosnian Serb-dominated) Republika Srpska (RS). Under the accords, the Bosnian Federationreceived roughly 51% of the territory of Bosnia-Herzegovina, while the Republika Srpska receivedabout 49%. Each of the entities has its own parliament and government with wide-ranging powers, as well as its own armed forces. Each entity may establish "special parallel relationshipswith neighboring states consistent with the sovereignty and territorial integrity" ofBosnia-Herzegovina. Most powers are vested in the entities; the central government hasresponsibility for foreign policy, foreign trade and customs policy, monetary policy and a few otherareas. Central government decisions are nominally taken by a majority, but any of the three mainethnic groups can block any decision if it views it as against its vital interests. The Federation isfurther divided into ten cantons, each of which has control of policy in key areas such as policing andeducation. The Dayton Peace Accords also resulted in the deployment of a NATO-led peacekeepingforce which has been charged with providing a secure environment for the implementation of thepeace agreement. A U.N.-appointed High Representative, created by the Dayton accords, overseesthe civilian peace implementation efforts. Since 1997, this official has had the power to fire and takeother actions against local leaders and parties as well as to impose legislation in order to implementthe peace agreement and more generally bring unity and reform to Bosnia. The current holder of thispost is Paddy Ashdown of Great Britain. Ashdown also holds the post of the European Union'sSpecial Representative in Bosnia. (1) Figure 1. Map of Bosnia and Herzegovina In the more than nine years since the accords, the United States and other countries havescored significant achievements in Bosnia, including sharply reduced inter-ethnic violence, restoredfreedom of movement, and the return of many refugees and displaced persons to their homes. Theinternational community has also helped Bosnia hold largely free and fair elections and set up manyof the institutions of a modern democratic state. However, these successes in some areas have notadded up to the accomplishment of the overall goal of international efforts in Bosnia: the creationof a stable, united Bosnia, able to continue reforms on its own and integrate with Euro-Atlanticinstitutions. Almost all progress on reforms and on promoting greater unity in Bosnia continues torequire direct or indirect intervention by Ashdown and other representatives of the internationalcommunity. Reform efforts continue to be met by obstructionism or passivity by the nationalistparties which control Bosnian governments at all levels. Some observers also assert that thecumbersome institutions set up by the Dayton Peace Accords are unworkable. According to critics of current international policy on Bosnia, international interventionismhas led to dependency and irresponsibility among local elites. This problem is all the more seriousas the international commitment to Bosnia in troops and funding has decreased in recent years. Inaddition, the infringement of Bosnia's sovereignty represented by Office of the High Representative(OHR) may also prove to be an obstacle in the country's path toward European integration, accordingto some observers. Critics ask how a country lacking all the attributes of sovereignty can hope tojoin NATO or the EU one day, or, in the near term, participate meaningfully in such programs asNATO's Partnership for Peace program. They wonder if Bosnia can or should continue to operateindefinitely as a ward of the international community, as the rest of the region moves, howeverslowly in some cases, toward European integration. Another important issue is whether Bosnia is still important to U.S. interests, particularlygiven perhaps more pressing U.S. commitments in other countries and regions. The United Stateshas invested substantial sums to stabilize Bosnia. From FY1991 through FY2004, the United Statesspent over $13.6 billion in incremental military costs in Bosnia, mainly for the U.S. peacekeepingcontingent. (2) U.S. aid toBosnia over the same period amounted to more than $1.5 billion. (3) Some observers believe thatthe European Union is now capable of dealing with Bosnia's remaining problems on its own. Indeed,the EU already provides the bulk of financial aid and political guidance to Bosnia, and took over themilitary mission there from NATO in December 2004. However, many observers believe that theUnited States still has a stake in Bosnia's stability, as part of building a Europe "whole and free," theoverarching U.S. objective in the region. Continued U.S. involvement in Bosnia may be needed toarrest indicted war criminals, as well as to make sure that Bosnia is not used as a haven for organizedcrime or terrorists. Successes and Remaining Challenges Bosnia has achieved progress on some issues since 1995, but continues to fall short in manyothers. One relative success story has been the restoration of freedom of movement within Bosniaand the gradual return of refugees to their homes. According to the U.N. High Commissioner forRefugees (UNHCR), by October 2004, over 1 million of the 2.2 million refugees and displacedpersons had returned to their homes, including over 447,000 who returned to areas in which they arean ethnic minority. Over 92 percent of the legal claims of persons wanting to have their homesreturned to them have been resolved. (4) While ethnic relations are sometimes tense, and some acts of violence do occur, the mainobstacle to refugee returns is economic. The war often had the effect of destroying local industries,along with the jobs that made communities viable. Many returnees are elderly. Many young peoplewant to leave Bosnia for better opportunities elsewhere, up to two-thirds of them, according to somepolls. (5) At the end of2003, OHR handed over responsibility for refugee issues to the Bosnian human rights and minoritiesministry. A key focus of international efforts in Bosnia is to strengthen the rule of law. The rule of lawis particularly important in order to break down the parallel structures connecting nationalist politicalparties, certain enterprises and organized crime. Widespread corruption also retards economicdevelopment. According to an opinion poll commissioned by Transparency International, Bosniansview corruption as the second most serious problem the country faces, after unemployment. (6) High Representative Ashdown has undertaken several steps to promote the rule of law inBosnia. He pushed through a new criminal code and a criminal procedure code in 2003, and put intoplace a High Judicial and Prosecutorial Council (HJPC) which has vetted Bosnia's judges andprosecutors for integrity and professional competence, with ethnic representation proportionate tothe 1991 pre-war Bosnian census. The HJPC is also responsible for disciplinary actions as well asfor appointing new judges and prosecutors. Ashdown also forced the creation of the Bosnian StateCourt, with special panels dealing with organized crime. This court has both Bosnian andinternational judges and prosecutors. Until January 2003, police training was conducted by a U.N. police mission in Bosnia. Themission vetted policemen for their professional qualifications and participation in war crimes orillegal activity. An EU police mission, which replaced the UN mission, is continuing the advisoryand training functions of the U.N. mission. Ashdown successfully pushed for the establishment ofnew central government law enforcement institutions, including a Ministry of Justice, a Ministry ofSecurity, and a State Information and Protection Agency (SIPA), charged with dealing with issuessuch as money laundering and organized crime, as well as terrorism. In December 2004, a PoliceRestructuring Commission, composed of Bosnian and international officials, issued a report callingfor Bosnian central government institutions to take over responsibility for all police matters. Ashdown has also called for the elimination of entity Interior Ministries. Such proposals, ifimplemented, would mark a dramatic blow to the power of the entities within Bosnia, which hadpreviously controlled most police functions, and have been strongly resisted by Bosnian Serb leaders. However, it should be noted the implementation of these reforms has been slow. Theseinstitutions often do not function effectively, as they lack resources and sufficient staffing. However,there have been a few successes in the area of rule of law. Courts in both entities have prosecutedseveral cases against organized crime figures. In March 2004, the Bosnian State Court handed downa guilty verdict in Bosnia's biggest human trafficking case. Another area key to Bosnia's future stability is economic reform and poverty reduction. Hereagain, the situation is mixed. The International Monetary Fund has praised Bosnia for its successin establishing macroeconomic stability, including low inflation and a stable currency, due to acurrency board system that pegs the konvertibilna marka (KM) to the Euro. International officialshave pushed through laws to establish an Indirect Taxation Authority and a value added tax inBosnia. Rationalizing Bosnia's tax system is necessary in order to stimulate economic growth, aswell as to provide resources for Bosnia's underfunded central government institutions, as well as toassist Bosnia's EU integration. The international community is pressing Bosnian leaders to cut backthe size and expense of entity and lower level governments, as the central government's rule isstrengthened. However, severe economic problems remain. Bosnia is one of the poorest countries inEurope, with Gross Domestic Product (GDP) about 60% of the pre-war level. About half of thepopulation lives close to or below the poverty line. (7) According to some experts, Bosnia's economy may be on the vergeof crisis. Many of Bosnia's main pre-war industries, including military industries, have collapsed,and new businesses to replace these lost jobs have not materialized. According to this view, asubstantial part of the economy is dependent on government spending on oversized governmentbureaucracies (in part a legacy of the complicated government structures created by the DaytonPeace Accords) as well as residual international funding. Government spending accounts for over50% of the country's GDP. (8) Efforts to stimulate the economy to produce jobs and foreign investment have only beenpartially successful. Ashdown established a "Bulldozer Committee" composed of OHR officials andBosnian businessmen to develop specific proposals to cut through red tape and take other steps toimprove the business climate in Bosnia. Nevertheless, Bosnia still lacks many elements of a suitablelegal framework to encourage domestic and international investors. Moreover, the privatizationprocess, which is in the hands of the entity governments, remains slow and plagued by endemicadministrative and legal shortcomings, according to the international officials. Foreign directinvestment (FDI) is increasing, in part due to Ashdown's efforts, but from a very low base. FDImade up only 5% of GDP in 2003, one of the lowest percentages in the region. (9) Prospects for Stability and Self-Sustaining Reforms A major concern for international policymakers is the long-term impact on Bosnia ofdeclining international attention and resources. As noted above, most of the modest reformsuccesses in Bosnia have been initiated and pushed forward by the international community. International aid has played an important role in keeping the economy afloat. The nationalist partiesin power have often reacted passively on reform issues, or even engaged in overt or covertobstructionism. Local leaders often concentrate on political maneuvering and securing resources forpolitical patronage. Efforts to promote Bosnia's unity through the strengthening of state-levelinstitutions have also met with indifference or opposition. Under international pressure, newinstitutions have proliferated, often without the funding or staffing to make them effective. Analysts have therefore expressed concern about the sustainability of Bosnia's reforms andthe country's long-term unity. According to some analysts, part of the problem is due to theshortcomings of the Dayton constitution. They say the governing structures set up by Dayton are toocomplex, with too many layers of government that are too expensive and not accountable to thepeople. Various proposals have been made for simplifying the structure, including eliminating theentities to create a unitary state, or a system of cantons within a more conventional federation. (10) Another problem is that while Bosniaks overwhelmingly favor a united Bosnia, Serbs, andto a lesser extent Croats, do not. For example, a State Department-sponsored opinion poll in theRepublika Srpska (RS) in 2003 found that 69% favored RS independence from Bosnia. Another pollfrom the same source found that former Bosnian Serb leader and indicted war criminal RadovanKaradzic is the most popular politician in the RS. On the other hand, 55% of Bosnian Serbs expectthat, notwithstanding their wishes, Bosnia will remain a single state. The poll found that 41% ofBosnian Croats favor remaining part of Bosnia, while 54% favor independence or union withCroatia. Interestingly, Bosnian Croat support for Bosnia has sharply increased since 1999, at thesame time as Croatian governments have publicly renounced territorial claims on Bosnia. (11) Ashdown and previous High Representatives have tried to exhort local leaders to take"ownership" of reforms, without much success. The international community also tried to influencethe domestic political scene by helping non-nationalist parties win elections and form governmentcoalitions. However, these efforts were not very successful, due to the heterogeneity of the coalitionsand the continued popularity of nationalist groups, which successfully play on the fears of peopleand still have effective patronage networks. After the victory of the three major nationalist parties in the October 2002 general elections,Ashdown has tried to work with the new nationalist leaders on reform issues, but has also jumpedinto the middle of the Bosnian political system himself, campaigning under the slogan "Jobs andJustice." He has intervened actively in the making of laws and continues to fire and take otheractions against obstructionist politicians and parties. His moves have angered Bosnian leaders attimes, but there has been little public protest against his actions. Indeed, an October 2003 StateDepartment-sponsored opinion poll indicated little public awareness of the "Jobs and Justice"program. According to the same poll, Ashdown is supported by two-thirds of Bosniaks, but isopposed by two-thirds of Bosnian Croats and 94% of Serbs. (12) Bosnian critics of Ashdown charge that he has neglected the non-nationalist opposition,which could have been his natural allies. Now, they charge, he is at a political dead-end -- partneredwith ruling nationalist elites with little interest in reform, and an opposition too weak anddisenchanted to serve as a viable alternative. (13) Ashdown has replied that he has had to work with whomeverthe Bosnian people elect as their leaders. Some analysts support Ashdown's actions, saying thathowever paradoxical it may seem, interventionism is needed in the short term to provide the basisfor a self-sustaining Bosnia. (14) On the other hand, other experts are concerned that localinstitutions cannot develop as long as OHR continues its active, and some critics say undemocratic,intervention in Bosnian affairs. They suggest that the development of responsible democratic localinstitutions should take priority, and that OHR's use of its powers should be more limited and moreaccountable to the Bosnian people. (15) Possibly acting in the international community's favor in the long run is the slowly increasingrealization of Bosnian politicians that it is in their own interest to promote Bosnia's integration intothe European Union. The 2003 EU summit in Thessaloniki, Greece, held out the prospect of Bosniaand other countries in the region joining the EU when they are ready. The problem with possible EUmembership as a motivating factor is that it may be too distant to have as powerful an effect as it hashad in Central Europe. As of early 2005, Bosnia continued to fall short in implementing the 16measures set by an EU feasibility study before it can begin negotiations on a Stabilization andAssociation agreement, a first step in the long road to EU membership. Bosnia's central governmenthas set a goal of EU membership by 2009, although most observers view this goal as unrealistic atpresent. What would be the impact of reduced international intervention in Bosnia's political systemand a decrease in economic assistance, particularly if reforms are slowed as a result? It appearsunlikely that the situation could explode into conflict again in the near future, perhaps mostimportantly because the geopolitical situation in the region has changed. Bosnia's civil war was inpart the playing out of the designs of nationalist leaders in Croatia and Serbia on Bosnian territory. According to a State Department sponsored opinion poll, about a third to slightly less than one-halfof the three main ethnic groups believes that a return to fighting could occur within the next fewyears. Only about one-tenth are "very concerned" about such an outcome. (16) The downfall of nationalist regimes in Serbia and Croatia in 2000 reduced concerns abouta partition of Bosnia, as new democratic regimes in both countries put domestic reforms andimproving relations with the West over past nationalist projects to redraw borders. The comebackof the nationalist HDZ party in Croatia and nationalist forces in Serbia in 2003 have caused someconcern. However, the HDZ government has shown no interest in carving up Bosnia again, knowingthat to do so would put an end to achieving its main foreign policy goal, joining Euro-Atlanticinstitutions. Similar views are held by leaders in Serbia, although some voices have raised thepossibility of a partition of Bosnia if Kosovo is permitted to become independent from Serbia. TheSerbian political scene remains unsettled, and a victory by the ultranationalist Radical Party in futureelections could conceivably pose a danger to Bosnia's future. On the other hand, even if a poor, disunited, unreformed Bosnia could be nominally stable,it still might also present problems. The weakness of its institutions could provide an environmentconducive to organized crime activities such as trafficking in weapons, drugs and persons, as wellas the operations of terrorist groups, which could threaten U.S. and European interests. U.S. Policy Issues SFOR and Partnership for Peace Due in part to the improving security situation in Bosnia and the need to shift troops to thewar on terrorism and other responsibilities, the NATO-led SFOR has undergone deep reductions inrecent years. In December 2004, The European Union took over peacekeeping duties. The EU force(EUFOR) of about 7,000 troops uses NATO's planning capabilities and other assets, under what isknown as the "Berlin Plus" formula. Fewer than 200 U.S. military personnel remain in Bosnia aspart of a small NATO contingent to assist Bosnian defense reform, search for indicted war criminals,and fight terrorism. It is unclear whether the EU successor force will have the credibility that SFOR enjoyedpartly due to the U.S. presence. Bosniaks in particular have viewed the United States as their bestally among leading Western nations, dating back to the perceived U.S. role in helping to put an endto the war by permitting the Bosniaks to arm themselves. In contrast, European countries are viewedless favorably, in part due to the perceived failures of the European-led U.N. Protection Force(UNPROFOR) during the war. Some observers claim that many European troops in KFOR weremuch less effective than U.S. troops during the March 2004 riots in Kosovo, due at least in part tothe restrictive rules of engagement they had received from their governments. (17) An important focus of U.S. and international efforts in Bosnia is to promote defense reformsthat will permit Bosnia to join NATO's Partnership for Peace (PFP) program. Bosnia and Serbia andMontenegro are the only two European countries that are not members of PFP. SFOR, OHR andWestern governments have pressed Bosnia to undertake defense reforms that will permit Bosnia tobe admitted as a PFP member. These reforms include the unification of Bosnia's two armies undera single command structure, including a Minister of Defense and Chief of Staff. The army wouldnot be unified at lower levels, however. It would eventually comprise three 4,000-man brigades. One brigade would be Bosniak, another would be Serb, and the third Croat. (18) The supreme commandof this force would be held by Bosnia's collective presidency, which also is composed of oneBosniak, one Serb and one Croat. The Bosnian parliament has passed the legislation needed to create the new commandstructure. It approved a new defense minister in March 2004, after two previous BosnianSerb-nominated candidates for Defense Minister were rejected by Ashdown due to their questionableconduct during the war. Reforms that are needed include staffing state-level defense institutionswith qualified personnel, providing these institutions with adequate funding and premises, andeliminating the entity Defense Ministries. (19) War Crimes and Cooperation with the ICTY The most important factor hindering Bosnia's membership in PFP and opening talks on aStabilization and Association agreement with the EU is Bosnia's lack of cooperation with theInternational Criminal Tribunal for the former Yugoslavia (ICTY). An important focus of currentU.S. and international efforts in Bosnia is to apprehend indicted war crimes suspects and transferthem to the ICTY, particularly former Bosnian Serb leader Radovan Karadzic and former army chiefRatko Mladic. The Bosnian government and the two entity governments are required by the DaytonPeace Agreement to fully cooperate with the ICTY. According to ICTY chief prosecutor Carla DelPonte, the Federation has largely cooperated with the ICTY, but the RS has not. RS officials havenot arrested a single war criminal indicted by the ICTY since the peace accords were signed. (20) Indeed, some of them haveallegedly assisted indictees to evade capture. Therefore, the transfer of war criminals thought to behiding in the RS to the ICTY has been left almost entirely to voluntary surrenders of suspects, as wellas action by international peacekeepers and agents of Western governments. The United States and its allies are motivated in their search for war criminals by a desire forjustice as well as a belief that the arrest and transfer of these two men and other war criminals woulddeal a serious blow to those forces obstructing reforms in Bosnia. According to press reports, bothMladic and Karadzic move within Bosnia and between Bosnia and Serbia and Montenegro. BothEUFOR and the remaining NATO presence in Bosnia participate in developing intelligence for thepossible seizure of war crimes suspects, although the actual seizures themselves, if they occurred,would likely be carried out by specially-trained teams based outside of Bosnia. High Representative Ashdown has tried to weaken the support network for the war criminals. He has removed many RS officials from their posts, including high-ranking Bosnian Serb policeofficers, and Mirko Sarovic, a senior official of the Serbian Democratic Party, formerly headed byKaradzic and now a ruling party in the Republika Srpska. Ashdown has frozen the assets of theseand other persons suspected of helping war criminals, as has the European Union. The United Stateshas also added these people to a list of persons who are barred entry into the United States and whoseU.S. assets are frozen. In April 2004, Ashdown blocked state funding to the nationalist SerbianDemocratic Party (SDS), charging that the SDS had helped to finance Karadzic's efforts to avoidarrest. Skeptics have noted that most SDS funding does not come from the state, but fromstate-owned firms run by SDS supporters. (21) In December 2004, in a further move to punish the Republika Srpska for its non-complianceon war crimes issues, Ashdown removed nine Bosnian Serb officials of the State Border Service, theIntelligence and Security Service, and the RS Interior Ministry. Ashdown also announced plans toabolish entity Interior and Defense Ministries by fall 2005, leaving only central governmentministries for these functions. Ashdown warned that he will take further steps against the assets andinstitutions of the RS if Bosnian Serb leaders continued to block Bosnia's PFP membership by failingto cooperation with the ICTY. In taking such moves, Ashdown also may be using RS war crimesnon-compliance to weaken the RS and the whole system of ethnically-based entities set up by theDayton Accords, which some observers see as a key stumbling block to reform and Euro-Atlanticintegration. The United States also introduced measures in December 2004 to punish the RS fornon-cooperation with the ICTY, freezing all SDS assets in the United States and imposing a visa banon all members of the SDS and the Party for Democratic Progress (PDP), a key member of the RSgovernment. A number of high level Bosnian Serb leaders in the RS and the Bosnian centralgovernment resigned their posts in protest. The United States has offered a $5 million reward to anyone providing information leadingto the capture of Karadzic or Mladic. Del Ponte claimed that Karadzic had narrowly escaped captureduring an SFOR raid in the Bosnian Serb city of Pale in February 2004. Subsequent SFOR raidshave failed to capture Karadzic, including a raid in April 2004 that resulted in severe injuries to aSerbian Orthodox priest and his son. International critics of SFOR say that it has failed to developmuch useful intelligence on the whereabouts of war criminals and does not coordinate sufficientlywith the ICTY and other international organizations in Bosnia. (22) In addition to pursuing Karadzic and Mladic, the United States and the internationalcommunity have promoted efforts to have war criminals tried by local courts. This policy is part ofthe international "completion strategy" for the ICTY, adopted in U.N. Security Council Resolution1503 in August 2003. The resolution calls for the ICTY to complete its investigations by 2004, itstrials by 2008, and all appeals by 2010. In October 2003, international donors held a conference on the establishment of a war crimeschamber in the state court of Bosnia and Herzegovina. The United States contributed $5 million andsaid it would contribute an additional $5 million in 2004. However, it is unclear how effective thenew court will be. Bosnian courts have tried a few war crimes cases so far, but have been criticizedfor long delays, insufficient protection for witnesses, and ethnic bias. Recognizing this fact, thecourt will have international judges and prosecutors working with their Bosnian counterparts for thefirst few years, similar to Bosnian courts currently charged with prosecuting high-profile organizedcrime cases. However, the court will have to depend on local police forces to assist its work. Domestic war crimes prosecutions will also depend on Ashdown's efforts to improve Bosnia'sjudicial system, including by dismissing corrupt and ineffective prosecutors and judges, as well asimposing tougher criminal laws. Terrorism Since the September 11, 2001 terrorist attacks, the main focus of U.S. foreign policy has beenthe war on terrorism. Terrorism has also become an important focus of U.S. policy toward Bosnia,which has been a haven for Al Qaeda and other terrorist groups, although it has not played asimportant a role in this regard as other European countries such as Spain, Germany and Britain. Oneway in which Bosnia is different from other countries in Europe is the role of several thousandIslamic fundamentalist fighters during the 1992-1995 war in Bosnia. Most left Bosnia at U.S.insistence after the deployment of the NATO-led peacekeeping force in December 1995. However,a few stayed and became Bosnian citizens by marrying Bosnian women. Perhaps more troublesomehave been Al Qaeda ties among some Islamic charities and humanitarian organizations thatproliferated during and after the war. Al Qaeda used a few of them for planning attacks in Bosniaand elsewhere. Some Al Qaeda operatives in Bosnia reportedly have had connections to membersof Bosnia's intelligence service, another legacy of Bosniak wartime cooperation with Islamicmilitants. In 2003, six former Federation officials were investigated for their role in helping toestablish a terrorist training camp in Bosnia with Iran's help during the mid-1990s. (23) The issue of terrorism has been politicized in Bosnia to some extent, as each ethnic grouphas used the label "terrorist" to define its adversaries. Some Bosnian Serb officials have alleged thatBosniaks were harboring Islamic terrorists. However, it should be stressed that Bosnian oppositionto terrorism has been remarkably broad, despite the still-deep ethnic divide in the country. TheUnited States enjoys a strong reservoir of support in Bosnia, especially among Bosniaks, for bringingpeace to the country and providing post-war aid. In addition, Bosniaks are known in the Muslimworld as particularly secular and European in outlook. This has often caused friction betweenforeign Islamic extremists and many ordinary Bosniaks. Efforts by foreign Islamists to recruit Bosniaks into their organizations have met with limited success. Some Bosniaks also fear that theterrorists will give Bosnia a bad name in Europe, thereby hindering their ability to travel there, andsetting back Bosnian efforts to join European institutions in the long run. (24) In general, the Bosnian constitution gives domestic powers to fight terrorism to the entities,while the central government deals with international efforts to fight terror. Bosnian efforts to fightterrorism are hampered by the weakness and inefficiency of its government institutions, which havecreated an environment in which crime and corruption have flourished. One example of this corruptenvironment was the 2002 sale of arms from Bosnia to Saddam Hussein's Iraq. Ashdown's efforts to strengthen state-level institutions and the rule of law may increase theeffectiveness of Bosnia's fight against terrorism. With help from the EU and United States, Bosniahas deployed a State Border Service throughout virtually all of the country's territory. Ashdown isalso pushing for implementation of legislation to increase the effectiveness of the State Informationand Protection Agency, which is charged with combating terrorism, organized crime, trafficking andsmuggling of weapons of mass destruction. However, as with other issues, Ashdown's efforts havebeen slowed by local politicians opposed to an increase in central government power. The 2003State Department report on Patterns of Global Terrorism said that Bosnia's commitment to the fightagainst terrorism has slowed since the victory of nationalist forces in Bosnia's October 2002elections. On the other hand, the report notes that the Federation Financial Police has continued toshut down NGOs and bank accounts linked to terrorists. (25) The presence of SFOR and other international officials on Bosnia's territory has also helpedin the fight against terrorism. NATO troops and intelligence services can work with their Bosniancounterparts and independently track down and arrest suspected terrorists. The powerful influenceexercised by international officials in Bosnia gives the United States more freedom to arrest anddeport terrorists than in many other countries, which might object on civil liberties or other grounds. However, the delivery of five suspected terrorists in January 2002 by the Bosnian government toSFOR was criticized by some Bosnian legal experts as a violation of the rule of law. After SFOR'swithdrawal in December 2004, a NATO headquarters in Bosnia continues to play a role inanti-terrorist efforts in Bosnia, as does the EU successor force to SFOR. U.S. Aid U.S. aid to Bosnia has declined gradually in recent years, after an initial post-war surge todeal with urgent humanitarian and reconstruction needs. The United States is the largest bilateraldonor to Bosnia, although the European Union and the World Bank are the largest donors overall. U.S. aid has shifted to programs to help Bosnia develop democratic institutions and a free marketeconomy. From Bosnia's independence in 1992 through FY2002, the United States provided $1.56billion in aid. The United States provided $44.7 million in aid for Bosnia under the SEED programin FY2004, and an estimated $41 million for FY2005. The Administration has requested $40 millionin SEED funding for Bosnia in FY2006. U.S. aid programs focus on such issues as strengtheningthe country's legal system, supporting small and medium-sized businesses, and making refugeereturns sustainable, through infrastructure repair, strengthening utility companies and helpingrefugees become economically more self-sufficient. (26)

The 1995 Dayton Peace Accords, brokered primarily by the United States, ended the war inBosnia, which had cost hundreds of thousands of lives and created over 2 million refugees anddisplaced persons. The Dayton Peace Accords also set up Bosnia's current political structure of twosemi-autonomous, ethnically-based "entities" and a relatively weak central government. It resultedin the deployment of a NATO-led peacekeeping force, which was charged with providing a secureenvironment for the implementation of the peace agreement. In December 2004, a European Unionforce took over peacekeeping duties from NATO. A U.N.-appointed High Representative, createdby the Dayton Accords, oversees the civilian implementation efforts. In the more than nine years since the accords, the United States and other countries havescored significant achievements in Bosnia, including sharply reduced inter-ethnic violence, restoredfreedom of movement, and the return of many refugees and displaced persons to their homes. Theinternational community has also helped Bosnia hold largely free and fair elections and set up manyof the institutions of a modern democratic state. However, these individual successes have notadded up to the accomplishment of the overall goal of international efforts in Bosnia: the creationof a stable, united Bosnia, able to continue reforms on its own and integrate into Euro-Atlanticinstitutions. Almost all progress on reforms and on promoting greater unity in Bosnia continues torequire direct or indirect intervention by representatives of the international community. Reformefforts continue to be met by obstructionism or passivity by the nationalist parties that controlBosnian governments at all levels. Some observers also assert that the cumbersome governinginstitutions set up by the Dayton Peace Accords are unworkable. Supporters of international activism in Bosnia say that the only way to move forward is tocontinue to impose reforms when necessary, and that when these reforms reach a critical mass, theywill become self-sustaining. According to critics of current international policy on Bosnia,international interventionism has led to dependency and irresponsibility among local elites. Thisproblem is all the more serious as the international commitment to Bosnia in troops and funding hasdecreased in recent years. Another important issue is whether Bosnia is still important to U.S. interests. Some say thatpressing U.S. commitments in other countries and regions argue for transferring full responsibilityfor Bosnia to European countries. Others believe that the United States still has a stake in Bosnia'sstability, as part of building a Europe "whole and free," the overarching U.S. objective in the region. They say continued U.S. involvement in Bosnia may be needed to arrest indicted war criminals, aswell as to make sure that Bosnia is not used as a haven for organized crime or terrorists. The 109thCongress will likely be involved in such issues as appropriating foreign aid for Bosnia andexamining Bosnia's compliance with its obligations to the International Criminal Tribunal for theformer Yugoslavia. This report will be updated as events warrant.

Frequently Asked Questions This report addresses frequently asked questions related to the overtime provisions in the Fair Labor Standards Act (FLSA) and the overtime pay exemptions for executive, administrative, and professional employees (the "EAP" or "white collar" exemptions). For a broader overview of the FLSA, please see CRS Report R42713, The Fair Labor Standards Act (FLSA): An Overview . For information on the minimum wage provisions of the FLSA, please see CRS Report R43089, The Federal Minimum Wage: In Brief . This report proceeds in three sections. First, there is an overview of the main federal statute on overtime pay—the FLSA. Second, there is a discussion of the regulations implementing the EAP exemptions in the FLSA. Finally, there is information on the most recent update to the EAP exemptions in the 2016 final rule. The Fair Labor Standards Act (FLSA) What is the FLSA? The FLSA, enacted in 1938, is the main federal legislation that establishes general labor standards for most, but not all, private and public sector employees. The three main protections provided in the FLSA relate to a minimum wage, maximum hours (overtime), and child labor. Who is covered by the FLSA? The FLSA extends labor standards to individuals under two types of coverage—"enterprise coverage" and "individual coverage." An enterprise is covered if it has annual sales or business done of at least $500,000. In addition, the FLSA applies to certain other enterprises—such as hospitals and federal, state, and local governments—regardless of the dollar volume of business. Even if individuals are not employed by a covered enterprise, they may be covered if they engage individually in interstate commerce. Thus, employees are covered if they meet the FLSA criteria for either category. In addition, the FLSA exempts certain employers and employees from the labor standards in the act, such as state and local elected officials and bona fide executive, administrative, and professional employees. An individual or enterprise is "covered" or "nonexempt" if FLSA protections apply and is "exempt" if FLSA protections do not apply. Finally, coverage in the FLSA is defined in terms of "employer" and "employee." The latter is defined as "any individual employed by an employer." Independent contractors, which by definition are self-employed, and thus not employees, would not be covered by the FLSA provisions. DOL estimates that approximately 132.8 million, or 83%, of the 159.9 million wage and salary workers are covered by the FLSA and subject to DOL's overtime regulations. What are the overtime pay provisions in the FLSA? Section 7(a) of the FLSA specifies the requirements for maximum hours of work and overtime pay requirements. In general, unless an employee is specifically exempted in the FLSA, he or she is considered to be a covered "nonexempt" employee and must receive pay at the rate of one-and-a-half times ("time and a half") the regular rate for any hours worked in excess of 40 hours in a workweek. Employers may choose to pay more than time-and-a-half for overtime or to pay overtime to employees who are exempt from overtime pay requirements under the FLSA. The FLSA overtime provisions are applied on a workweek basis, which means that an employee's workweek is a fixed and regularly recurring period of 168 hours (i.e., 7 consecutive 24-hour periods). Under the FLSA provisions, overtime pay applies to hours worked in excess of 40 in a workweek. Thus, the law allows some flexibility in daily work hours. For example, an employer could schedule 4 10-hour workdays in a workweek without being required to pay overtime. Similarly, an employee who works a five-day workweek could work four hours one day and nine hours the other four days and not work overtime. On the other hand, averaging of hours over multiple weeks is not permitted in calculating maximum hours and overtime. Are there exemptions to overtime coverage? The FLSA statutorily exempts various groups of individuals from FLSA overtime coverage. Some of the exemptions are for a class of workers (e.g., executive, administrative, and professional employees), while others are more narrowly targeted to workers performing specific tasks (e.g., workers employed on a casual basis to provide babysitting services). Some of the more common exemptions in the FLSA include executive, administrative, and professional employees (the "EAP" or "white collar" exemptions; see next section); commissioned sales employees; farmworkers; motion picture theater employees; motor carrier drivers; and amusement park employees. Many of the broad exemptions from overtime coverage listed here include additional requirements (e.g., salary thresholds) in order for employees to qualify as exempt. What are the "EAP" or "White Collar" exemptions in the FLSA? When the FLSA was enacted in 1938, Section 13(a)(1) provided an exemption, from both the minimum wage (Section 6) and overtime (Section 7) provisions of the act, for bona fide executive, administrative, and professional employees (the "EAP" or "white collar" exemptions). Rather than define the terms executive, administrative, or professional employee, the FLSA authorizes the Secretary of Labor to define and delimit these terms "from time to time" by regulations . The general rationale for including the EAP exemption in the FLSA at the time of e nactment was twofold. One, the nature of the work performed by EAP employees seemed to make standardization difficult and thus output of EAP employees was not as clearly associated with hours of work per day as it was for typical nonexempt work. Two, bona fide EAP employees were considered to have other forms of compensation (e.g., above-average benefits, greater opportunities for advancement) not available to nonexempt workers. Regulating the EAP Exemptions How are the EAP exemptions determined? As mentioned, the Secretary of Labor is authorized to define and delimit the EAP exemptions. Although the determinations have changed over time, to currently qualify for an exemption under Section 13(a)(1) of the FLSA (i.e., not to be entitled to overtime pay), an employee generally has to meet three criteria: 1. The "salary basis" test: employee must be paid a predetermined and fixed salary. 2. The "duties" test: employee must perform executive, administrative, or professional duties. 3. The "salary level" test: employee must be paid above the threshold established in the rulemaking process, typically expressed as a per week rate. In addition, as part of the process of defining and delimiting the EAP exemption, in 2004 DOL also created a "highly compensated employee" (HCE) exemption in which employees earning an amount above the standard EAP salary threshold annually are exempt from overtime requirements if they perform at least one of the duties of an EAP employee. What is the "salary basis" test? To qualify for the EAP exemption, an employee must be paid on a "salary basis," rather than on a per hour basis. That is, an EAP employee must receive a predetermined and fixed payment that is not subject to reduction due to variations in the quantity or quality of work. The salary must be paid on a weekly or less frequent basis. What is the "duties" test? Job titles alone do not determine exemption status for an employee. Rather, the Secretary of Labor, through issuance of regulations, specifies the duties that EAP employees must perform to be exempt from overtime pay requirements of the FLSA. To qualify for the exemption for executive employees , all of the following job duties tests must be met: the employee's primary duty "is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof"; the employee "customarily and regularly directs the work of two or more other employees"; and the employee "has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight." To qualify for the exemption for administrative employees , both of the following job duties tests must be met: the employee's primary duty "is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers"; and the employee's primary duty "includes the exercise of discretion and independent judgment with respect to matters of significance." To qualify for the exemption for professional employees , the following job duties test must be met: The employee's primary duty is the performance of work "requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction"; or work "requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor." What is the "salary level" test? In addition to the duties test, an employee must earn above a certain salary in order to qualify for the EAP exemption. The 2016 final rule establishes that, effective December 1, 2016, the minimum weekly standard salary threshold for the EAP exemption is "a rate per week of not less than the 40 th percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census region," which is currently the South region and is equal to $913 ($47,476 annually). That is, a bona fide executive, administrative, or professional employee must also earn at least $913 per week, which is $47,476 for a full-year (52 weeks) worker, to be exempt from overtime pay. Otherwise, even if an employee qualifies as a bona fide executive, administrative, or professional employee, that employee would not be exempt from overtime pay (i.e., they would be entitled to overtime pay) if the employee does not earn at least $913 per week. Since the FLSA was enacted in 1938, the salary level threshold has been raised eight times, including the 2016 increase. Prior to 2004, the salary level for exemption varied by the type of employee and the type of duty test. Table 1 includes the salary levels for the EAP exemptions from 1938 through 2016. As noted previously, the 2004 final rule established the HCE exemption in addition to the EAP exemption. The 2016 final rule establishes the HCE salary threshold at $134,004, which is the 90 th percentile of full-time salaried workers nationally. In addition to the standard salary level and HCE tests, the 2016 final rule adjusts the two existing "special salary tests" in the EAP exemptions. First, the 2016 final rule maintains the "longstanding practice" of setting the salary for American Samoan employees at 84% of the standard salary level, thus making the new level in American Samoa $767 per week. Second, the 2016 final rule continues a special salary test created in 1953 for the motion picture producing industry that provides an exception to the "salary basis" test. Specifically, employees in the motion picture producing industry may be classified as exempt if they meet the duties tests for EAP exemption and are paid a "base rate" (rather than on a "salary basis") of $1,397 per week. The 2016 Final Rule on the EAP Exemptions What are the main changes to the EAP exemption included in the 2016 final rule? On July 6, 2015, a Notice of Proposed Rulemaking (NPRM) was published in the Federal Register to define and delimit EAP exemptions. During the comment period from July 6, 2015, through September 4, 2016, DOL received nearly 294,000 comments on the proposed rule. The final rule was published in the Federal Register on May 23, 2016. The primary changes to the EAP exemption in the 2016 final rule include an increase in the salary level test from the current $455 per week ($23,660 annually) to $913 per week ($47,476 annually); an increase in the annual salary threshold for the HCE exemption from $100,000 to $134,004; indexation of the salary level to the 40 th percentile of weekly earnings so that it would automatically be updated every three years; and an allowance that up to 10% of the standard salary level may be comprised of nondiscretionary bonuses, incentive payments, and commissions. As summarized in Table 2 , the 2016 final rule changes the salary level test but does not change the current standard duties test or the salary basis test for the EAP overtime exemption. How will future adjustments to the salary level occur? Since the FLSA was enacted in 1938, the salary level threshold has been raised eight times, including the 2016 increase (see Table 1 ). Each of the previous increases have occurred through intermittent rulemaking by the Secretary of Labor, with periods between adjustments ranging from 2 years (1938–1940) to 29 years (1975–2004). The 2016 final rule implements a mechanism to automatically update the EAP salary level thresholds. Updates begin on January 1, 2020, and continue thereafter every three years. Standard salary level . Effective December 1, 2016, the standard salary level for the EAP exemption is $913 per week. Starting January 1, 2020, and every three years thereafter, the standard salary level threshold will equal the 40 th percentile of weekly earnings of full-time nonhourly workers in the lowest wage Census region. Highly compensated employee . Effective December 1, 2016, the HCE salary level for the EAP exemption is $134,004 per year. Starting January 1, 2020, and every three years thereafter, the HCE salary level threshold will equal the 90 th percentile of annual earnings of full-time nonhourly workers nationally. American Samoa . Effective December 1, 2016, the American Samoa salary level for the EAP exemption is $767 per week (84% of standard salary level). Starting January 1, 2020, and every three years thereafter, the American Samoa salary level will equal 84% of the standard salary level. Motion picture producing industry . Effective December 1, 2016, the motion picture producing employee salary level for the EAP exemption is $1,397 per week. Starting January 1, 2020, and every three years thereafter, the motion picture producing industry salary level will be adjusted (from its most recently applicable base rate) by the same percentage as the standard salary level. Who would be covered by the regulations in the 2016 final rule? The 2016 final rule expands overtime coverage to EAP employees through a higher salary level threshold rather than through additional classes of employees. As such, EAP employees making between $455 per week (the effective rate until December 1, 2016) and the new rate of $913 per week in 2016 should become nonexempt (i.e., covered) by the overtime provisions and entitled to overtime pay for hours worked in excess of 40 per workweek. Does the 2016 final rule affect independent contractors? No. Because the FLSA applies to "employees," individuals who are classified as independent contractors are not covered by the FLSA provisions. Does the 2016 final rule apply to nonprofits? Yes. There is no general exemption for nonprofits in the FLSA or the overtime rule. Coverage for workers in nonprofits, like other entities, is determined by the enterprise and individual coverage tests (See " Who is covered by the FLSA? "). It is important to note, however, that charitable activities often associated with nonprofits do not count as ordinary commercial activities and thus do not count toward the $500,000 threshold for enterprise coverage under the FLSA. Only the commercial activities of nonprofits (e.g., gift shops, fee for service activities) count toward the threshold. On the other hand, even if a nonprofit does not meet the enterprise test for coverage, individual employees in an otherwise exempt nonprofit may be covered by the FLSA and the overtime rules if they engage in interstate commerce (e.g., regularly making out of state phone calls, processing credit card transactions.). Does the 2016 final rule apply to institutes of higher education? Yes. Both the FLSA and the 2016 final rule apply to institutes of higher education (IHEs). Due to other provisions of the FLSA, however, many personnel at IHEs are not eligible for overtime and thus are unaffected by the 2016 final rule. For example, in general, bona fide teachers, coaches (if their primary duty is teaching), and graduate and undergraduate students are exempt and thus are not eligible for overtime. Similarly, academic administrative personnel are exempt from overtime pay if they are paid at least the EAP salary level threshold or are paid at least equal to the entrance salary for teachers at the same institution. On the other hand, some IHE workers are subject to the overtime rules of the FLSA and will be affected by the 2016 final rule. Affected workers include postdoctoral researchers who are employees, nonacademic administrative employees, and other salaried workers who are not covered by another exemption. Finally, like some public sector employees, but unlike private sectors employers, public IHEs may have the option of using compensatory time (i.e., a rate of 1.5 hours for each hour of overtime), rather than cash payment, to meet the obligation of providing overtime compensation. Does the 2016 final rule apply to state and local governments? Yes. There is no blanket exemption from FLSA and overtime rule coverage for state and local governments. In general, employees of state and local governments are covered by the overtime provisions of the FLSA and thus are affected by the 2016 final rule updating the salary level threshold for the EAP exemptions. That said, other FLSA provisions apply to state and local governments that affect the applicability of overtime rules on these public sector employees. One way in which FLSA overtime rules apply differently in the public sector relates to the mode of compensation. State and local governments may have the option of using compensatory time, at a rate of 1.5 hours for each hour of overtime, rather than cash payment to meet the obligation of providing overtime compensation. This option provides an alternative not available to private sector employers to meet the overtime pay requirements. Additionally, some public sector employees are not covered by the FLSA. For instance, certain state and local employees—elected officials, their appointees and staff who are not subject to civil service laws, and legislative branch employees not subject to civil service laws—are not covered by the FLSA and will not be affected by the 2016 final rule. The FLSA provides partial exemptions from the overtime requirements for fire protection and law enforcement employees. Specifically, fire protection and law enforcement employees are exempt from overtime pay requirements if they are employed by an agency with fewer than five fire protection or law enforcement employees. In addition, the FLSA allows overtime for all fire protection and law enforcement employees (not just those in small agencies) to be calculated on a "work period" (i.e., 7 to 28 consecutive days) rather than the standard "workweek" period (i.e., 7 consecutive 24-hour periods). When does the 2016 final rule become effective? The 2016 final rule becomes effective on December 1, 2016, which is just over six months from the publication of the final rule in the Federal Register on May 23, 2016. Beginning on January 1, 2020, and every three years thereafter, the salary level thresholds for the EAP exemptions are automatically updated according to the mechanisms specified in the 2016 final rule. While the 2016 final rule becomes effective on December 1, 2016, DOL issued a "time-limited non-enforcement" policy for one group of employers. Specifically, DOL will not enforce the provisions of the 2016 final rule until March 17, 2019, for "providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities with 15 or fewer beds." What are the options for congressional action on the 2016 final rule? Congress can pass legislation to repeal rules or compel new rules. For example, prior to the publication of the 2016 final rule, legislation was introduced that would prohibit the Secretary of Labor from enforcing the final rule and would require additional analysis from the Secretary before the issuance of any substantially similar rule in the future. How might employers comply with the 2016 final rule? Because the 2016 final rule increases the salary level threshold for the EAP exemption, a greater number of employees will become eligible for overtime pay. To comply with the proposed regulations, employers have several options: pay overtime to newly covered EAP employees, if they work more than 40 hours in a workweek; increase the weekly pay for workers near the salary threshold ($913 per week) to a level above that so that the EAP employees would become exempt and thus not eligible for overtime pay; reduce work hours of nonexempt (covered) employees to 40 or fewer so that overtime pay would not be triggered; hire additional workers to offset the reduction in hours from nonexempt employees; reduce base pay of nonexempt workers and maintain overtime hours so that base pay plus overtime pay would not exceed, or would remain close to, previous employer costs of base pay plus overtime. This list is not intended to be exhaustive. Rather it provides some possible channels of adjustment to a higher salary threshold for overtime pay. How many employees are likely to be affected due to the 2016 final rule? It is difficult to project the number of employees currently exempt under the EAP exemptions who would no longer be exempt under the 2016 final rule. This is due in part to uncertainty about employer responses, such as increasing salaries above the new threshold to maintain exemption for EAP employees. With caveats, DOL estimates that approximately 13.1 million workers would be affected by the proposed rule. In particular, DOL identifies two groups that would be affected—newly covered workers and workers with strengthened protections. Specifically, DOL estimates the following: In the first year under the provisions of the 2016 final rule, about 4.2 million EAP employees would become newly entitled to overtime pay due to the increase in the salary threshold. That is, employees in this group meet the duties test for the EAP exemption but earn between the current ($455 per week) and new ($913 per week) salary thresholds. An additional 8.9 million workers would receive "strengthened" overtime protections, including the following: An additional 5.7 million white collar workers who are paid on a salary basis and who earn between the current threshold of $455 per week and the new salary threshold of $913 per week but do not meet the EAP duties test (i.e., they perform nonexempt work but might be misclassified) would also gain overtime protections since their exemption status would not depend on the duties test. In other words, this group of workers would gain overtime coverage because the higher salary threshold would create a brighter line exemption test and reduce misclassification for exemption purposes. About 3.2 million salaried workers in blue collar occupations whose overtime coverage would be clearer with the higher salary threshold. As DOL notes, this group of workers should be currently covered by overtime provisions but may not be due to worker classification. Are congressional employees covered by the FLSA overtime provisions? The application of the provisions of the FLSA is determined by the Congressional Accountability Act (CAA, P.L. 104-1 ), which was enacted in 1995 and extends some FLSA provisions, including overtime provisions, and other labor and workplace laws to congressional employees. In addition, the CAA created the Office of Compliance, which is headed by a five-member Board of Directors (Board), to enforce the CAA. The 2016 final rule will apply to congressional staff if the Board adopts them and Congress approves the Board's regulations, pursuant to the process established in the CAA. In other words, regulations adopted by the Board do not have legal effect until they are approved by Congress. When the Secretary of Labor issued new regulations to update the EAP exemptions in 2004, the Board adopted them; but thus far Congress has not apparently approved the 2004 overtime regulations. Thus, overtime regulations that were adopted by the Board and approved by Congress in 1996, based on DOL regulations originally promulgated in 1975, currently apply to congressional staff. Therefore, in the absence of action by the Board and by Congress, the provisions in the 2016 final rule will not change the status quo.

The Fair Labor Standards Act (FLSA), enacted in 1938, is the main federal legislation that establishes general wage and hour standards for most, but not all, private and public sector employees. Among other protections, the FLSA establishes that covered nonexempt employees must be compensated at one-and-a-half times their regular rate of pay for each hour worked over 40 hours in a workweek. The FLSA also establishes certain exemptions from its general labor market standards. One of the major exemptions to the overtime provisions in the FLSA is for bona fide "executive, administrative, and professional" employees (the "EAP" or "white collar" exemptions). The FLSA grants authority to the Secretary of Labor to define and delimit the EAP exemption "from time to time." To qualify for this exemption from the FLSA's overtime pay requirement, an employee must be salaried (the "salary basis" test), must perform specified executive, administrative, or professional duties (the "duties" test), and must earn above a salary level threshold (the "salary level" test). In July 2015, the Secretary of Labor published a Notice of Proposed Rulemaking (NPRM) to make changes to the EAP exemption. After receiving approximately 294,000 comments on the NPRM, the Secretary of Labor published the Final Rule on the EAP exemption on May 23, 2016 (2016 final rule). The 2016 final rule is effective December 1, 2016. The major changes in the 2016 final rule include increasing the salary level threshold from the previous level of $455 per week to $913 per week and providing an automatic update to the salary level every three years. The 2016 final rule does not change the duties and responsibilities that employees must perform to be exempt. Thus, the 2016 final rule will affect EAP employees at salary levels between $455 and $913 per week in 2016. The Department of Labor (DOL) estimates that about 13.1 million workers will be affected in the first year, including about 4.2 million EAP employees who will become newly entitled to overtime pay. This report answers frequently asked questions about the overtime provisions of the FLSA, the EAP exemptions, and the 2016 final rule that defines and delimits the EAP exemption.

Background and Introduction1 Senate Amendment 5662, the Omnibus Public Land Management Act of 2008, was submitted as an amendment intended to be proposed to H.R. 5151 on September 26, 2008; it includes nearly 150 public lands and natural resources bills. The amendment itself is a combination of two other packages of bills. The primary contributor to the amendment, providing the basis of roughly two-thirds of the language, is S. 3213 which itself is a collection of over 90 individual bills that had been placed on the Senate calendar. The balance of legislative language in S.Amdt. 5662 is derived from the 53 bills approved by a unanimous voice vote of the Senate Committee on Energy and Natural Resources, on September 11, 2008. The intent of this report is to provide an overview of policy issues and controversies commonly associated with the subject of each title, as well as to highlight specific provisions within each title where stakeholders have identified controversy. This document is not, however, a complete summary of each issue or provision represented by the amendment. The majority of the provisions under the 12 titles of S.Amdt. 5662 are public lands measures related to wilderness areas, the land management agencies such as the Bureau of Land Management, the National Park Service, the Forest Service, and other federal land management issues. However there are also sections focused on the Bureau of Reclamation's projects, water settlements, and other natural resources issues. Supporters and critics of provisions within S.Amdt. 5662 appear to disagree broadly in their positions regarding the role of the federal government in land management, and decisions about land management priorities such as whether to leave federal lands open to energy development and other commercial activities versus making land use designations that restrict or prohibit some activities. Proponents may praise what they view as protection of natural resources such as wilderness and national trails, funding authorizations for programs which they support, capital outlays for aging infrastructure, and water settlements, as examples. Some have expressed concerns focused on land use priorities such as leaving federal lands open to energy development versus other management decisions which may limit the types of activities that are authorized on federal land. Some opponents to provisions within S.Amdt. 5662 have cited limitations on energy exploration and development specifically. It may well be the case that limitations on commercial activities such as energy development are an inherent characteristic of specific actions, such as wilderness designations, which by their very nature limit or prevent some commercial activities. Broad ideological controversies associated with activities under any of the amendment's 12 titles are discussed within the relevant sections below. As an overview of the amendment, this report is not intended to be an analysis of the specific effects of S.Amdt. 5662 on energy exploration or production, but rather to note this issue as a concern which has been raised regarding the amendment. As S.Amdt. 5662 has no specific "Energy" title, any direct or indirect effect on energy activities arise through the numerous provisions under titles such as those under Title I, Additions to the National Wilderness Preservation System. In response to concerns by property owners near the affected federal lands, this amendment includes many assurances that private property will not be taken by condemnation, that access rights will continue, and that regulatory schemes will not extend beyond the boundaries of the protected land. Nonetheless, not all private landowner interests may be mollified by these assurances. Additionally some may have concerns regarding the authorization of federal funding which may fall into two general categories: that a specific authorization of funding is inappropriate for the federal government; or that a low perceived benefit to cost ratio for a given program would provide little value for federal dollars expended. In general, the funding figures associated with specific provisions that make up S.Amdt. 5662 do not represent physical outlays of Treasury funds, but rather are authorizations for appropriation. The formal appropriations process consists of two sequential steps: (1) enactment of an authorization measure that may create or continue an agency or program as well as authorize the subsequent enactment of appropriations; and (2) enactment of appropriations to provide funds for the authorized agency or program. While funding figures presented in the amendment indicate what some may recommend for a specific provision or program, the actual funding appropriated may be more, less, or none at all. When appropriations are made outside of the aforementioned two step process, that is, when appropriations are made in an act other than an appropriations act, it is known as direct spending. The Congressional Budget Office (CBO) analyses pending legislation and may make a number of determinations regarding the bill, including whether it contains direct spending provisions. Although CRS does not make determinations on direct spending, we have included a description of the criteria for direct spending to provide context for those interested in the funding authorizations within S.Amdt. 5662 . Direct spending, also known as mandatory spending, has been defined as entitlement authority or budget authority provided by law other than appropriation acts. Direct spending may be "temporary or permanent... [and] definite or indefinite" with respect to the authority's duration and the amount of funding authorized, but the defining factor is that the budget authority is made available in an act other than an appropriations act. Direct spending allows Congress to control spending "indirectly rather than directly through appropriations acts" by "defining eligibility and setting the benefit or payment rules" for the spending. Another issue is the appropriateness of divesting federal ownership in federal lands. Many of the provisions in this amendment surrender federal ownership in lands, giving property to states, local interests, or private entities. In general, federal policy has been against divestiture. The enactment of the Federal Land Policy and Management Act of 1976 (FLPMA) formally ended the previous disposal policy, expressly declaring that the national policy generally was to retain the remaining lands in federal ownership. Section 102(a) of FLPMA states: "The Congress declares that it is the policy of the United States that—(1) the public lands be retained in Federal ownership, unless as a result of the land use planning procedure provided for in this act, it is determined that disposal of a particular parcel will serve the national interest." Senate Amendment 5662, Titles I-XII This section describes each of the Amendment's 12 titles. It includes a description of broad policy issues associated with each title, and highlights specific provisions within each title where stakeholders have identified controversy. Title I. Additions to the National Wilderness Preservation System14 The 1964 Wilderness Act established the National Wilderness Preservation System and directed that only Congress can designate federal lands as part of the national system. Proponents argue that these relatively pristine areas warrant protection from development. The lands' undeveloped nature can result in high-quality water, habitat for rare wildlife species, and recreational opportunities unavailable on other lands. Opponents respond that the restrictions on most commercial activities, motorized access, and roads, structures, and facilities in wilderness areas is unnecessary and can be harmful to local economies. Commercial timber harvesting, mining, and oil and gas leasing and development are generally prohibited in congressionally designated wilderness areas. However, the Wilderness Act explicitly authorized continued livestock grazing in wilderness created from national forests, and allowed commercial recreational services. The act also allowed continued aircraft and motorboat access to areas, and authorized the President to allow certain water projects and related facilities. Finally, the act allowed exceptions to the prohibitions "as necessary to meet minimum requirements for the administration of the area ... (including measures required in emergencies involving the health and safety of persons within the area)" and "as may be necessary in the control of fire, insects, and diseases, subject to such conditions as the Secretary deems desirable." Every Congress since the 90 th has added to the System, including the 110 th , which added 106,000 acres of wilderness in Washington in P.L. 110-229 . Today, the National Wilderness Preservation System includes 107.55 million acres in 44 states. Title I of S.Amdt. 5662 includes 14 subtitles that add to the Wilderness System. In total, the 14 subtitles would designate 1,775,275 acres of wilderness in 8 states—CA, CO, ID, MI, NM, OR, VA, and WV—in 35 new areas and additions to 25 existing wilderness areas. (Section 2403, in Title II, would add another 66,280 acres in a new wilderness area in Colorado.) Wilderness bills commonly contain additional provisions, designating lands for other purposes (recreation areas, wild rivers, etc.), directing land exchanges, modifying boundaries, and more. The 14 subtitles of S.Amdt. 5662 are no exception; but none of these provisions, nor the wilderness designations themselves, seem to have generated substantial controversy. However, undoubtedly, there are some interests who oppose enactment of each (or even of all) of the provisions and designations. Title II. Bureau of Land Management Authorizations23 Title II of S.Amdt. 5662 contains diverse provisions related to the Bureau of Land Management (BLM) in the Department of the Interior. A focus of congressional attention has been on provisions to establish legislatively, within BLM, the National Landscape Conservation System (NLCS). Subtitle A states that it is not intended to alter the way the areas within the NLCS are currently managed. The BLM created the NLCS administratively in 2000 to focus management and public attention on its specially protected conservation areas. According to BLM, the mission of the System is to conserve, protect, and restore for present and future generations the nationally significant landscapes that have been recognized for their outstanding archaeological, geological, cultural, ecological, wilderness, recreation, and scientific values. The System consists today of about 27 million acres of land, with more than 850 federally recognized units. These units include national monuments, national conservation areas, wilderness areas, and wilderness study areas, as well as thousands of miles of national historic and scenic trails and wild and scenic rivers. There are mixed views on whether the NLCS should be established legislatively. Supporters, including the BLM, assert that this will provide legislative support and direction to the BLM and formalize and strengthen the agency's conservation system within the context of its multiple use mission. Opponents have expressed concern that it could effectively establish new, standardized requirements for disparate areas of the system. Other provisions of S.Amdt. 5662 would establish new national monuments, national conservation areas, or wilderness areas, and some of these provisions make explicit that the areas are to be managed as part of the NLCS. Additional support for the NLCS, and for establishing such areas, centers on a desire for additional federally protected areas. Opposition stems from concern that areas would be removed from multiple uses, possibly including oil and gas development, motorized recreation, and livestock grazing. An issue that often arises with federally protected areas involves the water rights related to those areas. S.Amdt. 5662 includes a provision that addresses the management of federal water rights in a designated area of Colorado. That water rights provision states that no reserved water rights are created and provides that the federal government would acquire any necessary water rights for the purposes of the designated area through Colorado state law, not by federal reservation. However, Colorado water is overallocated, meaning that some users already holding water rights cannot fulfill those rights. The proposed legislation provides that if the state's conservation board modifies some water rights such that existing rights to the designated area are insufficient to fulfill the purposes of designation, the Secretary would pursue water rights under state law to fulfill those purposes. Because the proposed legislation does not reserve federal water rights for the area and because Colorado's water is overallocated, it would likely be very difficult for the Secretary to pursue sufficient rights to fulfill the purposes of the designation. Other provisions of S.Amdt. 5662 would provide for the disposal of BLM or other federal lands to cities, private entities, and other recipients. In some cases, the provisions provide for an exchange of lands between the federal government and non-federal land owner. Currently, BLM can dispose of its public lands under several authorities. A primary means for BLM to both dispose of and acquire lands is through exchanges under the Federal Land Policy and Management Act of 1976 (FLPMA). These authorities impose conditions or requirements on the land transactions. For instance, under FLPMA, BLM can sell certain tracts of public land that meet specific criteria for not less than their fair market value. Further, the agency can exchange land if it serves the public interest, and the federal and non-federal lands in the exchange are located in the same state and are of roughly equal value, among other requirements. Each Congress tends to consider many legislative proposals providing for specific land disposals and exchanges, as in S.Amdt. 5622 . Such proposals have been supported as authorizing land transactions to worthy recipients that may not be allowed under existing authorities. In other cases, they have been supported as directing or expediting particular transactions that are allowed under law but that are not being accomplished by the BLM in the time frame desired by Congress. More broadly, land disposals have been favored by those who assert that the federal government owns and manages too much land, and that federal holdings should be conveyed to state or private ownership. By contrast, such legislative proposals have been opposed on the grounds that they are not in the public interest, as land is removed from federal ownership through conveyance to nonfederal entities. They have further been opposed on the assertion that the federal government does not consistently adhere to requirements in law, such as by obtaining the fair market value for land it sells. In one particular instance, regarding the Southern Nevada Limited Transition Area Conveyance, the proposed amendment appears to allow the city of Henderson, NV to use the property in a manner inconsistent with the act, and then sell the property if the Secretary of the Interior fails to act on the right to enforce a reversion. However, there is no provision of time in this section, making unclear how much time is given for the Secretary to consider the reversion before the city can sell the property. Taken to the extreme, it could allow the sale before the Secretary was even aware of the inconsistent use. Title III. Forest Service Authorizations27 The Forest Service, in the Department of Agriculture, administers 192 million acres of federal land for sustained yields of multiple uses. Boundaries of these national forests were largely determined by presidential proclamations, but now can only be changed by an act of Congress, and agency authority to dispose of lands by sale or exchange is limited. Many of the authorities for protecting and managing the lands and regulating the uses are permanent; others are temporary, often created for a test period. Title III of S.Amdt. 5662 has five subtitles, though none of them appear to be broadly controversial, disputes may arise when conflicting uses can occur on the same site, or when sites are reserved for some uses and excluded from others. The five subtitles in Title III are related only by the fact that they affect Forest Service lands or management. Subtitle A makes permanent the authority to reach agreements with other governments, private landowners, or other entities on cooperative efforts to restore or enhance watersheds for fish and wildlife habitat, water quality management, and public safety from natural disasters. Subtitle B requires an annual report to Congress on practices and training to improve the safety of wildland firefighters, because of continuing fatalities (generally 10 to 30 deaths annually over the past two decades). Subtitle C withdraws (makes unavailable) certain lands in the Wyoming Range of the Bridger-Teton National Forest (WY) from mining claims or mineral leases, "subject to valid existing rights." It also allows for donations of valid existing rights. Subtitle D makes several land conveyances, generally for public purposes (e.g., a cemetery, a fire and rescue station, a public shooting range), and directs two land exchanges. Finally, Subtitle E directs a study of possibilities that could "assist in maintaining the open space characteristics of land that is part of the mountain backdrop of communities" for a portion of the Front Range of the Rocky Mountains in Colorado. Title IV. Forest Landscape Restoration29 Wildfires on Forest Service lands seem to have been getting more severe; acres burned annually in 2005, 2006, and 2007 were more than in any other years since recordkeeping began in 1960. Many assert that the threat of severe wildfires and the cost of suppressing wildfires have grown because many forests have unnaturally high fuel loads (e.g., dense undergrowth and dead trees). Restoring forests to more historically natural conditions (fewer but larger trees, with less undergrowth) is widely perceived as desirable to reduce wildfire severity, and thus wildfire damages and suppression costs. However, despite the enactment of the Healthy Forests Restoration Act of 2000 and implementation of President Bush's Healthy Forests Initiative, many are concerned that restoration treatments are still delayed by procedural hurdles. Title IV of S.Amdt. 5662 establishes a program for forest landscape restoration. It creates a collaborative (diverse, multi-party) process for geographically dispersed, long-term (10-year), large-scale (at least 50,000 acres) strategies to restore forests, reduce wildfire threats, and utilize the available biomass. The authorization is $40 million annually for 10 years, and requires multi-party monitoring of and annual reporting on activities. Title V. Rivers and Trails33 Subtitle A concerns additions to the National Wild and Scenic Rivers System. The Wild and Scenic Rivers Act established the System and a policy of preserving designated free-flowing rivers for the benefit and enjoyment of present and future generations. The act requires that designated river units be classified as wild, scenic, or recreational rivers, based on the condition of the river, the amount of development in the river or on the shorelines, and the degree of accessibility by road or trail at the time of designation. Instead of mandatory conservation measures, the designation is to preserve the character of a river. The act neither prohibits development nor gives the federal government control over private property. The act specifically: (1) prohibits federal dams and other water projects that would harm river values; (2) protects outstanding natural, cultural, or recreational values; (3) ensures water quality is maintained; and, (4) requires a comprehensive river management plan that addresses resource protection and development of lands and facilities. Designation and management of lands within river corridors have been controversial in some cases, with debates over the effect of designation on private lands within the river corridors, the impact of activities within a corridor on the flow or character of the designated river segment, and the extent of local input in developing management plans. Since 1968, 166 rivers with 11,434 miles in 38 states and Puerto Rico, have been designated. Under Subtitle A, three rivers are designated—Fossil Creek, AZ; Snake River Headwaters, WY; and Taunton River, MA—totaling 461 miles. Under Subtitle B, a study of the Missisquoi and Trout Rivers (70 miles) is proposed for possible inclusion. The proposed designation of the Snake River Headwaters in Wyoming proved to be a controversial addition to the Wild and Scenic Rivers System. Questions were raised regarding the impact that designation would have on existing water rights, particularly for Jackson Lake. S.Amdt. 5662 would address those questions by providing that the designation would not affect existing rights and would not affect the management and operation of Jackson Lake or Jackson Lake Dam. Subtitle C focuses on additions to the National Trails System. On October 2, 1968, the National Trails System Act became law and established the Trails System. The act authorized a national system of trails to provide additional recreation opportunities and to promote the preservation of access to outdoor areas and historic resources of the nation. Since the designation of the Appalachian and Pacific Crest National Scenic Trails as the first two components, the system has grown to include 26 national trails. Under Subtitle C, six additional trails are designated to the system. Also, under Subtitle C, proposed legislation directs the National Park Service to update the feasibility studies of the Oregon, Pony Express, California, and Mormon Pioneer National Historic Trails to include shared routes, cutoff trails, and other trail segments. Land acquisition for resource protection has been controversial in some cases. Legislation to give federal land management agencies the authority to purchase land from willing sellers has been considered, but not enacted, during the last five Congresses. Subtitle D would amend the National Trails System Act to provide authority to purchase land from willing sellers for designated trails that currently lack such authority. This proposal does not commit the federal government to purchase any land or spend any money, but seeks to allow managers to purchase land to protect the national trails as opportunities arise and funds are appropriated. Title VI. Department of the Interior Authorizations36 This title covers a disparate collection of issues in six subtitles relating to topics such as watershed management, livestock predation control, and the employment status of some federal employees in Alaska. Subtitles B, C, D, and F do not appear to be significantly controversial. However, Subtitle A may be viewed as too expensive by some, and there has been considerable controversy associated with Subtitle E. Subtitle B amends the Alaska National Interest Lands Conservation Act (ANILCA) and appears to clarify that some federal employees hired under this act have competitive status in the same manner as other federal employees in the competitive service. Subtitle C includes a provision to encourage preservation of historic water rights at a Colorado national wildlife refuge (NWR). Legislation that involves water rights on federal lands has the potential to be controversial, as new uses of water may affect existing rights. S.Amdt. 5662 would provide that water rights in the Refuge be used as they have been used historically, presumably to avoid these controversial effects on water users. Subtitle D increases penalties for damage to and illegal collection of paleontological resources on federal lands and does not appear to be controversial. Subtitle F concerns a federal matching program to be administered by states and tribes for non-lethal wolf control and for compensation for livestock loss. It does not appear to be widely controversial though some may believe that federal funds should not be authorized for such a program. Subtitle A would establish a new cooperative watershed grant program in the Department of the Interior. Some may be opposed to the nearly $180 million authorization for the program for FY2008-FY2020, as well as its possible duplication of other federal watershed programs and initiatives. Programs of this type generally involve as many stakeholders as possible and endeavor to create an agreed upon plan for conserving/improving/restoring the resource, in this case, a watershed. After the plan is established, the planning group would assess particular projects proposed for, or affecting, the watershed and make recommendations. Subtitle A authorizes grants to establish a cooperative planning group and specifies criteria for additional implementation grants. It may be controversial to those who oppose multi-interest environmental planning and management, or who want one set of criteria to control the planning/management process. Subtitle E concerns the controversial transfer of certain federal lands in Izembek NWR and Sitkinak Island-Alaska Maritime NWR in return for certain state lands and lands owned or claimed by an Alaska Native Corporation. The purpose of the transfer is to build a road through the refuge, from King Cove to Cold Bay, AK, to provide additional medical access for King Cove's citizens through the airport at Cold Bay. The chief controversies concerning the exchange have been (a) the high ecological value of the Izembek lands to be relinquished compared to the lands to be acquired; and (b) questions about any superiority of road access between the two communities, vis-a-vis a hovercraft supplied through earlier federal legislation intended to address the access problem. Some additional controversies may be generated by the specific language of this exchange. Some language could be construed that the proposed amendment seeks to restrict the environmental review under the National Environmental Policy Act (NEPA), by listing some contents of an environmental impact statement, but leaving out a significant portion of such a document—the alternatives analysis. Title VII. National Park Service Authorizations38 Every Congress considers proposals to establish new park units or to study the appropriateness and practicality of potential additions to the National Park System. Other legislation includes initiatives to convey or exchange lands, modify boundaries, and make technical corrections and other changes to the laws authorizing the 391 diverse units that comprise the National Park System. Enacting stand-alone parks and recreation bills can be daunting, especially in periods of fiscal constraint and competing critical national priorities. While local economies may benefit from new or expanded park units, others object to the loss of taxable land from federal land purchases. Some are also concerned about adding to the System when fiscal limitations make it difficult to adequately maintain the existing units. One organization has estimated that the National Park Service (NPS) has been operating with approximately two-thirds of the funding needed annually—or approximately $600 million less than annual funding estimates. Beyond the funding concerns, the individual park provisions are mostly routine and have not generated any substantial or sustained controversy. Title VII of S.Amdt. 5662 includes provisions that would establish three new national park units, enact changes to 17 existing units, and authorize studies of 12 sites for potential addition to the System. Also included are provisions to reauthorize the American Battlefield Protection Program for another four fiscal years and the NPS Advisory Board and the NPS Concessions Management Advisory Board each for one year. One provision, the Save America's Treasures Program, § 7303, was criticized in the past for an alleged lack of geographic diversity. As a result, legislation enacted in FY2001 required that project recommendations be subject to formal approval by the House and Senate Committees on Appropriations prior to the distribution of funds. These projects require a 50% cost share, and no single project can receive more than one grant from the program. Section 7303 maintains notification requirements for House and Senate Committees prior to disbursement of grants. S.Amdt. 5662 , would authorize the program at $50 million for each fiscal year (the authorization term is not clearly specified), with funds to remain available until expended. Additionally, the Preserve America Program, § 7302, was established to complement Save America's Treasures grants. Preserve America grants also require a 50% match from nonfederal funds. These grants are provided as one-time seed money to fund research and documentation, interpretation and education, planning, marketing, and training to encourage community preservation of cultural, historic, and natural heritage through education and heritage tourism. This program does not appear to have been subject to the criticism noted above regarding Save America's Treasures. Title VIII. National Heritage Areas42 Currently, there are 40 National Heritage Areas (NHAs) that were established by Congress to commemorate, conserve, and promote areas that include important natural, scenic, historic, cultural, and recreational resources. NHAs are partnerships among the NPS, states, and local communities, where the NPS supports state and local conservation through federal recognition, seed money, and technical assistance. NHAs are not part of the National Park System, where lands are federally owned and managed. Rather, lands within heritage areas typically remain in state, local, or private ownership or a combination thereof. There is no comprehensive statute that establishes criteria for designating NHAs or provides standards for their funding and management. Instead, particulars for each area are provided in its enabling legislation. NHAs might receive funding from a wide variety of sources, including through the NPS. Title VIII of S.Amdt. 5662 seeks to establish ten new NHAs, study two areas for possible heritage designation, and amend four existing heritage areas in 8 states (AK, AL, CO, MA, MD, MS, and NH). For each area, the amendment contains provisions to address concerns about potential loss of, and restrictions on use of, private property as a result of NHA designation. Among the provisions, the amendment states that it does not abridge the right of any property owner; require any property owner to permit public access to the property; alter any land use regulation; or diminish the authority of the state to manage fish and wildlife, including the regulation of fishing and hunting within the NHA. The amendment requires the Secretary of the Interior, within three years of the date on which federal funding terminates, to evaluate each new area and report thereon to the congressional authorizing committees. There is a difference of opinion as to the merits of congressional designation and federal support of NHAs. Heritage supporters believe that the benefits of heritage areas are considerable and thus Congress should expand its assistance for creating and sustaining them. Supporters view NHAs as important for protecting lands and traditions; promoting a spirit of cooperation and a stewardship ethic among the general public; and fostering community revitalization, tourism, and regional economic development. Some see NHAs as generally more desirable than other types of land conservation, because the lands typically remain in nonfederal ownership to be administered locally. They view establishing and managing federal areas, such as units of the National Park System, as too costly, and observe that small federal investments in heritage areas have been successful in attracting funding from other sources. Some proponents see NHAs as flexible enough to encompass a diverse array of initiatives and areas, because the heritage concept lacks systemic laws or regulations. Some opponents believe that NHAs present numerous problems and challenges and that Congress should oppose efforts to designate new areas or extend support for existing ones. Property rights advocates have taken a lead role in opposing heritage areas. Concerns include that some NHAs lack significant local support, the NPS could exert federal control over nonfederal lands by influencing zoning and land-use planning, heritage area management plans are overly prescriptive in regulating private property use, private property protections in legislation might not be adhered to, and NHA lands may be targeted for federal purchase and management. The lack of a general statute providing a framework for heritage area establishment, management, and funding has prompted a different concern—that the process is inconsistent and fragmented. The Bush Administration has expressed opposition to the designation of new areas until systemic legislation is enacted. Others are concerned that the enactment of additional heritage bills could substantially increase the administrative and financial obligations of the NPS. Still other observers recommend caution in creating NHAs, because in practice NHAs may face an array of challenges to success. For instance, heritage areas may have difficulty providing the infrastructure that increased tourism requires. Title IX. Bureau of Reclamation Authorizations44 The Reclamation Act of 1902, as amended, authorizes the Bureau of Reclamation (Reclamation), in the Department of the Interior, to construct hundreds of dams, canals, and power facilities throughout the West. The historical emphasis of Reclamation's operations was to provide water for irrigation in the arid and semi-arid areas of the western states. However, more recent project authorizations have focused on assisting rural areas with municipal and industrial (M&I) water supply, settling Indian water rights claims, assisting project sponsors with water reuse and other water supply augmentation projects (e.g., conjunctive use), and supporting watershed or ecosystem restoration projects. Reclamation is authorized to conduct initial studies (investigations) of water resource problems; however, since the mid-1960s, congressional authorization has been required to conduct more in-depth "feasibility studies" for project construction. Once a feasibility study is approved, the agency is authorized to thoroughly examine the feasibility of the proposed project, including conducting any necessary environmental documentation, benefit-cost analyses, and engineering studies. Generally, if a project is found to be feasible, Reclamation and/or project sponsors then seek congressional authorization for project construction. Subtitles A and C of Title IX do not appear to be broadly controversial. Subtitle A authorizes feasibility studies for water projects in 3 states (AZ, CO, and ID), at a total CBO estimated cost of $7.3 million. The California project is somewhat unusual in that it authorizes the study of a water tie-in system for four local, nonfederal reservoirs. Subtitle C authorizes transfer of title to two Reclamation projects, and to clear title of lands related to a third project. None of the provisions of Subtitle C appear to be particularly controversial, nor would they result in a significant outlay of federal funds, although some may view such title transfers as a gift of federal assets. Subtitle B provisions authorize Reclamation to participate in 14 water projects in four western states (CA, CO, NM, and OR), as well as in an endangered fish recovery program for the Upper Colorado and San Juan River Basins. Most of the water projects are estimated to cost or receive appropriations of less than $25 million. The major exception is the Eastern New Mexico Rural Water System, which is estimated by CBO to cost $384 million over five years. Another item which some may view as costly is the Upper Colorado endangered fish recovery program. Because of the high cost of the Eastern New Mexico Rural Water System, the Bush Administration testified in April 2008 that it could not support the original legislation from which this provision is derived ( S. 2814 ). Subtitle D specifies a 35% nonfederal matching requirement for federal funds made available under the act. It requires the San Gabriel Basin Water Quality Authority and the Central Basin Municipal Water District to provide the 35% nonfederal match for specified water quality projects. Under P.L. 106-554 , a total of $85 million was authorized for the San Gabriel Basin Restoration Fund, with the requirement that no funds would be obligated unless at least 35% of the funds are provided by nonfederal interests. Sec. 9301 increases the authorization to $146.2 million, and subjects the remainder of the funds after the $85 million has been appropriated to the 35% nonfederal matching requirement. Sec. 9301 also limits the total appropriations that can be made available to the Central Basin Water Quality Project to be no more than $21.2 million. The Executive Branch indicates that it has not budgeted for the San Gabriel Basin Restoration Fund in the past, and that it does not support an increased cost ceiling. In testimony before the Senate Energy and Natural Resources Committee's Subcommittee on Water and Power, Reclamation Commissioner Robert Johnson stated that he believes resources should be allocated to other priorities. He indicated that Reclamation's role should be limited to assisting concerned parties, when possible and within its mission scope and budget, to advance the goal of groundwater cleanup in the San Gabriel Basin. Subtitle E concerns the Lower Colorado Multi-Species Conservation Program (MSCP), a multi-stakeholder initiative to conserve 26 species along the Lower Colorado River while maintaining water and power supplies for farmers, tribes, industries, and urban residents. The MSCP took effect in 2005 and has a 50-year term. The expected total cost of the program is estimated at $626 million (in 2003 dollars), to be split 50-50 between federal and nonfederal entities. S.Amdt. 5662 would authorize appropriations to cover the federal share of costs, authorize the Secretary of the Interior to implement MSCP in accordance with the program documents, and waive sovereign immunity of the U.S. government to allow non-federal parties to enforce program documents. The issue of whether the United States should waive its sovereign immunity so that the other parties to the MSCP can sue to enforce it has been controversial since the legislation was first proposed. The Implementing Agreement of the MSCP contains no express waiver of sovereign immunity by the federal government. Without the waiver, it appears likely that nonfederal parties would not be able to pursue specific performance or declaratory judgment actions against the federal parties to get them to comply with the agreement. Notably, the MSCP affects states all located in the Ninth Circuit, which has held that those types of actions cannot be brought in any court without an express waiver of sovereign immunity. This provision would allow the nonfederal parties to sue to enforce the agreement, but not to obtain monetary damages. Many contend that this legislation is an important legislative authorization for an administratively approved program to ensure water supplies and deliveries from the Lower Colorado River while maintaining compliance with the Endangered Species Act. Some express concerns that this legislation might be unnecessary since the project is already underway and the authority for federal participation in the project already exists. Subtitle F of Title IX is quite broad in the issues it covers on the effect of climate change on hydropower, threatened and endangered species, and stream flow data collection, and more. However, it may also be restrictive since it does not appear to provide an overall strategy to address the possible effects of climate change on water availability and agency responses. Subtitle F does not address water quality or activities of the Environmental Protection Agency, which may be fundamental to water availability. This omission limits how the bill is applied to many of the water issues and may result in duplicative or non-complementary activities. Programmatic provisions that make broad changes to an agency's authority, especially those that may change its relationship and interactions with Congress, can be controversial. For example, § 9503(d) would provide programmatic feasibility authority for climate change mitigation strategies, including the study of new dams, reservoirs, canals, etc. This authority may be controversial in states that have complex water storage and transport systems, conflicts over water quality and quantity, or stakeholder interests in expanding surface storage and conveyance. It also could be controversial since it would reverse a congressional decision from 1965 to revoke Reclamation's programmatic feasibility authority. Additionally, legislation proposing changes to water resources management is often controversial. Subtitle G concerns Reclamation's aging infrastructure. It would require the Commissioner of Reclamation to carry out, among other things, annual inspections Reclamation-owned and -operated facilities, as well as Reclamation facilities operated and maintained by water users. Additionally, the subtitle would require the Secretary to develop a national priorities list of infrastructure maintenance needs and establish standards and guidelines for the maintenance of these facilities. This subtitle addresses an issue that has been and will likely continue to be controversial: prioritizing a finite budget for asset management objectives. There are instructions for a specific structure and approach to aging infrastructure assessment outlined in Subtitle G. When this direction is considered along with the cost sharing requirements, repayment terms, and other details of different provisions addressing Reclamation infrastructure such as § 9105 and § 9106 that appear to vary by project;. some may view this as evidence of the need for a more transparent, standardized approach to addressing Reclamation's infrastructure needs. As an example, § 9106(d) appears in some cases to require no contributions from project beneficiaries or the state. A requirement of some cost-sharing contribution is common, although the percentage may vary as indicated above. As Reclamation's infrastructure continues to age, these conflicts may arise more frequently. Additionally, more expensive recapitalization projects may exceed the financial means of local operators in the case of transferred works and could drive those entities to seek congressional support for project funding. Title X. Water Settlements56 Subtitle A, regarding the San Joaquin River Restoration Settlement, would authorize implementing a settlement in a long-standing dispute and lawsuit over management of waters in the San Joaquin River Basin in the Central Valley of California. The legislation has been very controversial both for its direct spending provisions, potential impacts on downstream interests, and loss of agricultural water, as well as for impacts on Delta and ocean fisheries, and water users if the legislation is not approved. S.Amdt. 5662 reduces the initial direct spending compared to the original legislation— S. 27 and H.R. 24 —to $88 million, which is expected to be offset by early payment of water user repayment obligations. Another $250 million in discretionary funding is also authorized. Settlement opponents fear water may be required to be released without a guarantee of adequate funding to implement projects to protect property owners and other third parties to the settlement. Total restoration costs are estimated to range from $250 million to $1.1 billion. Settlement proponents argue that further funding can be secured and that delay risks putting the issue back before a federal judge for remedy in a case that had already been decided in favor of restoring river flows to re-establish salmon populations. Subtitle B concerns rural water projects involving the Navajo Nation in northwestern New Mexico. The federal government is considered to have a trust responsibility to protect Indian water rights. Settlements of Indian water rights claims require federal approval, and when a settlement requires federal expenditures, Congress must approve. Congress has enacted 20 Indian water rights settlements during the past three decades, but federal funding for the settlements is a recurring issue. Administrations have often opposed Indian water rights settlements for cost-related reasons, arguing that nonfederal parties were not paying their fair share, or that the federal expenditure exceeded the Administration's calculated federal liability. Some tribes and other nonfederal parties argue, on the other hand, that funding for Indian water rights settlements is insufficient, especially for water infrastructure authorized in the settlements, and that the use, and uncertainties, of discretionary appropriations makes settlements harder. They propose an ongoing, dedicated source of funding for Indian water rights settlements. All but one of the 20 settlements used only discretionary appropriations. Subtitle B would make use of the Reclamation Fund, which is financed partly through Reclamation water and power project revenues, to pay costs of water infrastructure required in certain Indian water rights settlements. It would set aside $120 million annually from Reclamation Fund revenues during FY2019-FY2028 for deposit in a new "Reclamation Water Settlements Fund" for expenditure, without further appropriation. These funds would go toward Reclamation activities to implement specified Indian water rights settlements, if the settlements are approved by Congress, in a specific order of priority. Construction of the Navajo-Gallup Water Supply Project, which is integral to one of the settlements specified, would be the first priority. None of the 20 Indian water rights settlements has been funded by such a set-aside from the Reclamation Fund. The Bush Administration opposed this provision because the new fund's expenditures would be excluded from the appropriations process, which it was concerned would prevent future presidents or Congresses from setting their own appropriations priorities. This subtitle also specifically approves a water rights settlement between the Navajo Nation and New Mexico. Costs of the Navajo-Gallup Water Supply Project, necessary to the settlement, would chiefly be funded through the Reclamation Water Settlements Fund (as noted above). The Bush Administration opposed this settlement, because, it argued, the United States is not a signatory to the settlement, the total cost was excessive, certain infrastructure costs were not yet known, cost-sharing was too limited, and federal legal liabilities were still uncertain. Proponents argue that the settlement is fair, settles 30-year-old litigation, and delivers badly needed water, and that the new Reclamation Water Settlements Fund provides certainty that the settlement will be implemented. Title XI. United States Geological Survey Authorizations59 Section 11001 would reauthorize the National Geologic Mapping Act of 1992 which was last reauthorized in 1999. The act established a cooperative geologic mapping program between the U. S. Geological Survey (USGS) and the geological surveys of each state acting through the Association of American State Geologists (AASG). This program has not been controversial in the past. Section 11002 concerns the New Mexico Water Resources Study and may be controversial. This section directs the Secretary of the Interior, acting through the USGS, in coordination with the State of New Mexico, to study water resources in several basins in New Mexico. The study would focus on groundwater resources, and include an analysis of the salinity, recharge potential, groundwater-surface water interaction, the susceptibility of aquifers to contamination, and the amount of water available for human use. The Secretary must submit a report of the study results within two years of enactment. Concerns about § 11002 include the cost and possible duplication of previous and existing federal efforts to study water resources in New Mexico; in particular groundwater studies of the middle Rio Grande Basin. The USGS has several ongoing programs that study the Nation's groundwater resources. Title XII. Miscellaneous60 This title contains six apparently unrelated provisions covering the following issues: management and distribution of North Dakota trust funds; amendments to the Fisheries Restoration and Irrigation Mitigation Act of 2000 including that funding provided by the Bonneville Power Administration be credited toward the nonfederal share of project costs; amendments to the Alaska Natural Gas Pipeline Act affecting personnel matters; the creation of an additional Assistant Secretary of Energy for electricity delivery and reliability; land conveyance for the Lovelace Respiratory Research Institute; and authorization of appropriations for national tropical botanical gardens. The question of altering the governing provisions of a trust fund established by a state's enabling act is controversial, largely due to the perceived sanctity of enabling acts. States are restricted in how they can manage the trust funds set up by the enabling acts. Because the provisions of enabling acts are required to be codified within that state's constitution, a modification requires action by the state and the federal government. Section 12001, Management and Distribution of North Dakota Trust Funds, would give North Dakota additional flexibility in managing its trust funds. The provision appears to satisfy both aspects of altering a trust fund by addressing the federal statutory changes needed and referencing that the state constitutional change has been effected. While none of the remaining provisions appear to be broadly controversial, each likely has its proponents and opponents.

Senate Amendment 5662, the Omnibus Public Land Management Act of 2008, was submitted as an amendment intended to be proposed to H.R. 5151 on September 26, 2008. Two existing packages have been paired to form S.Amdt. 5662: S. 3213 is a collection of over 90 individual bills which is on the Senate calendar, was combined with an additional 53 bills that were approved by a unanimous vote of the Senate Committee on Energy and Natural Resources on September 11, 2008. Given the large number of individual bills that make up this omnibus amendment, it has numerous supporters and detractors. Proponents may praise what they view as protection of natural resources such as wilderness and national trails, while detractors' criticisms may see these same actions as limiting access to natural resources such as oil and gas. Debate over provisions in the amendment generally focus on decisions to authorize federal funding; land use priorities; and the appropriateness of divesting federal ownership in federal lands, among others. This report provides an overview of key policy issues and debates associated with each of the amendment's 12 titles. It highlights specific provisions where stakeholders have identified controversy. Most provisions within S.Amdt. 5662 concern public lands measures, federal land management agencies, and other federal land management issues. However, several titles focus on the Bureau of Reclamation's projects, water settlements, and other natural resources issues. This report is not intended to be a complete summary of each issue or provision represented by the amendment. The 12 titles of S.Amdt. 5662 are: Title I. Additions to the National Wilderness Preservation System Title II. Bureau of Land Management Authorizations Title III. Forest Service Authorizations Title IV. Forest Landscape Restoration Title V. Rivers and Trails Title VI. Department of the Interior Authorization Title VII. National Park Service Authorizations Title VIII. National Heritage Areas Title IX. Bureau of Reclamation Authorizations Title X. Water Settlements Title XI. United States Geological Survey Authorizations Title XII. Miscellaneous

Introduction Concerns that the economy might be heading toward a recession have led some policymakers to consider economic stimulus legislation. To judge the efficacy of such proposals, some policymakers have expressed a desire to look back at the economic effects of past policy changes. Proponents of the tax cuts passed in 2001, 2002, and 2003 argued that they would have salutary effects on the economy. Particular emphasis was placed on economic stimulus in the short-term. This report traces out the channels through which the tax cuts are thought to affect the economy and assesses the performance of those economic indicators, including gross domestic product (GDP), employment, interest rates, inflation, labor supply, saving, capital investment, and the trade deficit. The report uses theory and data to evaluate the tax cuts' effects through 2004. (This report does not analyze economic developments since 2004. Presumably, individuals had adjusted their behavior to the tax changes by then, and economic developments since have not been significantly influenced by tax cuts enacted several years earlier.) The report also offers an overview of the forecasts of their effects made at the time the tax cuts were passed. Most estimates predicted that the tax cuts would increase economic growth in the short-term and reduce it in the long run. Despite the wide diversity of the models used, all of the results are relatively small, as would be expected of tax cuts that are relatively small in relation to GDP in the years considered. A Brief Description of the Tax Cuts Three tax cuts have been signed into law in recent years. This report focuses on provisions of those bills that caused significant revenue loss from 2001 to 2003. In 2001, the Economic Growth and Tax Relief Reconciliation Act was signed into law (EGTRRA, P.L. 107-16 ). Its major provisions for 2001-2004 were a reduction in marginal income tax rates, an increase in the child tax credit, "marriage penalty" tax relief, and elimination of the estate tax. All of these provisions were phased in gradually over several years, and then scheduled to expire due to budget rules (although it was the framers' stated intent that they become permanent). In 2002, the Job Creation and Worker Assistance Act (JCWAA, P.L. 107-147 ) was signed into law. Its major revenue-side provision was accelerated depreciation for business investment. In 2003, the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA, P.L. 108-27 ) was signed into law. It accelerated the phase in of the main EGTRRA provisions, with the exception of the estate tax provisions, and extended and expanded the accelerated depreciation in JCWAA. It also reduced the tax rates on dividend and capital gains income. In addition, the 2004 Working Family Tax Relief Act (WFTRA, P.L. 108-311 ) extended some provisions of the earlier acts that were slated to expire. It had no revenue effect in 2004. Table 1 gives the estimated revenue loss of the tax cuts and their key provisions as scored by the Joint Committee on Taxation at the time the tax cuts were enacted. Estimates of the cost of the tax cuts based on ex post data do not exist. EGTRRA was the largest of the tax cuts and most of EGTRRA's costs are to occur in the out years. Most of the costs of JGTRRA and JCWAA occurred in the short-term. In fact, because accelerated depreciation is a revenue loser in the short-term and revenue raiser in the medium-term, the 10-year cost of JCWAA is smaller than the short-term cost. In the long run, it was by far the smallest of the three, but of comparable size in the time period considered here. JGTRRA's costs are mainly short-term because it mostly accelerates tax cuts that would have occurred later under EGTRRA. All of the tax cuts are temporary and scheduled to expire, although it was the intention of their supporters that EGTRRA/JGTRRA be permanent. Consistent with the goal of short-term stimulus, this report focuses on the effects of the tax cuts through 2004. Certain provisions that are large in the long run are small to date and will not be explored, most notably the repeal of the estate tax. Other provisions, such as accelerated depreciation, were large in the short run, but not in the long run. Although the costs of the tax cuts are large as a fraction of total receipts, particularly in the out years, the costs as a percentage of gross domestic product (GDP) in the years of interest are small. The small size of the tax cuts places a low ceiling on their potential economic effects. This is especially the case when evaluating demand-side effects, where their incremental increase from year to year, rather than their absolute value, is the relevant figure. In 2001, the tax cuts (revenue provisions only) were equal to 0.4% of GDP, all of which occurred in the second half of the year. In 2002, they increased 0.7 percentage points to 1.1% of GDP. In 2003, they increased 0.5 percentage points to 1.6% of GDP. In 2004, they increased 0.7 percentage points to a projected 2.3% of GDP. As discussed below, when considering the effects of tax cuts on labor supply and saving, the key measure is marginal tax rates. As seen in Table 2 , the change in average marginal tax rates under EGTRRA and JGTRRA is modest for wages and interest income when fully phased in; however, EGTRRA/JGTRRA leads to a larger decline in marginal rates on capital gains income and a more than 50% decline in marginal rates on dividend income. Because government spending rose as a percentage of GDP in the years when taxes were cut, these tax cuts can be characterized as wholly deficit-financed tax cuts (financed by increasing the deficit or decreasing the surplus). This is important to note because deficit-financed tax cuts have a different economic effect than tax cuts financed by reducing spending or raising other taxes in the models described below. Pitfalls in Estimating the Economic Effects of Tax Cuts It may be surprising to learn that there is no straightforward way to evaluate how a tax cut has affected the economy . Economists can observe how the economy performed after a tax cut, but because they cannot observe the counterfactual—how the economy would have performed in the absence of a tax cut—there is no direct way to tell what contribution the tax cut made to the economy's performance. If the economy boomed after a tax cut, there is no way of telling whether the economy would have boomed even if the tax cut had not been passed. If the economy grew sluggishly after a tax cut, there is no way of telling whether the economy would have grown even more slowly without a tax cut. Econometric research is based on observing variation between data observations to determine correlation between variables. For studies of individual behavior, variations in the tax cut that individuals receive can be used to establish correlation. If recipients of a tax cut systematically behave differently than nonrecipients, all else equal, it can be deduced that the tax cut caused that behavior. Unfortunately, in the case of tax cuts, variation between individuals is not independent of other control variables needed to hold all else equal. The size and eligibility of a tax cut is based on criteria that may strongly influence an individual's behavior. For example, the size of the marginal tax rate reduction received under EGTRRA is determined by factors such as income. Yet if the experience of individuals in one income cohort is systematically different than in a different cohort, a tax cut could be erroneously attributed as the cause when some other factor was the cause. For example, income inequality has been growing in the United States in recent decades because the income of upper-income cohorts has been rising more quickly than lower-income cohorts. Because EGTRRA gave larger tax cuts to upper-income cohorts on average, the portion of faster income growth caused by growing inequality, unless properly controlled for, would be spuriously attributed to the larger tax cut. For economy-wide studies, the variation studied is typically over time rather than across individuals. In the case of a tax cut, this would entail comparing how the economy performed in periods with the tax cut compared to periods without the tax cut. But because other factors are also changing over time, different control variables are not independent, and causation runs in both directions, it is very difficult to isolate the effect of tax cuts. For example, consider a tax cut implemented to stimulate the economy in response to a downturn. Comparing economic activity before and during the tax cut, simple correlation could lead to the conclusion that tax cuts cause recessions since the timing of the tax cut is associated with a decline in growth. Some other factor is necessary to control for this "endogeneity" problem. Some econometric methods can overcome the endogeneity problem, but greatly limit the number of control variables that can be employed because of insufficient "degrees of freedom." Some time series analysis has been criticized for assuming that individuals do not change their reactions in response to changes in the behavior of policymakers (known as the "Lucas critique"). Because there have been relatively few major tax cuts or increases in recent history, there are relatively few observations to consider. In this situation, economists typically predict a tax cut's economic effects by building econometric forecasting models, calibrating the models to match actual economic data, and then running the model with and without a tax cut. The difference between the two outcomes is said to be the tax cut's economic effects. Notice that this approach does not rely on actual, after the fact data to determine the tax cuts' effects. These simulations are typically run before the tax cut is implemented, and it is rare for the modeler to go back after the fact and test the accuracy of the prediction. As shown in the section below, none of the predictions made for EGTRRA and JGTRRA were based on actual ex-post data. (Using ex-post data would improve the accuracy of the results, but not avoid all of the problems discussed above.) This method of estimating a tax cut's effects would be less problematic if there were widespread consensus that one particular econometric model could accurately predict economic activity. In fact, econometric models are sometimes poor predictors of economic activity, even over short periods of time. Although some models have proven capable of making reasonably accurate short-term projections during expansions, no model has proven able to correctly predict turning points in the business cycle on a regular basis. For example, every month the company Blue Chip surveys 50 private forecasters. Not one of the 50 forecasters predicted the 2001 recession until April 2001—a month after the recession had started. There is little consensus over the correct approach in theory to modeling macroeconomic activity, so there are many competing models that radically differ in basic and fundamental ways. The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) have responded to this problem by using several different models to offer a range of predictions of a proposal's effects. As shown below, these models predict that tax cuts will have widely different—sometimes contradictory—economic outcomes. Given these circumstances, it is difficult to argue that model-based predictions offer a reliable proxy for the tax cuts' actual effects. A Tax Cut's Predicted Effects Depend on the Model Used As discussed above, there is no consensus as to which type of macroeconomic model best describes reality. Each model captures certain aspects of economic behavior well, but no model adequately synthesizes all the different aspects at once. Because economists differ on which aspects of economic behavior are most important, they also differ on which model is preferable for evaluating policy. No model described below is right or wrong; each has unique strengths and weaknesses. But the predicted effects of a tax cut will be highly sensitive to the assumptions of the model used to evaluate it. Because the models are not integrated, a major problem with the estimates is that if there are effects caused by properties that the model being used neglects, the effects will be incorrectly attributed to other properties that are included in the model being used. For example, if a tax cut boosted aggregate demand, a supply side model would attribute the rise in output to an increase in labor or saving, even though the increase would not necessarily be induced by incentives, would not necessarily be permanent, nor would it necessarily be replicable at a different point in the business cycle. Demand Side Effects of a Tax Cut in a Keynesian Model Keynesian models focus on aggregate demand, or the spending side of the economy, rather than the aggregate supply, or the production side of the economy. Because recessions are typically thought to be shortfalls in aggregate spending relative to potential supply (production if all of the economy's labor and capital resources were fully employed), Keynesian models are popular for short-term policymaking and forecasting purposes. Professional forecasters, including CBO, Office of Management and Budget (OMB), the Federal Reserve, Global Insight, and Macroeconomic Advisers, use models with Keynesian attributes in the short run to predict economic activity. However, the richness of the models' development of the demand side of the economy comes at the expense of their ability to explain the supply side. This makes these models of more limited usefulness for explaining and prescribing policies when the economy is fully employed. Because aggregate demand can fall below aggregate supply only in the short run, before prices adjust, Keynesian models are also of limited usefulness in explaining the long run. Economic Growth and Employment Using fiscal policy to boost aggregate spending is often popularly referred to as "stimulating the economy," and evaluating a "stimulus package" is best done by looking at its effects on aggregate spending using a Keynesian model. In these models, the government can boost spending in the economy by increasing the budget deficit. If the deficit is the result of increased government spending, aggregate spending is boosted directly because government spending is a component of aggregate demand. Because the deficit is financed by borrowing from the public, resources that were previously being saved are now being used to finance government purchase or production of goods and services. If the deficit is the result of tax cuts, aggregate spending is boosted by the tax cut's recipient to the extent that the tax cut is spent (not saved or invested in financial securities). In this case, resources that were previously being saved are now at the disposal of the tax cut recipient, and to the extent that the recipient decides to increase his consumption, aggregate spending will rise. In this model, the increase in aggregate spending does not stop there. When spending increases, idle labor and capital resources are brought back into use, leading to an increase in employment and decrease in unemployment. This generates new production, and income accrues to those previously idle resources, which can then be spent by the worker or owner of capital. This process is repeated, producing a "multiplier effect" so that the eventual increase in aggregate spending exceeds the initial increase in the budget deficit. It is assumed that it will take some time for the full effects of the stimulus to be felt. Some prominent Keynesian models predict most of the effects are felt within two years. The effects of fiscal stimulus can be visualized in terms of a simple supply and demand diagram, where the boost in demand brings the economy to a new, higher equilibrium with supply. Because the supply curve is sloped upward, the ultimate increase in output is less than the boost in demand; if the supply curve were vertical the boost in demand would ultimately lead to zero increase in output. Economists cannot directly observe distinct supply and demand curves; they can observe only the single point of equilibrium between them, and this is recorded as gross domestic product. Thus, there is no direct way to determine whether a change in GDP is demand or supply driven. Simple Keynesian models assume, in essence, that all changes in GDP are demand-side phenomena and can be explained by the process above. (The other models considered below assume that all changes in GDP are supply-side phenomena.) In recessions, this assumption is often valid (unless the recession is caused by a "supply shock," such as an increase in the price of oil). In expansions, the assumption is problematic because aggregate spending already matches potential production, in which case the process described above may be a poor guide for explaining reality. Thus, the same tax cut implemented at full employment will result in a significantly smaller boost to aggregate spending and employment than during a recession. Since the 2001 tax cuts took place during a recession and the 2002-2003 tax cuts took place during a period of sluggish recovery characterized by an economy operating below full employment, the Keynesian framework is a valid one to capture, at least in part, the effects of these tax cuts on the economy. In this framework, these tax cuts would be predicted to stimulate aggregate demand, which would be manifested in the data as an increase in GDP growth. The size of the stimulus would be small relative to GDP since the incremental increase in the budget deficit was small (less than 1% of GDP) each year. How did the economy react following the tax cuts? In evaluating the effect of the tax cuts on aggregate demand, the unusual nature of the economic recession and recovery poses a serious problem. Keynesian models predict that tax cuts will boost GDP growth and employment (and other measures of capacity utilization). Beginning in the fourth quarter of 2001, growth and employment moved in opposite directions. Based on GDP data, this recession and subsequent recovery was characterized by its mildness: the decline in GDP during the recession was relatively brief and shallow, and economic output returned to its previous peak quickly—although growth was not initially rapid in the recovery, GDP was not far below its peak. This is illustrated in Table 3 . Based on these data, the argument could be made that EGTRRA prevented a deeper and longer recession from taking place. Alternatively, it could be argued that, despite very large tax cuts, the recession was a comparable length to (although it was clearly shallower than) other recessions in which taxes were not cut. Furthermore, there is the question of whether the tax cuts that came after EGTRRA were useful in stimulating aggregate spending, even if it is believed that the earlier ones were. Historical experience shows that eventually recessions end on their own through market adjustment and monetary expansion. Every recession in the post-war period has lasted less than a year and a half. By the time JGTRRA was implemented—two years after the recession had ended—it can be argued that the economy was in little need of further stimulus. And unlike most recoveries, GDP growth was sluggish for the first six quarters of this recovery, despite three tax cuts. This view would lead to the conclusion that the tax cuts, particularly the latter two, made no impression on the normal market forces that determine expansion and contraction. The counter-argument would stress the initially sluggish nature of the recovery as evidence that further stimulus was required. Based on employment, unemployment, capacity utilization rates, and related measures, the recent recession was deep and extremely long, and the recovery was unusually sluggish, as shown in Table 4 . Of the 10 post-war recessions, the 2001 recession had the seventh largest employment decline during the recession. But if the employment decline after the recession ended is included, it becomes the fifth largest, and the second largest in the past four decades. The unemployment rate did not begin to fall until mid-2003. Altogether, this was the longest period of employment in the post-war period. Likewise, the industrial capacity utilization rate was still below average through 2003. By these measures, making the case that the tax cuts boosted aggregate spending is more difficult. At best, it could be argued that the tax cuts prevented the decline in aggregate spending from being even longer and deeper. But why would this recession have been worse than others in the tax cuts' absence? To make this case, circumstances in this recession that made it unique would have to be identified. Some recent events can be used to make this case, such as the September 11 attacks (although they did not occur until the recession was almost over) and the stock market crash. However, this case is weakened by the role of monetary policy. The depth and duration of the "double dip" recessions of the early 1980s are widely attributed to the monetary contraction that preceded them; in recent years, monetary policy has played the opposite role, sharply mitigating any recessionary forces, as discussed below. Does the employment or GDP data give a more accurate picture of the recession's depth and breadth? Although no single data set gives a complete picture of the economy, one compelling argument is that the GDP data understate the recession's severity. The strong growth in productivity throughout the recession and recovery suggests that the higher rates of productivity growth first registered in the late 1990s have continued to the present. If this is the case, then the economy's long-term sustainable growth rate has risen, in which case the 0.8% and 1.6% GDP growth rates achieved in 2001 and 2002, respectively, place the economy farther below full employment than would be the case if the economy grew at similar rates in earlier downturns. "Bang for The Buck" As discussed above, the key to evaluating a tax cut's effect as a stimulus is the extent to which it boosts aggregate spending. By definition, to boost aggregate demand, a stimulus package must lead to spending rather than saving. Any policy-induced increase in the deficit would lead to some increase in aggregate spending, all else equal. But one criticism that was made about the recent tax cuts was that they would deliver relatively little "bang for the buck" as a stimulus measure. That is, while they would boost aggregate spending in the economy, because of their design they would have a very low multiplier effect relative to alternative policy options. Several arguments have been made for why the recent tax cuts provided relatively little "bang for the buck" compared to the alternatives. First, government spending has a greater multiplier effect than tax cuts because some portion of a tax cut is saved rather than spent. Second, it is believed that tax cuts for upper income cohorts—the primary recipients of the recent tax cuts—provide less bang for the buck than tax cuts for lower income cohorts because upper income cohorts have higher saving rates. Third, some argue that more of a tax cut will be saved if it is temporary rather than permanent. By law, major parts of EGTRRA and JGTRRA are scheduled to expire after 10 years. However, this factor may be inconsequential because individuals may view the tax cuts as permanent since the legislators who supported the tax cuts indicated their intention to make them permanent. Finally, certain provisions of the recent tax cuts are intended to promote saving rather than spending, such as the reduction in the taxation of dividends and the elimination of the estate tax. By definition, these provisions would not be stimulative. Although the tax cuts could have been designed to have a larger bang for the buck for the reasons listed above, it is an open question as to whether the difference would have been substantial or negligible. Econometric models are typically not detailed enough in the modeling of fiscal policy to answer this question definitively. Further complicating the question, the alternative economic models discussed below predict different—in some cases, contradictory—factors that would make a tax cut more effective. For example, in the Solow growth model, a tax cut that promoted saving and discouraged consumption would have a more positive effect on growth. In any case, it is fair to say that the most important factor in determining the effect of fiscal stimulus on the economy is its size (the incremental increase in the budget deficit), not the specific form that the stimulus takes. How Much Stimulus Was Attributable to Monetary Policy? When considering the short-run effects of the tax cuts on GDP, one should also net out the stimulative effects of changes in monetary policy. Most economists believe that monetary policy has a strong effect on aggregate demand growth in the short run, and that lower interest rates were a more important factor than tax cuts in tempering the depth and length of the recession. Indeed, there was a large decline in the federal funds rate from 2000 to 2003. As can be seen in Table 5 , in 2003 the federal funds rate reached its lowest nominal level since the 1957-1958 recession. (Federal funds rate data are not available for earlier recessions.) However, this easing of policy is not unusually large by other measures. Adjusting the federal funds rate for inflation ( ex-post ) reveals that real interest rates were lower in three of the previous seven recessions than in 2003. And the recent decline in interest rates was smaller than any other recession in the previous three decades. Thus, monetary policy did not play a more prominent role than usual in mitigating the recession. Nor did monetary policy play a large role in causing the recession: short-term interest rates were raised by 1.75 percentage points between 1999 and 2000. This is much smaller than the episodes of significant monetary tightening in 1969, 1973, and 1980-1981, which are credited with contributing to the subsequent recessions. Inflation In Keynesian models, the inflation rate is determined by the interaction of aggregate demand and supply. When aggregate demand exceeds supply, inflation rises because there is "too much money chasing too few goods;" when spending is inadequate to maintain full employment, inflation falls. Keynesian models are based on the assumption of "price stickiness": prices are slow to adjust to changes in aggregate supply and demand. A tax cut pushes up inflation by increasing aggregate demand, all else equal. Because of sticky prices, the entire increase in prices does not occur instantaneously. When the economy is already near full employment, the increase in inflation is likely to be quick and substantial (relative to the tax cut) because production is incapable of being increased enough to match the increase in spending. When the economy is below full employment, the increase in inflation would likely be smaller and slower because there can be a greater increase in production to meet the increase in spending. When considering the effects of fiscal policy on inflation, it is highly unlikely that all else will remain equal in reality. Inflation is ultimately determined by the Federal Reserve's manipulation of the money supply, and the Fed has shown a strong preference in recent decades for maintaining a relatively low and stable inflation rate. When evaluating the effects of a change in fiscal policy, the most realistic assumption to make is that the Fed would take steps to offset any inflationary effects that the policy change may have. Thus, the most realistic assumption to make about a tax cut in the abstract is that it will lead to higher short term interest rates (via tighter monetary policy) rather than higher inflation. This is particularly true if the tax cut takes place when the economy is near full employment, in which case the monetary response will negate most of the tax cut's effect on aggregate spending. If the economy is in a recession, inflationary pressures are less likely to be a concern, and the Fed is less likely to allow interest rates to rise (i.e., it will accommodate the fiscal expansion). In the case of the recent tax cuts, inflation was extremely low. As measured by the consumer price index, it fell from 3.4% in 2000 to 1.6% in 2002, and then rose to 2.3% in 2003. With the federal funds rate declining by 5.5 percentage points from 2000-2003, there was no tightening of monetary policy to offset the inflationary effects of fiscal policy. At most, the easing of monetary policy that occurred would have been larger in the absence of the tax cut—but the Fed was limited by how much further monetary policy could have been eased under traditional methods since short-term interest rates were brought down to 1%, close to the zero bound. Consumption It is often assumed that insufficient aggregate spending, the source of recessions in Keynesian models, refers to personal consumption spending. In fact, aggregate spending is composed of personal consumption, private investment, government spending, and net exports, and a shortfall in any of these components can cause a recession. In 2001-2003, consumption growth was slightly below normal, but was consistently the strongest component of GDP growth, as seen in Table 6 . Thus, it would be inaccurate to characterize the 2001 recession as being caused by insufficient consumer spending. By far, the weakest component of the economy was private investment spending, as will be discussed below. This is not unusual: in all of the post-war recessions, investment spending growth was lower than GDP growth, and consumer spending was higher than GDP growth. At most, consumption spending indirectly caused the recession if businesses responded to sub-par consumption spending by reducing investment spending. The tax cuts may have helped sustain personal consumption by increasing after-tax disposable income; however, other factors were also at work. The fastest growing quarter for consumption, the fourth quarter of 2001, seems to have been dominated by one-time automobile sales incentives. Expansionary monetary policy may also have played a role in sustaining consumption since much of the growth in spending was concentrated in interest-sensitive durable goods. Note that the argument that tax cuts boosted consumption spending is mutually exclusive with the supply-side argument, described below, that tax cuts will boost national saving. Effects of a Tax Cut in Long-Term Growth Models Although Keynesian models are useful for understanding short-term fluctuations in the business cycle, they provide little insight into the causes of long-term growth when the economy is already at full employment. In other words, Keynesian models emphasize movements in aggregate demand, and de-emphasize changes in aggregate supply. Although the short-term might appear to be a more worthy goal of fiscal policy than the long term, many economists would argue that the short-term effects of fiscal policy have been over-emphasized, and the long-term effects neglected. That is because the Federal Reserve and market forces have proven able to keep the economy growing steadily for sustained periods of time without relying on activist fiscal policy. In which case, when the economy is not in a recession, the advice derived from Keynesian models will be based on factors that are not particularly relevant at that point in time. Since the 2001 tax cuts were enacted during a recession, Keynesian models are probably the single best guide for evaluating its effects at the time. Yet by the time the 2003 tax cuts were passed, the economy had nearly returned to full employment (at least based on GDP data). Furthermore, going forward into the future, these tax cuts (if made permanent) will continue to have an effect on the supply side of the economy, but no effect on the demand side of the economy. Thus, growth models can play a valuable role in evaluating the long-run effects of these tax cuts. And when evaluating tax cuts in the abstract, it may be most sensible to assume that the economy is at full employment—since recessions are rare—and omit demand-side effects from the analysis. Neoclassical Solow Growth Model The standard neoclassical growth model developed by Nobel Laureate Robert Solow explains growth in terms of the input of resources into production that lead to greater output. In the basic model, inputs are labor and physical capital (plant and equipment). Any increase in production that is not attributable to these two inputs (e.g., improved business practices) is caused by productivity growth. Over long periods of time, technological change (which is recorded as productivity growth) dominates per capita output growth, which suggests that the permanent economic effects of any tax cut will be limited. Output cannot be influenced by changes in spending, as in Keynesian models, and there is typically no monetary sector in the model. The government can only indirectly influence labor inputs and productivity through policies that promote the two. However, it can directly affect capital inputs. Saving and Investment By identity, capital investment is exactly equal to national saving, and saving can be undertaken by individuals, businesses (through retained earnings), or the government. When the government runs a budget surplus, it increases national saving; when it runs a deficit, it decreases national saving because it must borrow to finance expenditures in excess of revenues. Thus, deficit-financed tax cuts of the type the United States has pursued in the past few years reduce economic growth in Solow growth models by reducing national saving, which in turn lowers private investment. As national saving falls, interest rates—the cost of borrowing—rise as firms bid for a shrinking pot of resources to finance their investment spending. This is often referred to as the "crowding out" effect. The decline in growth caused by the budget deficit predicted by the Solow model is based on two assumptions. First, private saving (at the household or corporate level) does not rise to offset the fall in government saving. This possibility will be explored in the section below on supply-side effects. Second, investment is not financed from abroad to offset the fall in government saving, which will be considered in the next section. Table 7 shows what happened to saving and investment after the tax cuts. The budget deficit shifted by 6 percentage points of GDP between 2000 and 2004. Of this, about 2.3 percentage points of the shift can be attributed to the tax cuts, according to official ex-ante estimates. Over the same period, private saving did not rise nearly enough to offset the decline in public saving of 6 percentage points of GDP—private saving rose by 1.4 percentage points, so national saving fell by 4.6 percentage points of GDP. At the same time, the recession and stock market decline caused investment demand to decline by 3.1 percentage points of GDP. This partly explains why interest rates did not rise as a result of the budget deficit—interest rates are determined by supply and demand, and the supply of saving and the demand for investment happened to fall simultaneously for unrelated reasons. The reduced investment demand was a temporary factor, caused by the recession, however. Had investment stayed at its 2000 level, there would have been only three quarters as much national saving available to finance it. The decline in investment spending is pertinent because certain provisions of JCWAA and JGTRRA were specifically aimed at boosting capital investment. JCWAA contained temporary accelerated depreciation provisions for certain types of capital investment (structures were a notable exception) and this provision was extended and expanded under JGTRRA. JGTRRA also temporarily increased the amount of investment that an unincorporated businesses can expense. The effectiveness of these provisions depends on whether they caused capital investment to be higher than it otherwise would have been. In fact, capital investment fell by 2.0 percentage points of GDP between 2001 and 2003. As with any tax cut, evaluating the efficacy of these provisions is hindered by uncertainty concerning how much lower capital investment would have been without the provisions. The efficacy of the provisions may have been partly offset because they were deficit financed, due to the crowding out effect. In addition to influencing the overall level of investment spending, these provisions may have distorted the form of capital investment since not all types of investment were eligible. This may explain why the decline in capital investment was so concentrated in structures, which were not generally eligible under the provisions. Between 2001 and 2003, investment in equipment fell by 3%, whereas investment in structures fell by 21%. This pattern is unusual: investment in structures contracted more than investment in equipment in only two other post-war recessions. The Trade Deficit Domestic investment spending can be financed by Americans or foreigners. If the entire decline in public saving caused by the deficit is offset by an inflow of foreign saving, then there will be no increase in interest rates and no crowding out of private investment. The deficit will have other consequences, however. Even if foreign borrowing can be used to finance American investment, the return from that capital will accrue to foreigners, not Americans. U.S. output will exceed national income because some income will accrue to foreign lenders. Furthermore, to purchase U.S. financial securities, foreigners must first buy U.S. dollars, and this pushes up the value of the dollar. As the dollar appreciates, U.S. exports and import-competing goods become less competitive. This causes exports to fall and imports to rise, increasing the trade deficit. By definition, the increase in the trade deficit will be equal to the borrowing from abroad, because the only way the United States can borrow from abroad is if the U.S. purchases more imports than foreigners purchase U.S. exports. As can be seen in Table 6 , there is some evidence that the decline in government saving has been partly offset by foreign borrowing. Even though private investment fell by three percentage points of GDP between 2000 and 2004, borrowing from foreigners (the trade deficit) rose by 1.6% of GDP to a record high of 5.6%. Some economists questioned the sustainability of borrowing at that pace, particularly since the demand for borrowing was depressed over most of that period by the fall in capital investment spending. Supply-Side Effects of a Tax Cut on Labor and Saving Some argue that tax cuts boost long-run growth by giving individuals a greater incentive to work and save. If tax cuts caused individuals to extend their work hours or join the labor force, this would increase output directly. Likewise, if tax cuts caused individuals to save more—assuming this had no short-run effects on aggregate demand—there would be more saving available for investment, and growth would rise. There are three main problems with this reasoning. First, capital investment is determined by national saving, not private saving. National saving consists of personal saving, business saving, and public saving. When the government runs a budget deficit, public saving is negative and reduces national saving. Because the recent tax cuts were deficit financed, any increase in private saving they caused would have to exceed the increase in the budget deficit to prevent investment spending from falling. Some of the provisions, such as the dividend tax reduction and repeal of the estate tax, are intended to promote saving, but others are likely to encourage consumption. Second, it is not clear theoretically whether tax cuts would increase or decrease growth. Marginal reductions in income tax rates, elimination of the estate tax, and dividend tax reductions, have a separate "substitution effect" and "income effect." By making work and saving more rewarding, these tax cuts may induce individuals to undertake more of each. This is called the substitution effect and raises growth. But there is an opposing income effect that lowers growth. By making individuals more wealthy on an after-tax basis, tax cuts require less work and saving to achieve their financial goals. For example, with a lower tax rate, less saving is needed to reach a target, such as retirement or the purchase of a car or vacation. The net effect on growth will depend on the strength of the substitution effect relative to the income effect. But some of the provisions of the recent tax cuts have no substitution effect; they only have an income effect, and would therefore have a negative effect on growth. These include the child tax credit and marriage penalty relief for most taxpayers. Third, there is the issue of how large these supply side effects are empirically. Could the substitution effect and income effect cancel each other out so that the effect on growth is negligible? Even if the substitution effect dominates, how much more work will be induced by a reduction in the marginal tax rate from, for example, 31% to 28%? Why has the working week first shortened and then stayed relatively constant over the past century when wages and tax rates were rising? Empirical research is not conclusive, with some studies finding tax cuts to have a positive effect on labor supply and some finding a negative effect; most of the estimates are modest and some are statistically insignificant (not statistically different from zero). There is little consensus on the effects of tax cuts on personal saving. Reflecting the empirical literature, the Joint Committee on Taxation assumed in its macroeconomic model a labor supply substitution elasticity of 0.18 and an income elasticity of -0.13, so that the two almost cancel out for a very small labor response. This means that a 10% reduction in after-tax income would lead to a 0.5% increase in labor supply (and a smaller increase in GDP). It assumes a long-run saving elasticity of 0.29. CBO assumed a labor supply elasticity of 0.07 for primary earners and a 0.5 elasticity for secondary earners. Research suggests that working-aged males are not very sensitive to changes in tax rates: they tend to work full-time regardless of the tax rate. Their ability to alter their hours in response to a change in tax rates may be limited, at least in the short term. Some married women, older workers, and younger workers may be more sensitive to tax rates because they are less attached to the workforce, but estimates of their sensitivity vary significantly from study to study. The dramatic rise in female labor force participation in the post-war period suggests that cultural factors may be a far more important determinant of labor supply than tax policy—and, in the case of married women, may have already run their course. Casual observation does not reveal higher labor supply or national saving since the recent tax cuts have been enacted. As seen in Table 7 , private saving has risen since 2000, but by less than one third as much as public saving has fallen. While less than half of the decline in public saving is attributed to the tax cuts, the increase in the deficit caused by the tax cuts alone exceeded the increase in private saving. Furthermore, some of the increase in private saving could have been motivated by unrelated factors, such as precautionary saving in response to the recession. Finally, the composition of the increase in saving casts further doubts on causation. With the exception of accelerated depreciation, all of the major provisions of the tax cuts affected individuals. Yet the increase in private saving is entirely attributable to increased business saving—personal saving actually fell from 1.7% to 1.3% of GDP between 2000 and 2004, as seen in Table 8 . Since 2000, labor supply has fallen, both in terms of total employment and hours worked, as seen in Table 8 . Of course, this decline was overwhelmingly attributable to the recession and sluggish recovery through 2003. But it suggested that any supply side incentives to work more were swamped by the weakness of the economy and were not a significant factor even after growth picked up in 2004. This might be expected since the provisions with effects at the margin were small. For example, the reductions in marginal individual tax, estate tax, and dividend tax rates caused a combined revenue loss of less than 1% of GDP annually from 2001 to 2004. It should also be noted that any change in labor supply in response to a tax cut will be a one-time effect only, as the labor supply moves from the old hours worked to the new hours worked. After that, labor supply will not continue to grow in response to the tax cut. By contrast, the effects of the deficit on saving are ongoing (until the economy returns to its steady state). If the deficit-financed tax cuts result in a decline in national saving, as the data would seem to indicate, then the negative effect on growth would be ongoing. Although the difference between demand-side effects and supply-side effects are distinct in theory, it is difficult to disentangle them in practice. Assume taxes are cut in a recession caused by insufficient consumption, leading to higher aggregate spending as the tax cuts are spent by individuals. The increase in aggregate spending would bring involuntarily unemployed workers back into the labor force and increase the hours of involuntarily underemployed workers. In a supply-side analysis, unless properly controlled for, it would appear that workers were responding to the incentives of lower tax rates to voluntarily increase their labor supply, and would be taken as evidence in favor of supply-side economics. This also suggests that many workers will not be able to take advantage of supply-side incentives that do exist in recessions because they will not be able to voluntarily increase their hours at a time when labor is underutilized. Intertemporal Models Beginning in the 1970s, many economists grew discontented with Keynesian and Solow models because of their ad-hoc, non-theoretical nature. They turned to macroecnomic models based on rational optimization by individuals over time, referred to here as intertemporal models. Infinite horizon models and overlapping generation models (such as life-cycle models) are some prominent examples in this category. In these models, individuals plan their lifetime work, leisure, saving, and consumption choices at present in order to maximize their lifetime utility (well-being). The advantage of these highly sophisticated, highly mathematical models is that every decision made by individuals is rooted in a logical, coherent decision. The disadvantages are that these models make unrealistically complex assumptions about how individuals make decisions and the models are more grounded in theory than evidence—particularly because their theoretical complexity makes empirical estimation problematic. For example, infinite horizon models assume that individuals live (and have planned their work, saving, and consumption) forever. Even if one believes that concern for one's descendants makes the infinite horizon close to actual behavior for parents, not everyone has descendants or values their descendants' well-being on par with their own. As another example, the models often do not feature uncertainty (or uncertainty is assumed to cancel out in the aggregate) about future earnings, prices, rates of return, or government policies when individuals make decisions today. Because of the long time-frame taken by these models, a deficit-financed tax cut cannot be evaluated because it is not a sustainable policy—eventually, a tax cut must be offset by higher taxes or lower government spending or else the national debt would become infinitely large. Thus, when these models are used to evaluate tax cuts, some assumption must be made about higher taxes or lower spending at some point in the future. Although there is no obvious choice for when the policy change is likely to occur or what form it is likely to take, these choices are unfortunately critical to the model's results. The primary reason why saving and labor supply change in these models when taxes are cut is because of the wedge they create between after-tax wages and interest rates now relative to the future. For example, in a life-cycle model individuals are assumed to keep their lifetime consumption constant. When taxes are cut today and raised in the future, the model predicts that individuals will work and save more today, when taxes are low, in order to work and save less when taxes are raised. If the tax cut leads to a seemingly innocuous change in interest rates, this can affect labor supply today because a higher interest rate makes the discounted value of leisure in the future greater. As a result, people work more today so they can save more and work less in the future. If the tax cuts are instead assumed to be financed through lower future government spending, in many of these models, there is a smaller labor and saving response induced by the tax cut since private spending cannot be substituted for government spending. These models also contain, to varying degrees, effects known as "Ricardian equivalence." Ricardian equivalence is the theoretical notion that budget deficits would not cause interest rates to rise because individuals know the deficits will be offset by higher taxes or lower government spending in the future. As a result, private saving rises today to prepare for future consumption losses, and replaces the fall in public saving, so that there is no net effect on national saving and capital investment. In infinite horizon models, there is total Ricardian equivalence because people are assumed to live forever. In overlapping generations models, such as life cycle models, the Ricardian effect is only applicable to those generations that will still be alive when taxes are raised or spending is cut, so there is only a partial private saving offset. The theoretical sophistication of intertemporal models comes at the expense of empirical accuracy. Because the models are so complex, they cannot be empirically estimated directly. Instead, the models are simulated with certain key parameters inferred from empirical evidence; some of the parameters must be inferred because they are also too complex to measure directly. For this reason, the model results should not be considered direct evidence of a tax cut's effect. Most economists believe these models do a poor job of explaining economic activity in the short run. In these models, there are no demand-side effects, such as involuntary unemployment (i.e., everyone who wants a job can find one) or excess capacity. There tends to be no modeling of monetary policy since there are no short term effects. Workers are free to lower or raise their work hours, or even enter or exit employment, as they desire. Indeed, when these models generate substantial growth effects in response to a tax cut, it is because they assume that work and saving patterns (voluntarily) fluctuate greatly because the tax cut changes present and future economic conditions. Although these models may offer certain insights into behavior over the long run, they are unsuitable for evaluating a tax cut whose purpose is short-term stimulus in a recession. Overview of Simulations Before EGTRRA and JGTRRA were enacted, a number of simulations were performed that estimated their economic effects using the economic models discussed above. (No estimates of JCWAA's effects were found.) As tax cut proposals move through the policy process, details change. The estimates presented here are based on proposals that may differ slightly from the policy that was eventually enacted. It should be stressed that all of the estimates were made before the fact; none of the estimators examined the data retrospectively to check their accuracy. Nearly all of the simulations showed that the tax cuts would have positive effects in the short run and negative effects in the long run. Often, the long-run effects did not entirely materialize by the end of the traditional 10-year forecast window. Thus, the tax cuts cannot be said to be unambiguously good or bad; the merits of this tradeoff depend on a policymaker's preferences over time. Simulations of EGTRRA's Effects Macroeconomic Advisers The private forecasting firm Macroeconomic Advisers (MA) used a model with Keynesian properties for the first few years after a tax cut. Thus, the tax cut mainly affected the economy by boosting aggregate demand—including large multiplier effects—not supply-side effects. In the long run, the model had neoclassical properties. MA estimated that EGTRRA would boost growth by 1.2 percentage points in the second half of 2001 (in other words, 0.6 percentage points for the entire year) and 0.3 percentage points in 2002. In 2002, MA projected that the Fed would keep interest rates 0.75 percentage points higher as a result of the tax cut. MA did not offer information on the tax cut's long-term effects. DRI-WEFA The private forecasting firm DRI-WEFA (now Global Insight) also used a model with Keynesian properties and multiplier effects for the first few years after a tax cut, and neoclassical properties over the long run. Although they did not do a full analysis of EGTRRA's effects, they did predict that EGTRRA would increase growth in the second half of 2001 by 0.4 percentage points through a boost to aggregate spending. Auerbach Alan Auerbach of University of California-Berkley used the Auerbach-Kotlikoff model, an intertemporal life-cycle model, to evaluate the economic effects of EGTRRA over the next 150 years. This model did not contain short-term business cycle properties. Like all intertemporal models, a permanent deficit-financed tax cut is inconsistent with the model because it would have caused the national debt to grow indefinitely. Auerbach assumed that the tax cut would result in higher taxes at some point in the future and ran simulations in which either the tax on labor or the tax on capital was raised; an increase in the wage tax reduced output more than an increase in the capital tax. Faced with lower tax rates in the short run and higher tax rates in the long run, the model assumed that individuals work and save more while the tax cut is in place, and work and save less while the permanently higher tax rates are in place. As a result, saving rates and output were increased while the lower tax rates were in place, and lowered while the permanently higher tax rates were in place. The eventual increase in taxes reduced GDP; the longer the tax increase was postponed, the more long run GDP fell. The tax cuts caused output to rise by about 1% by 2004. In the first year of the tax increase, output declined by enough to leave it below the baseline level, and in the long run output was 1%-2.5% lower. Gale and Potter William Gale and Samara Potter of Brookings Institution used a neoclassical Solow model with supply-side effects to estimate the effects of EGTRRA. This model did not capture short-run business cycle dynamics; instead, it estimated the tax cut's long-run effect on the economy. It was estimated that the tax cut would reduce GNP by 0.68% in 2011, because the crowding out effect of budget deficits is estimated to reduce GNP by 1.63%. This was partly offset, they believe, by incentive effects on labor and private saving (0.95 percentage points). Economic Effects of the 2001 Rebate One provision of EGTRRA provided what was referred to as a "rebate" of up to $600 as an advanced tax credit in lieu of the 10% tax bracket. Some studies have looked specifically at the effects of this credit on consumption and saving. Unlike the other studies summarized here, these studies were estimated from ex post empirical evidence, and were not based on ex ante simulations using macroeconomic models. David Johnson, Jonathon Parker, Nicholas Souleles used regression analysis to determine whether the rebate affected the consumption of nondurable goods. They found that 23%-37% of the rebate check was spent on higher nondurable consumption within the first three months of receipt. If the remainder of the rebate was saved, then the effect on aggregate demand is likely to be modest; however, it may have been spent on services, durable goods, or investment goods, which the study did not include. Evidence showed that most of the remaining rebate was spent within the next two quarters, although those findings were not statistically significant. Econometric studies of this type are hampered by several factors, including self-reporting errors (a problem with most economic data), random fluctuations in high frequency data, insufficient variation in the data over time because most of the rebate checks were received within two months, and omitted variable bias, both because the study did not control for other factors influencing consumption over time (e.g., macroeconomic conditions) and because the control group of rebate non-recipients may have differed in important ways (e.g., income and marital status) that influenced consumption, thereby attributing the influence of those omitted variables to the rebates. When non-recipients were excluded from their calculations, the results became statistically insignificant. Joel Slemrod and Matthew Shapiro of the University of Michigan analyzed the results of telephone surveys before and after the rebate was sent. The survey asked individuals whether they planned to/had mostly spent the rebate, saved the rebate, or use the rebate to pay down debt. (From an economic perspective, the last two choices are both a form of saving, and only the first response would lead to an increase in aggregate spending.) In both surveys, about one-quarter planned to mostly spend the rebate and about three-quarters planned to save it or used it to pay down debt, which does not suggest the rebate had strong stimulative effects. Survey results should be considered with caution because it is well-known among researchers that survey responses often differ systematically from actual behavior. The authors argued that the sharp increase in the personal saving rate in the months that the rebate were sent out supports their findings. Simulations of JGTRRA's Effects JCT The Joint Committee on Taxation estimated the economic effects of JGTRRA as it was passed using three different models. Thus, the committee assumed that JGTRRA would be allowed to expire in 2013, as scheduled, and the tax cuts (with the exception of new dividend and capital gains tax cuts) are an acceleration of tax cuts that, in the baseline, would have already gone into effect in future years. The JCT used two models with Keynesian short-term properties and neoclassical long-term properties, a proprietary model and the Global Insight model. Assuming that the Federal Reserve (Fed) responds aggressively to keep inflation stable—consistent with their actual behavior in recent years—the proprietary model predicted that GDP would be increased by a cumulative total of 0.2% after five years. With a less aggressive Fed, the Global Insight model predicted that GDP would be increased by a cumulative total of 0.9% after five years. In both models, GDP would be reduced by a cumulative total of 0.1% over the next five years, primarily due to crowding out. The third model was an intertemporal life cycle model, which, as discussed previously, required an assumption that taxes will be raised or spending cut in the future to finance the tax cut. The life cycle model predicted that GDP would be increased by a cumulative total of 0.2% over the first five years, and decreased by a cumulative total over the next five years by 0.1% if the tax cuts were financed by reduced government transfer payments (e.g., Social Security) after 2013 and reduced 0.2% if financed by higher taxes after 2013. In other words, the negative effects on growth would begin even before taxes are raised or spending is cut. Because the dividend tax cuts and accelerated depreciation create an incentive to invest in capital equipment, the models predicted that investment in residential housing would decline as investors shift from investment in housing to equipment. CBO The Congressional Budget Office evaluated the economic effects of the President's overall budget proposal for FY2004. This differed from JGTRRA because it included other spending and revenue proposals, and the analysis was based on the tax cut that was proposed by the President, not what he signed into law. Still, the tax cut was the most significant budgetary proposal in FY2004, and the President's proposal was arguably close to the version enacted, so CBO's analysis was pertinent. (One important difference between the President's proposal and JGTRRA was that the President proposed to make EGTRRA/JGTRRA permanent.) Because of the uncertainty and complexity surrounding macroeconomic modeling, CBO employed five different econometric models and nine different scenarios to make its projections. Although the results varied by model and scenario, all were modest relative to GDP. All of the models predicted that the tax cuts would increase interest rates, except under the open economy assumption where borrowing from abroad completely compensates for the fall in national saving. Using a Solow growth model, the President's budget proposals were projected to decrease GDP by an average of 0.2% from 2004 to 2008 and an average of 0.7% from 2009 to 2013. The tax cuts reduced growth because the increase in labor supply was not sufficient to offset the decrease in the capital stock caused by the larger budget deficit. In this model, CBO assumed that labor supply would increase and 65% of the decline in public saving caused by government borrowing would be offset by higher private saving and borrowing from abroad; without these ad hoc offsets (which are not empirically estimated), the decline in GDP would be greater. CBO's evaluation produced six different results based on intertemporal models. Because intertemporal models require that the budget eventually return to balance, CBO applied different scenarios, in which lump-sum taxes were raised or spending was cut after 10 years. It produced results with an infinite horizon model and a life cycle model, both under an open economy (i.e., the United States can borrow from abroad) and closed economy assumption. It estimated that the budget proposals would reduce GNP if financed by lower government spending after 2013 (GNP would change 0.2% to -0.8% from 2004 to 2008 and -0.6 to -2.0 from 2009 to 2013) but increase GNP if financed by higher taxes after 2013 (GNP would increase by 0.3% to 0.9% from 2004 to 2008 and 0.3% to 1.4% from 2009 to 2013). It may sound counter-intuitive that higher future taxes are better for the economy than lower government spending, but that is because of the oddities of the intertemporal models. Because individuals are assumed not to value government spending—a highly unrealistic assumption—there is less incentive to work and save more in the first 10 years in response to the tax cuts when they are financed through lower government spending. By contrast, when the tax cuts are financed through higher future taxes, these models assume that there is a large incentive to work and save more now, in order to work and save less once taxes are raised. CBO also estimated the economic effects of the budget proposals using two Keynesian models, the MA model and the Global Insight (GI) model. For these models, CBO estimated results only for five years because the models are designed to capture only short-run phenomena. CBO added larger labor supply responses to the models than the original modelers estimated. On average, the proposals would increase GDP by 0.2% in the MA model and 1.4% in the GI model. In both models, the supply-side effects were negative and the demand-side effects were positive over five years: GDP increased only because of the stimulus to aggregate spending. The increase in GDP would be possible only if the Fed did not offset it, which it might do to keep inflation from rising. In the MA model, GDP would be higher for the first three and lower for the next three years. In the GI model, GDP would be higher for every year of the projection. Macroeconomic Advisers As mentioned above, the Macroeconomic Advisers (MA) model used Keynesian properties for the first couple of years of a simulation, and neoclassical properties in the long run. MA, a private forecasting firm, projected that JGTRRA would boost growth by 0.5 percentage points in 2003 and 1.0 percentage points in 2004. They projected that JGTRRA would reduce growth in later years, leaving GDP 0.3% lower by 2017. (The long-run effects are largely the result of the Administration's proposal to make EGTRRA permanent; a provision that was not included in the version of JGTRRA signed into law.) Because the economy was already close to full employment, JGTRRA would cause inflation and interest rates to rise quickly in their model. As a result, while JGTRRA would reduce unemployment from 2003 to 2006, it would increase unemployment from 2006 through the rest of the decade. JGTRRA was projected to raise long-term interest rates by an average of 0.34 percentage points over five years and 0.75 percentage points in the long run due to crowding out. One important assumption MA made was that the acceleration of tax cuts already scheduled to take place as a result of EGTRRA were modeled as new tax cuts, rather than accelerated tax cuts; if individuals did not treat them as new, their effect on aggregate demand would be smaller. Global Insight As mentioned above, the Global Insight (formerly DRI-WEFA) model used Keynesian properties for the first couple of years of a simulation, and neoclassical properties in the long run. Global Insight's model projected that JGTRRA, as proposed by the Bush Administration, would increase growth by 0.2 percentage points in 2003, 0.9 percentage points in 2004, and 0.1 percentage points in 2005, primarily by stimulating aggregate demand. After that point, JGTRRA would reduce economic growth by 0.5 percentage points in 2006, and smaller amounts for a couple of years after that, primarily through the crowding out effect of the budget deficit. JGTRRA was also projected to increase inflation by 0.2-0.3 percentage points per year through 2006, with the inflation rate remaining 0.1 percentage points higher for the remainder of the 10-year projection. Interest rates were about 0.25 percentage points higher for most of the 10-year projection, resulting in a stronger dollar and larger current account deficit. The dividend tax cut was projected to initially boost stock prices by 5%, but prices fell slightly by the end of the projection. Conclusion This report studied the macroeconomic effects of the tax cuts enacted between 2001 and 2003. There is no direct way to determine the effects of a tax cut on the economy because there is no way to observe the counterfactual case where the tax cut did not occur. Estimates were made by comparing the results of macroeconomic models with and without the tax cuts. These estimates were made before the tax cut occurred, and were not based on actual ex-post data. Unfortunately, there is no consensus among macroeconomists as to which one model is most suitable for policy simulations, and no model with a strong track record in accurately projecting economic events. The different models vary in fundamental ways, and no one model incorporates every key aspect of economic behavior. Keynesian models focus on the business cycle but neglect the determinants of long-run growth. Neoclassical growth models and intertemporal models concentrate on long-run growth, but do not feature recessions, involuntary unemployment, or monetary policy. The results generated by intertemporal models are based on assumptions about behavior that most people would find highly unrealistic. Despite the wide diversity of the models used, all of the results are relatively small, as would be expected of tax cuts that are relatively small in relation to GDP in the years considered. Economic Growth in a Keynesian Model Keynesian models predict that deficit-financed tax cuts would boost output during a recession by increasing spending so that slack labor and capital resources are brought back into production. For the individual income tax cuts, higher consumption in response to higher after-tax income is the channel through which spending is boosted. This boost in growth is temporary because the growth rate of spending cannot exceed potential production over time. Keynesian macroeconomic models are the only popular model that allows for short-run business cycle fluctuations. The effect of growth in other macroeconomic models is considered next. The economy was in a recession of mild depth and average contraction when EGTRRA was passed. The recovery was unusually sluggish for the first six quarters, during which JCWAA and JGTRRA were passed, before a more normal growth rate took root. Proponents point to the short and mild recession as evidence that EGTRRA boosted growth. Opponents point to the sluggish recovery as a sign that the tax cuts were ineffective, and credit monetary expansion and normal market forces for the mild recession. Opponents also point to the performance of labor markets as evidence that the tax cuts did not appreciably stimulate spending. Investment, National Saving, Interest Rates, and Growth in the Solow Model Deficit-financed tax cuts reduce public saving; unless this is offset by higher private saving or borrowing from abroad, national saving will be reduced and interest rates will rise. Most empirical estimates suggest that the offset will be only partial (because some of the tax cut is not saved), and national saving will fall. The neoclassical Solow growth model predicts that a reduction in national saving would reduce economic growth over the medium term by reducing capital investment. Empirical evidence suggests that marginal tax cuts create incentives to work and save more (referred to as "supply side effects"), but the increases in work and saving are too small to offset the reduction in capital accumulation caused by the budget deficit. Thus, on net, the neoclassical model predicts that growth will be reduced by deficit-financed tax cuts. National saving fell from 2000-2003, but this did not lead to higher interest rates because investment demand fell even more sharply. Accelerated depreciation, which was the major tax provision in JCWAA and was extended and expanded in JGTRRA, was intended to stimulate capital investment spending. Investment spending sharply contracted during and following the recession. This is not unusual, but it is difficult to make the case that investment spending would have been even lower in the absence of the tax cuts. JCWAA may have distorted investment decisions toward equipment, which qualified for accelerated depreciation, and away from structures, which generally did not qualify. Equipment spending contracted by 3% from 2001 to 2003, whereas spending on structures contracted by 21%. Investment spending recovered in 2004. Trade Deficit Deficit-financed tax cuts can be financed through national saving or by borrowing from abroad. Net borrowing from abroad must take the form of a trade deficit. Borrowing abroad will mitigate the rise in interest rates and the "crowding out" of capital investment, but will lead to dollar appreciation that causes exports and import-competing goods to be "crowded out." Evidence shows that this has occurred, as the trade deficit increased from 4% in 2000 to 5.6% in 2004. Typically, the trade deficit declines when growth has been low. Employment and Unemployment in a Keynesian Model For a mild recession, the contraction in employment and rise in unemployment was unusually long lasting—the longest period of employment decline since the Great Depression. Employment declined throughout and for 21 months after the recession—a post-war record by 10 months. Since the employment contraction was so prolonged, it is difficult to argue it would have been even longer in the absence of the tax cuts. In Keynesian models, tax cuts boost employment and reduce unemployment by boosting aggregate spending. The other macroeconomic models do not feature involuntary unemployment, and make no prediction that tax cuts will affect unemployment. Supply-Side Effects on Labor Supply and Private Saving "Supply-siders" focus on the incentives that tax cuts provide to work and save more. However, marginal tax cuts could theoretically lead to more or less work because tax cuts also reduce the labor and saving required to meet income targets. (Tax cuts without marginal effects, such as the child tax credit, unambiguously reduce work and saving.) It is an empirical question as to the size and direction of these effects. Most estimates for labor supply are positive and very small for primary earners, and somewhat larger for secondary earners. No evidence of supply-side effects from the tax cuts exists thus far. Hours worked and labor force participation both declined after the tax cuts were passed. This was likely due to cyclical factors, which suggest that supply-side effects are not large enough to outweigh other factors. Even in 2004, when the expansion picked up steam, there was still no aggregate increase in labor supply. Private sector saving increased after the tax cuts, but this was due to an increase in business saving. Supply-side analysis predicted that reductions in individual income taxes (particularly reductions in taxes on dividends and capital gains) would lead to higher personal saving by individuals, but personal saving fell between 2000 and 2004.

Recession concerns have led policymakers to consider economic stimulus legislation. These proposals have raised questions about the economic effects of past policy changes. Congress enacted major tax cuts in 2001, 2002, and 2003. The acts reduced marginal income tax rates; reduced taxes on married couples, dividends, capital gains, and on estates and gifts; increased the child tax credit; and accelerated depreciation for business investment. The tax cuts resulted in an estimated revenue loss of 0.4% of GDP in 2001, 1.1% in 2002, and 1.6% in 2003. Since government spending rose as taxes were cut, the cuts can be characterized as deficit financed. It is hard to be certain what effects the tax cuts have had on the economy because there is no way to compare actual events to the counterfactual case where the tax cuts were not enacted. The most common method of estimating a tax cut's effect is to feed it into a macroeconomic model of the economy and see what the model predicts. Note that this is typically done before the fact: economic estimates of the tax cut's effect are not based on actual ex post data. These estimates are highly uncertain because there is no one macroeconomic model that adequately captures all of the economy's dynamics, no consensus among macroeconomists as to which one model is most suitable for policy simulations, and no model with a strong track record in accurately projecting economic events. Most estimates predicted that the tax cuts would increase economic growth in the short-term and reduce it in the long run. For example, the Joint Committee on Taxation predicted that the 2003 tax cut would increase GDP by an average of 0.2% to 0.5% in the first five years and decrease it by -0.1% to -0.2% over the next five years. Keynesian models find the largest positive short-term effect of the tax cuts on the economy. But these effects are completely temporary because they focus on how tax cuts boost aggregate spending; in the long run, prices adjust, and production rather than spending determines the level of output. In neo-classical (Solow) growth models, deficit-financed tax cuts reduce national saving, thereby reducing national income because capital investment can only be financed through national saving or foreign borrowing. If the latter occurs, the result will be an increased trade deficit. In intertemporal models, a deficit-financed tax cut is unsustainable: it must be offset in the future by a tax increase or spending cut to prevent the national debt from growing indefinitely. Thus, in these models, tax cuts followed by tax increases lead individuals to shift work and saving into the low-tax period, increasing growth then, and out of the high-tax period, reducing growth then. The period encompassing the tax cuts featured a recession of average duration but below-average depth, an initially sluggish recovery, a deep and unusually long decline in employment, a small decline in hours worked, a sharp and long lasting contraction in investment spending, a significant decline in national saving, and an unusually large trade deficit. Opponents see this as evidence that the tax cuts were ineffective; proponents argue that the economy would have performed worse in their absence. Also consider that some, perhaps most, of the recovery was due to monetary rather than fiscal stimulus.

Introduction The Telephone Consumer Protection Act of 1991 (TCPA) regulates robocalls. A robocall, also known as "voice broadcasting," is any telephone call that delivers a prerecorded message using an automatic (computerized) telephone dialing system, more commonly referred to as an automatic dialer or "autodialer." When the call is answered, the autodialer either connects the call to a live person or plays a prerecorded message. Both are considered robocalls. Some robocalls use personalized audio messages to simulate an actual personal phone call. As discussed in more detail below (in " Classification of Telemarketing Calls "), the TCPA prohibits robocalls to consumers' traditional landline numbers, consumers' Voice-over-Internet-Protocol (VoIP) landline numbers, and all mobile numbers. Robocalls to business landlines are not covered by the TCPA. Robocalls are popular with many industry groups, such as real estate, telemarketing, and direct sales companies. The majority of companies who use robocalling are legitimate businesses, but some are not. Those illegitimate businesses may not just be annoying consumers—they may also be trying to defraud them. The Federal Trade Commission (FTC) and Federal Communications Commission (FCC) regularly cite "unwanted and illegal robocalls" as their number-one complaint category. These complaints, as well as complaints to congressional offices, have spurred Congress to take action in an effort to protect consumers. Congress has held hearings to investigate efforts to develop technical solutions to stop illegal robocalls and ways to update the TCPA to better protect consumers, especially seniors and other vulnerable groups (e.g., immigrants without a good understanding of English). Six bills have been introduced in the 115 th Congress to address this issue. Legislative efforts have included proposals to expand the definition of "spoofing" to include text messages and calls made from outside the United States, as well as to protect seniors from fraud perpetrated through robocalls. The Do Not Call Registry In addition to regulating robocalls, the TCPA authorized the National Do Not Call (DNC) Registry. The registry, which was created in 2003, allows consumers to "opt out" of receiving telemarketing calls on their landline and mobile phones, regardless of whether they are robocalls or not. As of September 30, 2017, the registry had nearly 230 million active registrations, up from about 226 million at the same time in 2016. Classification of Telemarketing Calls The TCPA does not prohibit all robocalls, that is, not all robocalls are illegal. Legal robocalls are used by legitimate call originators for political, public service, and emergency messages, which are legal. Illegal robocalls are usually associated with fraudulent telemarketing campaigns, although an illegal robocall under the TCPA does not necessarily mean that the robocall is fraudulent. For example, it is illegal to make a marketing robocall to a cellphone without written consent. That call would not necessarily be intended to defraud the consumer. The TCPA also treats calls to mobile phones differently than calls to landlines and treats calls to consumers differently than calls to businesses. This report addresses robocalls that are both illegal under the TCPA and intended to defraud, not robocalls that are defined only as illegal. Calls to Landlines Robocalls to consumer landlines are illegal under the TCPA without prior written consent. An autodialer legally may be used to call a consumer landline, but only if the call does not use a prerecorded or artificial voice. The exceptions to the landline robocall prohibition are calls for emergency purposes, purely informational calls (e.g., school closings, flight delays), calls made for a noncommercial purpose (e.g., charities, political parties), and calls made by a business that do not include an advertisement or constitute telemarketing (e.g., product recall notices). Unlike the case for consumer landlines, nearly all sales calls to a business landline—including for a product or service from a telemarketer—are generally exempt from the DNC and robocall rules of the FTC. The two exceptions are if the caller is trying to make a sale to an employee at work that does not relate to work, in which case the caller must comply with the DNC and robocall rules for a consumer landline; and sale of "nondurable office or cleaning supplies" (e.g., printer ink), in which case the caller must comply with the robocall rules. Calls to Mobile Phones Robocalls to both consumer and business mobile phones without written consent are generally illegal under the TCPA. Exceptions to this rule are public service and emergency messages, but political robocalls to mobile phones are illegal without prior consent. Consent for some other non-telemarketing calls does not need to be in writing, but even if a consumer has previously given consent, that consent may be revoked at any time. Subsequent calls would then be illegal. The Growth of Robocalls—And Complaints Despite the existence of the DNC Registry and the fact that most robocalls are illegal, the number of robocalls continues to grow in the United States. In 2016, YouMail reported an average of 2.4 billion robocalls being made each month. In May 2018, that figure rose to an all-time high of 4.1 billion robocalls, up sharply from the previous high of 2.9 billion robocalls in August 2017 (see Figure 1 ). YouMail states that this latest figure equals about 12 to 13 calls per person each month in the United States, up from just under 8 calls in January 2018. Consumer complaints continue to grow as well (see Table 1 ). The FTC received over 7.1 million complaints about robocalls in FY2017, up from 5.3 million complaints in FY2016. Civil Jurisdiction over Robocalls Both the FTC and the FCC, as well as individual states, have jurisdiction over robocalls and fraudulent calls; they can impose civil fines on those who break the law. In addition, in some instances, other federal agencies, such as the Department of Homeland Security, the Department of the Treasury, and the Internal Revenue Service (IRS), may prosecute robocall-related cases under criminal law. Federal Trade Commission The FTC regulates trade, including all telemarketing practices, regardless of how a call is initiated. The FTC's focus is on protecting consumers from scams and enforcing the rules associated with the DNC Registry. The FTC's primary concerns are the content of the call, whether that call was fraudulent, and whether the call was made to a number on the DNC Registry. The Telemarketing and Consumer Fraud and Abuse Prevention Act, which became law in 1994, authorized the FTC to regulate telemarketing calls. As required by the law, the FTC promulgated the Telemarketing Sales Rule (TSR), which requires telemarketers to disclose certain information; prohibits misrepresentations by telemarketers; sets limits on the times of day that telemarketers may call consumers; prohibits calls to a consumer who has asked not to be called again; and sets payment restrictions for the sale of certain goods and services. The FTC rules apply only to interstate calls (calls that originate in one state and end in another), not intrastate calls (calls that originate and end in the same state), as the FTC does not have jurisdiction over intrastate trade activities. The FTC provides exemptions similar to those of the FCC, but the FTC specifically excludes any exemption for telemarketers calling on behalf of exempt entities. For example, a politician running for office cannot hire a contractor to make robocalls on behalf of the campaign. Federal Communications Commission The FCC regulates communications, including all telemarketing calls, regardless of whether they are fraudulent or not. Its focus is on the call itself, rather than the content of the call. The FCC's authority to regulate robocalls comes from the TCPA and its rules apply to both interstate and intrastate calls (with exemptions for certain entities and certain types of calls, as noted previously). States States have their own laws covering intrastate telemarketing calls. Many of the laws have exemptions, like those of the FCC and FTC. Plus, many states claim authority to apply their statutes to calls originating outside the state. Recent FTC Action Related to Robocalls The FTC has undertaken vigorous law enforcement efforts against those making illegal calls. The FTC has brought 131 law enforcement actions against more than 750 companies and individuals that the agency alleged were responsible for placing billions of fraudulent telemarketing calls to consumers in violation of the Telemarketing Sales Rule. The FTC has obtained more than $1.5 billion in judgments against these violators and banned many of them from making robocalls in the future. (See Appendix D for a summary of the cases and fines imposed by the FTC on individuals and companies for conducting fraudulent robocall campaigns.) In addition to enforcement actions against individuals responsible for making robocalls intended to defraud, the FTC is pursuing technical solutions to block robocalls, including its Robocall Challenge program. (Details of the individual challenges and the winners are included in Appendix B .) Sharing Consumer Complaint Data with Telecommunications Service Providers As of August 1, 2017, when consumers report DNC or robocall violations to the FTC, the robocaller phone numbers provided are released each day to telecommunications carriers and other industry partners that are implementing technical call-blocking solutions. The consumer complaint data are critical to achieving the goal of this initiative, as many existing call-blocking solutions rely on "blacklists." These blacklists are databases of telephone numbers that have received a significant number of consumer complaints. The data being provided include the date and time an unwanted call was received, the general subject matter of the call (such as debt reduction, energy, warranties, home security, etc.), and whether the call was a robocall. Using this information, carriers can better determine which calls should be blocked or flagged before they reach consumers' phones. To ensure the most complete databases can be compiled, the FTC has made it as easy as possible for consumers to report unwanted calls. This information is particularly helpful to law enforcement and industry. The data are posted to the FTC website every weekday (with Monday postings including weekend data) on the "Do Not Call Reported Calls Data" web page. Recent FCC Action Related to Robocalls Since 2016, the FCC has taken various actions to address the problem of illegal, fraudulent, and unwanted robocalls. The agency's most recent actions include convening a Robocall Strike Force and promulgating new rules that will empower telecommunications providers with new tools to stop robocalls. For a summary of the cases and fines imposed by the FCC on individuals and companies for conducting fraudulent robocall campaigns, see Appendix E . Robocall Strike Force On July 26, 2016, then-Chairman of the FCC Tom Wheeler asked the telecommunications industry to "develop an action plan for providing consumers with robust robocall-blocking solutions." On August 19, 2016, a 60-day "Strike Force" convened and created four work groups: Authentication; Empowering Consumer Choice; Detection, Assessment, Traceback, and Mitigation; and Regulatory Support/Root Cause Removal. These work groups subsequently developed both short- and long-term plans to address the FCC Chairman's request. Highlights of their work are described below. Robocall Strike Force Report Each work group contributed to the Strike Force report issued on October 16, 2016. Topics included the development of technical standards and consumer education plans and goals. Additionally, the Detection Work Group developed, implemented, and tested a Do Not Originate (DNO) Registry to stop unwanted calls from reaching customers. The Do Not Originate Registry Trial The intent of the DNO Registry is to block numbers that should never originate any call: invalid numbers, valid numbers that are not allocated to a voice service provider, and valid numbers that are allocated but not assigned to a subscriber. With the FCC's permission, the Strike Force performed a trial of this concept. The trial was considered a success by the Strike Force and the FCC, playing a significant role in reducing IRS scam calls by about 90% from September 2016 to February 2017. Public Notice on Blocking Unwanted Robocalls During the time that the Robocall Strike Force was convened, the FCC released a Public Notice clarifying one aspect of its robocall rules. Specifically, the FCC clarified that if a subscriber to a telephone number requests call blocking to prevent that telephone number from being spoofed, a voice service provider (regardless of the type of service: traditional landline, VoIP, or mobile) may block such calls so they do not reach the intended recipient consumer. The clarification was intended to encourage initiatives such as the DNO database. Twitter Town Hall on Robocalls On November 4, 2016, the FCC held a "Twitter Town Hall" on robocalls. During the town hall, the FCC policy staff talked to the public about robocall policies, consumer tips, and concerning trends. A transcript of the event is available online using the hashtag #RobocallChat. Ringless Voicemail: "All About the Message" Petition for Declaratory Ruling On March 31, 2017, a company called "All About the Message" (AATM) filed a petition for a declaratory ruling requesting that the FCC declare the delivery of a voice message directly to a voicemail box does not constitute a call that is subject to the prohibitions on the use of an automatic telephone dialing system or an artificial or prerecorded voice under the TCPA. In short, AATM requested that a robocall that goes directly to a consumer's voicemail not be categorized as an illegal robocall. Although there was some support for such a ruling, including from the Republican National Committee and the U.S. Chamber of Commerce, in the end, the company withdrew the petition. It may have done so because of the overwhelming amount of negative press coverage and comments filed in opposition to the petition. However, since the petition was withdrawn, the company is entitled to file it again. Notice of Proposed Rulemaking and Notice of Inquiry Stemming from the work of the Regulatory Support/Root Cause Removal Work Group, on March 23, 2017, the FCC released "Advanced Methods to Target and Eliminate Unlawful Robocalls," a Notice of Proposed Rulemaking (NPRM) and Notice of Inquiry (NOI). Notice of Proposed Rulemaking The NPRM sought comment on FCC-proposed rules regarding the DNO Registry and clarified guidance contained in the 2016 Public Notice. The FCC sought comment on a proposal that would authorize providers to block calls from three categories of numbers: invalid numbers, valid numbers that are not allocated to a voice service provider, and valid numbers that are allocated but not assigned to a subscriber. These are the same criteria used in the DNO Registry trial. Notice of Inquiry In the Notice of Inquiry, the FCC sought input on possible standards that could be used to indicate to a reasonably high degree of certainty that a call is illegal, and whether to adopt a safe harbor provision to protect carriers in case they inadvertently violate the FCC's call completion requirements in blocking a suspected robocaller. The agency also asked for comments regarding ways that callers who make legitimate calls can guard against being blocked and to ensure that legitimate callers whose calls are blocked by mistake can prevent further blocking. NPRM/NOI Comments and Reply Comments The vast majority of participants in this proceeding supported the FCC's plans as laid out in the NPRM, specifically, to permit carriers to block outgoing calls at the request of a subscriber, as well as calls originating from invalid numbers, unallocated numbers, and allocated but unassigned numbers. They also supported enacting a broad safe harbor to protect carriers engaged in call blocking. The FTC also proposed expanding the coverage of the DNO Registry beyond robocalls to certain live calls. One of the largest categories of complaints to the DNC is about impostor calls, in which the caller pretends to be someone else, like an IRS agent. In about one-third of those cases, consumers have indicated the call was not a robocall. So, while 60% of monthly DNC complaints to the FTC are about robocalls, "live" calls also generate hundreds of thousands of complaints each month. The FTC believes that provider-based blocking would not be complete without the ability to block illegal "live" calls that target numbers registered on the DNC Registry. Commenters also broadly agreed that the FCC should avoid imposing burdensome processes or creating any complex new infrastructure, such as a "white list" (a set of numbers that may be called) or any centralized database or administrator. Report and Order and Further Notice of Proposed Rulemaking31 In November 2017, the FCC promulgated rules on the creation and use of the DNO Registry. The new rules explicitly allow service providers to block calls from two categories of number: (1) numbers that the subscriber has asked to be blocked, such as "in-bound only" numbers (numbers that should not ever originate a call); and (2) unassigned numbers, as the use of such a number indicates that the calling party is intending to defraud a consumer. The FCC also established safeguards to mitigate the possibility of blocking desired calls. The commission is also seeking further comment on additional mitigation techniques and comment on two issues related to the new rules. Additionally, the order contains a requirement that the Consumer and Governmental Affairs Bureau, in consultation with the Federal Trade Commission's Bureau of Consumer Protection, to prepare a report on the state of robocalling in the United States and to submit it to the commission within a year from publication of the order in the Federal Register . Report and Order The new rules give voice service providers the option of blocking illegal robocalls in certain, well-defined circumstances, providing the telecommunications industry the flexibility to block illegal calls. The record showed broad support among consumer groups, telecommunications service providers, government, and callers for blocking DNO calls. The FCC did not accept the assertion of some commenters that any gains from blocking DNO numbers would be temporary, because those making illegal robocalls will simply choose other numbers to spoof when their calls are blocked. Blocking at the Request of the Subscriber to the Originating Number The FCC provided clarification that telecommunications providers may block calls when they receive a request from the subscriber to which the originating number is assigned. For example, "in-bound only" numbers to government agencies such as the IRS should not be originating calls. The commission found that where the subscriber did not consent to the number being used, the call was very likely made to annoy and defraud. Calls Purporting to Originate from Unassigned Numbers The new order explicitly allows providers to block calls purporting to originate from a number that is unassigned, as use of such a number provides a strong indication that the calling party is spoofing the Caller ID to potentially defraud and harm a consumer. The commission identified three categories of unassigned numbers numbers that are invalid under the North American Numbering Plan (NANP); numbers that have not been allocated by the North American Numbering Plan Administrator (NANPA) or the Pooling Administrator (PA) to any provider; and numbers that NANPA or PA has allocated to a provider, but are not currently used. Providers are now allowed to block calls purporting to be from numbers that fall into any of these categories. Further Notice of Proposed Rulemaking In the Further Notice of Proposed Rulemaking (FNPRM), the FCC is seeking comment on potential mechanisms to ensure that erroneously blocked calls can be unblocked as quickly as possible and without undue harm to callers and consumers; and measure the effectiveness of the commission's robocall rules and the industry's technical efforts to block robocalls. Mechanisms to Ensure Erroneously Blocked Calls Can Be Unblocked In the Report and Order, the FCC encourages providers who block calls under approved criteria to identify and quickly rectify erroneous blocking. In the FNPRM, the commission is seeking comments on whether it should require providers who block calls to establish a formal challenge mechanism or appeals process. Some of the questions posed were Should we require blocking providers to establish a challenge mechanism by which callers can inform them of erroneous blocking and such blocking can quickly be fixed? What is the quickest way for callers to be informed of blocking, e.g., should providers send an intercept message to callers to notify them of the block with contact information by which a caller can report and rectify the situation? Should challenge mechanisms be different based on the scale of the blocking provider? What challenge mechanisms are blocking providers considering adopting, even absent a requirement? Is such a requirement necessary? Does our informal complaint process provide a mechanism to surface erroneous blocking to providers and correct it? Are there ways we could modify our informal complaint process to address the time-sensitive nature of erroneous call blocking? Are there other Commission processes that would provide an appropriate mechanism for rectifying erroneous blocking? Measuring the Effectiveness of FCC and Industry Anti-Robocall Efforts The commission also asked, if it were to adopt a reporting obligation on all service providers, what information should be collected? Some of the questions posed were Should providers be required to report the quantity of false positives? Should this be a quarterly requirement or an annual requirement? In what ways could the information collected help the commission evaluate the effectiveness of our efforts as well as those of industry and/or support additional measures to combat illegal robocalls? What consumer benefits would come from requiring all voice service providers to publicly report the number of illegal robocalls blocked each day/month/year? What are the costs of requiring voice service providers to report this information? Should we consider different requirements for smaller providers? Alternatively, should the commission use data from the FCC's Consumer Complaint Data Center as a benchmark for determining the effectiveness of FCC and industry efforts? Are there other Commission or third-party data sources that the commission could use to assess the effectiveness of its efforts as well as industry's at targeting illegal robocalls? Robocall Report The FCC directed that the report should encompass both the progress made by industry, government, and consumers in combatting illegal robocalls, as well as the remaining challenges to continuing these efforts. It asked for a focus on quantitative data, including calling trends and consumer complaints. The intent of the report is to provide insight into the current state of the robocalling problem and how to target additional measures to help consumers. The Do Not Originate Registry: Stakeholder Positions The DNO Registry, to be established through the FCC's November 2017 Order, has broad support from telecommunications service providers and consumer groups, but only conditional support for limited intervention from groups representing telemarketers and other legal call originators. Telecommunications Industry Telecommunications service providers generally support the registry, but have expressed concern about the expected high cost to fully implement it and how those costs would be covered. The costs would likely vary based on the architecture and size of the network, as well as the solutions a company selects. Further, the registry would likely require continual upgrades to keep up with new methods developed by the robocallers. Telecommunications service providers ideally want a funding mechanism that could be used for onetime costs, short-term initiatives, and longer-term initiatives related to the registry. Part of a three-pronged solution proposed by the telecommunications industry is to ask Congress to appropriate funds for this purpose. The telecommunications industry has also recommended that Congress amend 47 C.F.R. Section 64.2105 to state that calls blocked to protect consumers from receiving illegal robocalls will not be considered when evaluating the long-distance call completion rates. Other changes to existing law could place more robocall scams under criminal jurisdiction rather than civil jurisdiction. Escalating the manner in which robocallers are punished by adding prison time to the fines imposed might have more effect than the fines alone seem to have—especially since most fines are suspended because the individual is unable to pay. Consumer Groups Consumer groups have been unequivocal in their support for additional restrictions on robocalls and implementation of the DNO Registry. Together, the Consumers Union, Consumer Action, Consumer Federation of America, National Association of Consumer Advocates, National Consumer Law Center, Public Citizen, and Public Knowledge submitted joint comments to the FCC's robocall proceeding, "Advanced Methods to Target and Eliminate Unlawful Robocalls." These groups support the FCC's proposals, but also asked the FCC to explicitly permit and encourage the providers, where it can be done reliably and with the consumer's consent, to use additional tools, such as advanced analytics, to identify and block clearly illegal robocalls; clarify that providers should make available to consumers the option to block calls that fail to authenticate their Caller ID information (i.e., ensure the person calling is who they say they are); continue to press providers to offer effective, optional, comprehensive, and free call-blocking tools to all of their customers to help block legal but unwanted robocalls, which they already have permission to do; and revise the definition of "illegal robocall" for the purposes of these rules so that it is clear that it includes autodialed or prerecorded text messages and voicemails. Telemarketing Industry and Other Legal Call Originators The U.S. Chamber of Commerce has long expressed a concern over congressional action related to telemarketing calls. In September 2016, the chamber wrote to the chairman of the House Committee on Energy and Commerce asking that the committee not make any legislation overly broad. For example, it asked that companies not be penalized for contacting customers for informational calls regarding prescription reminders, low bank account balance alerts, etc. The Professional Association for Customer Engagement (PACE) is another industry group that has expressed concern specifically about the establishment of the DNO Registry and the potential harm to its members if their calls are misidentified. In response to this concern, PACE created the Communication Protection Coalition (CPC), a cross-industry group of stakeholders interested in mitigating the harm caused by blocking and mislabeling of legal calls. The CPC web page states As a result of the FCC's Robocall Strike Force initiatives, the carriers and their associated analytics companies are making decisions about your calls. These unregulated analytics companies apply their own algorithms to determine if a call should be blocked from ringing your customer's phone or replace your Caller ID with a label such as "Scam Likely", "Robocaller", "Fraud Call", "Telemarketer" or "Debt Collector." The issue that is very concerning to PACE and our members is that the algorithms do not take into account legal entities delivering legal calls for which consent has been provided. The analytics companies are merely applying their algorithm without knowing all the facts regarding the call. On September 20, 2017, PACE held the first CPC meeting. It was attended by carriers, analytics companies, PACE members, industry associations, and federal regulators, including two industry members of the Robocall Strike Force. The initial meeting ended with consensus on the need for cooperation from all parties to develop best practices and a proposal to consider inviting consumer groups to participate in future meetings. The next meeting was scheduled for January 2018. Congressional Action, 115th Congress In the 115 th Congress, 12 bills aimed at curtailing robocalls and protecting c onsumers have been introduced ( Table 2 ). Most of t hese bills are focused on the larger issue of spoofing, as well as curtailing robocalls for debt collection and politica lly oriented messages ; two bills are aimed at protecting seniors from predatory robocalls intended to defraud them. Three hearings have been held on robocalls in the 115 th Congress "Do Not Call: Combating Robocalls and Caller ID Spoofing" House Committee on Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection April 27, 2018. Information about this hearing, including video and testimony, can be found online at https://energycommerce.house.gov/hearings/do-not-call-combating-robocalls-and-caller-id-spoofing . "Abusive Robocalls and How We Can Stop Them" Senate Committee on Commerce, Science, and Transportation April 18, 2018. Information about this hearing, including video and testimony, can be found online at https://www.commerce.senate.gov/public/index.cfm/hearings?ID=E0EB17D2-A895-40B4-B385-F94EA2716957 . "Still Ringing Off the Hook: An Update on Efforts to Combat Robocalls" Senate Special Committee on Aging October 4, 2017. Information about this hearing, including video and testimony, can be found online at https://www.aging.senate.gov/hearings/still-ringing-off-the-hook-an-update-on-efforts-to-combat-robocalls . Outlook Based on their long history, scammers appear determined to continue their attempts to defraud consumers. Robocalls make these efforts easier. The FTC asserts that law enforcement on its own cannot completely solve the problem of robocalls. Technological solutions, including robust call-blocking technology, likely will also be required. The DNO Registry, a technology solution that has been proven to significantly decrease robocalls, is supported by most stakeholders, but concerns remain with legitimate telemarketers who fear it may negatively impact them. The FCC intended to address these concerns in 2018. The impacts of the FTC initiatives on fraudulent robocalls, and the resulting impacts in the telemarketing industry, may continue to be oversight issues for Congress. Appendix A. Options for Responding to Unwanted Robocalls Because robocalls to consumers and businesses are not treated the same under existing laws and regulations, consumers and businesses have different options for responding to robocalls. Both the FTC and FCC have published consumer guidance for how to deal with unwanted calls Stop Unwanted Calls and Texts , Federal Communications Commission; and Blocking Unwanted Calls , Federal Trade Commission. Cutting down on unwanted robocalls most likely will reduce consumer exposure to fraudulent ones, along with every other type of unwanted robocall. Reporting a Violation (Consumers) Consumers can file a complaint with both the FCC and FTC. The agencies choose which robocallers to pursue for legal or regulatory enforcement based partly on these complaints. Complaints can be filed with the FCC at https://consumercomplaints.fcc.gov/hc/en-us/requests/new?ticket_form_id=39744 (Under "Phone Issues," select "Unwanted Calls.") Complaints can be filed with the FTC at https://complaints.donotcall.gov/complaint/complaintcheck.aspx . Prior to filing a complaint, consumers should confirm that their number is in the DNC Registry. This can be done at https://donotcall.gov/confirm/conf.aspx . Reporting a Violation (Businesses) Businesses have limited legal recourse against robocallers, but they can still take steps to curtail them. If a business receives a call that falls into one of the two exceptions above—sale to an employee at work that does not relate to work or sale of "nondurable office or cleaning supplies"—the business can report it to the FTC using the same website listed above for consumers. Blocking Robocalls (Consumers and Businesses) Both consumers and business can take advantage of a number of technical options for blocking robocalls. Third-Party Blocking Services for Landlines Blocking services provided by commercial firms can be used by individual consumers, small businesses, and large businesses. For VoIP services, some of these options may be "cloud-based," meaning they are managed from a remote location rather than on-site. Consumers and businesses with a small number of lines may employ a third-party blocking service. One such example is Nomorobo, a winner of the 2013 Robocall Challenge hosted by the FTC. (See Appendix B for information about the Robocall Challenge.) Nomorobo is a cloud-based solution that uses "simultaneous ringing," which routes incoming calls to a second telephone line managed by Nomorobo. In the Nomorobo solution, this second line would identify and hang up on the illegal robocall before it can ring through to the user. Nomorobo uses a database of known robocallers compiled with the help of the FTC, user reports, and its own "honeypots." If a call gets a match in the Nomorobo database, the call is not allowed to reach the intended recipient. If there is not a match, the call is allowed to go through. One example of an enterprise-wide service for large businesses is Pindrop, which provides robocall solutions to secure phone communications. The company developed and deploys patented "Phoneprinting" technology that can identify, locate, and authenticate phone devices just from the call audio, thereby detecting fraudulent calls as well as verifying legitimate callers. The service is used globally by banks, insurers, brokerages, and retailers. The company states that its service succeeds in detecting over 80% of fraud—even against first-time callers. Third-Party Mobile Phone Applications Both consumers and businesses can download software applications ("apps"), often free, to their mobile phones to filter out calls from unidentified callers and/or numbers not in the person's contact list. One app is YouMail. While YouMail is primarily used for voicemail transcriptions, it also provides protection against robocalls. The data the company collects through the app is used to calculate the Robocall Index. Another app requires a caller to enter the first two letters of the recipient's last name for the call to go through. Users of Apple's iPhone can download and use the Nomorobo app for a monthly fee. An Android-compatible Nomorobo app is expected to be available soon. CTIA, the wireless industry association, has a web page that lists existing Android apps. Telecommunications Carrier Services Traditional landline, internet-based (i.e., VoIP), and mobile telephone carriers provide customers with various options for blocking robocalls. Table A-1 , Table A-2 , and Table A-3 contain details of the offerings of each type of provider, as reported by Consumer Reports. An October 2016 Consumer Reports examination found that the quality of these services varied greatly among carriers. Overall, this examination found that consumers using internet-based phone services have the best call-blocking options and that most phone companies are not providing strong protection to their traditional landline and wireless customers. Call-Blocking Devices Businesses and consumers can install devices to stop robocalls. These devices work with traditional and VoIP landlines with Caller ID. There are at least four such devices available. These devices generally use a "blacklist" or a "whitelist." The former blocks all calls in the list (all others are allowed), while the latter only allows calls that are on the list (all others are blocked). Some devices use both types of lists. One example of a device that uses both a blacklist and a whitelist is the Digitone Call Block Plus (see Figure A-1 ). This device, like the others, is installed between the telephone wall jack and the telephone. Appendix B. Recent Law Enforcement Actions Against Robocallers One of the most enduring and harmful methods used in an attempt to defraud people is the "IRS Scam." It has been perpetrated by numerous entities since about 2013. This scam involves callers who claim to be employees of the IRS, using fake names and bogus identification. The callers may even know details about their targets and they usually use spoofed telephone numbers. Potential victims are told they owe money to the IRS and are threatened with arrest. They are also told that the amount owed must be paid immediately using gift cards or a wire transfer. Potential victims may not even be safe if they do not answer the phone: if the phone isn't answered, the scammers often leave an "urgent" message demanding a return call. Some scammers have even used video relay services to try to scam deaf and hard of hearing individuals. In another variation of the scam, recent immigrants with limited knowledge of English are approached in their native language. In these cases, victims are threatened with deportation. Phone scams of this kind have been on the IRS's "Dirty Dozen" list of scams since 2014. The IRS believes that the scam is responsible for over $54 million in losses to victims. Appendix C. The FTC's Robocall Challenge Program In response to the significant growth in complaints about robocalls from consumers, the FTC held four Robocall Challenges, discussed below. The Original Robocall Challenge The original FTC challenge, held in 2013, asked participants to develop a solution to block illegal robocalls on landlines and mobile phones. There were two winners: Aaron Foss for Nomorobo and Serdar Danis for "Robocall Filtering System and Device with Autonomous Blacklisting, Whitelisting, Graylisting and Caller ID Spoof Detection." Both winning entries work by intercepting and filtering out robocalls using technology to blacklist robocaller phone numbers and whitelist numbers associated with acceptable incoming calls. Both proposals also filter out unapproved robocallers by employing a CAPTCHA-style test to prevent illegal calls from ringing through to a user. Zapping Rachel The second challenge, held in 2014, was called Zapping Rachel. In this challenge, security experts were asked to build tools that investigators could use to track and minimize illegal robocalls. The challenge had three phases: The Creator Phase challenged contestants to build a honeypot that identifies inaccurate information in incoming calls, such as spoofed caller IDs, or determines which calls are likely robocalls. The winning entry used a combination of an audio CAPTCHA filter, call detail analysis, and recording and transcription analysis to determine the likelihood that an incoming call was a robocall. The Attacker Phase challenged contestants to circumvent an existing honeypot and prevent it from collecting information on incoming calls. The winning entry, "Droid Rachel," circumvented the honeypot by employing a four-step targeting process that screened out phone numbers potentially connected to a honeypot, and optimized Droid Rachel's ability to send robocalls using unsuspecting consumers' Android phones. The Detective Phase challenged contestants to analyze call data from an existing honeypot and develop algorithms to predict which calls were likely robocalls. The winning solution focused on metrics such as the number of calls made, whether the number called was a toll-free number, and the time of the call to identify likely robocalls. Robocalls: Humanity Strikes Back The third challenge, Robocalls: Humanity Strikes Back, was held in 2015. Contestants were asked to create tools people could use to block and forward robocalls automatically to a honeypot. The winner of this contest was RoboKiller, created by Ethan Garr and Bryan Moyles. DetectaRobo As part of the National Day of Civic Hacking in June 2015, the FTC challenged the public with DetectaRobo, the agency's fourth contest. Participants were asked to analyze call data and create algorithms that could predict which calls were likely robocalls. Three of the 19 teams that registered were selected as demonstrating superior functionality, accuracy, innovation, and creativity. The winning team in this challenge was "Team HaV" (Ved Deshpande and M. Henry Linder). The two runners-up were— "Team Milibo" (Sridhar Ramakrishnan and Shuping Liu) and "Team RDAC" (Charles Julian Knight, Taylor Kelley, Ian Moraes, Rohan Smith, Will Mavis, John Cowhig, Sean Browning, James Albert Snow, and Pablo River). Appendix D. Fines Imposed on Robocallers by the FTC, 2017 The Federal Trade Commission has successfully concluded four cases against fraudulent robocallers, summarized below. Justin Ramsey On April 13, 2017, the FTC obtained a settlement order with Justin Ramsey, the ringleader of telemarketing operations that bombarded consumers with illegal robocalls and called phone numbers listed on the National DNC Registry. The order banned Ramsey and his company, Prime Marketing LLC, from, among other things, placing robocalls to individuals to sell goods or services and initiating sales calls to numbers listed on the DNC Registry. Ramsey and Prime Marketing were also fined a $2.2 million civil penalty, to be suspended upon payment of $65,000. According to the FTC's January 2017 complaint, in 2012 and 2013 Ramsey and several codefendants made millions of robocalls to consumers and also placed millions of calls to phone numbers listed on the DNC Registry. In just one week in July 2012, the complaint states, the defendants made more than 1.3 million illegal robocalls to consumers nationwide, 80% of which were to numbers listed on the DNC Registry. From 2014 through 2016, Ramsey continued his unlawful telemarketing through his new company, Prime Marketing. During April and May of 2016, Ramsey and Prime Marketing initiated at least 800,000 calls to numbers in the DNC Registry. The other defendants in the case, except Ramsey and Prime Marketing, settled the commission's charges at the same time the agency filed its complaint. Aaron Michael Jones and Steven Stansbury On June 2, 2017, a federal district court judge in California approved default judgments proposed in January 2017 by the FTC against Aaron Michael Jones, Steven Stansbury, and nine associated companies for making billions of illegal telemarketing robocalls to consumers. The FTC estimated that more than 100 million illegal robocalls per year were made to numbers listed on the DNC Registry. In addition to permanently banning Jones, Stansbury, and their companies from all telemarketing activities, including initiating robocalls, the order imposed a $2.7 million penalty against each of them, payable to the FTC. Seven of the nine individual defendants, and corporate defendant Local Lighthouse Corp., agreed to court orders that settled the FTC's charges in January. All Us Marketing LLC There were numerous defendants in this case, together doing business as All Us Marketing LLC (previously known as Payless Solutions). These individuals were responsible for thousands of calls to consumers nationwide making false claims about bogus debt relief services. After convincing consumers to provide their credit card information, the defendants charged them between $300 and $4,999 up front, but provided nothing in return. In some cases, the defendants used consumers' personal information to apply for new credit cards. The complaint also charged the defendants with making many calls to consumers whose phone numbers were on the DNC Registry, along with several other violations of the TSR and Florida's Telemarketing and Consumer Fraud and Abuse Act. This large case, involving 15 defendants, was settled on June 5, 2017, with eight orders entered by a federal district court against Orlando-based individuals and companies. The order imposed financial judgments on 12 of the defendants that totaled $4,890,797. The orders also permanently ban most of the defendants from robocalling, telemarketing, or providing so-called "debt relief" services. The orders against three other defendants were for lesser amounts: two were fined $389,915 and one was fined $640,747. Caribbean Cruise Lines In February 2017, the FTC, along with nine states and the Tennessee Valley Authority settled with the remaining defendants who assisted Caribbean Cruise Lines, Inc. (CCL), a Florida-based cruise line company, in running an illegal telemarketing campaign that made billions of robocalls. Most defendants had settled their charges in 2015. In settling the final charges, CCL's owner Fred Accuardi was barred from robocalling and illegal telemarketing, as well as helping anyone else make such calls. The settlement order also includes a judgment of $1.35 million, which is to be suspended after the defendants pay $2,500. The CCL robocall campaign ran from October 2011 through July 2012 and averaged approximately 12 million to 15 million illegal sales calls a day. Consumers who answered these calls typically heard a prerecorded message telling them they had been selected to participate in a 30-second research survey, after which they would receive a "free" two-day cruise to the Bahamas. In reality, the calls were designed to market CCL's cruises and various up-sell packages. The illegal robocalls generated millions of dollars for CCL. Appendix E. Fines Imposed on Robocallers by the FCC, 2017 Changes in technology have made it easier and cheaper for robocallers to manipulate caller ID information. To address this problem, the Federal Communications Commission has focused both on enforcement actions and on pursuing policies to help consumers and their service providers block malicious robocalls. Adrian Abramovich In June 2017, the FCC took its first enforcement action under the 2009 Truth in Caller ID Act. It proposed a $120 million fine—its largest ever—on a Florida-based robocaller, Adrian Abramovich. Abramovich is believed to have been responsible for 96 million spoofed robocalls over the final three months of 2016. Of those calls, about 90% were made to mobile phones and 10% to landline phones. The calls used "neighborhood spoofing" technology that uses the local area code and the first three digits of the recipient's own phone number to encourage people to answer the calls. If the call was answered, recipients would hear a recorded message asking them to press one to hear about vacation deals from travel companies such as Marriott, Expedia, Hilton, and TripAdvisor. Callers would then be transferred to call centers in Mexico, where live operators would try to sell them vacation packages at Mexican timeshare facilities not affiliated with the companies in the recorded messages. Philip Roesel The FCC proposed a fine of $82 million on robocaller Philip Roesel in August 2017. This robocaller, doing business as Wilmington Insurance Quotes, reportedly made more than 21 million spoofed robocalls in violation of the Truth in Caller ID Act. Based on subpoenaed records, the FCC verified that 82,106 health insurance telemarketing calls were made from October 2016 through January 2017 using falsified caller ID information. The fine was based on these verified calls, which were found to target vulnerable consumers, including the elderly, the infirm, and low-income families. Appendix F. Proposed Legislation, 109 th -114 th Congresses Both the House and the Senate introduced legislation during this timeframe aimed at protecting consumers from fraudulent robocalls. House of Representatives One bill related to robocalls has passed the House since 2005 ( H.R. 5175 , the "Democracy is Strengthened by Casting Light on Spending in Elections" (DISCLOSE) Act, in the 111 th Congress). The DISCLOSE Act contained one relatively narrow provision related to public safety, prohibiting robocalls to public service access points (911 call centers). Other legislation proposed in the House of Representatives during this timeframe would have expanded the ability of the FCC to impose forfeiture penalties; expanded the statute of limitations and increased the maximum penalty for certain violations; expanded prohibitions on providing inaccurate caller ID data to apply to persons outside the United States if the recipient of the call is within the United States; directed providers of spoofing services to take such steps as the FCC may prescribe to verify that users do not engage in caller ID information violations; expanded the definition of "caller identification information" to include text messages; amended the federal criminal code to make it a crime to knowingly initiate a commercial robocall from within the United States or to a recipient within the United States; directed the FTC to establish an office within the Bureau of Consumer Protection to advise the FTC on the prevention of fraud targeting seniors; and directed the FTC to revise the DNC Registry provisions of the TSR to prohibit politically oriented recorded message telephone calls to telephone numbers listed on that registry. Senate Legislation proposed during this timeframe would have directed the FTC to establish an office within the Bureau of Consumer Protection to advise on the prevention of fraud targeting seniors; authorized the FCC to impose forfeiture penalties, without first sending a citation regarding the charged violation, against persons not licensed by the FCC who violate prohibitions on the use of robocall equipment; and amended the federal criminal code to make it a crime to knowingly initiate most commercial robocalls, without the prior written consent of the recipient, from within the United States or to a recipient within the United States. The Senate has not passed any bills related to robocalls since 2005.

The Telephone Consumer Protection Act of 1991 (TCPA) regulates robocalls. A robocall, also known as "voice broadcasting," is any telephone call that delivers a prerecorded message using an automatic (computerized) telephone dialing system, more commonly referred to as an automatic dialer or "autodialer." Robocalls are popular with many industry groups, such as real estate, telemarketing, and direct sales companies. The majority of companies who use robocalling are legitimate businesses, but some are not. Those illegitimate businesses may not just be annoying consumers—they may also be trying to defraud them. The Federal Trade Commission (FTC) and Federal Communications Commission (FCC) regularly cite "unwanted and illegal robocalls" as their number-one complaint category. The FTC received more than 1.9 million complaints filed in the first five months of 2017 and about 5.3 million in 2016. The FCC has stated that it gets more than 200,000 complaints about unwanted telemarketing calls each year. These statistics, as well as complaints to congressional offices, have spurred Congress to hold hearings and introduce legislation on the issue in an effort to protect consumers. Congressional policymakers have proposed a number of changes to existing law and regulations to address the problem of illegal robocalls under the TCA, many of which are intended to defraud. These changes would, for example, expand the definition of what a robocall is, increase penalties for illegal spoofing, and improve protection of seniors from robocall scams. As yet, none of these proposals has become law. On August 19, 2016, a 60-day Robocall "Strike Force" convened, culminating in the testing of a Do Not Originate (DNO) Registry to stop unwanted calls from reaching customers. The intent of the registry is to block fraudulent calls before they can reach a consumer. With the FCC's permission, the Strike Force performed a trial of this concept. The trial was considered a success by the Strike Force and the FCC, reducing calls associated with one particular scam by about 90% in the third quarter of 2016. In November 2017, the FCC promulgated rules on the creation and use of the DNO Registry. The new rules explicitly allow service providers to block calls from two categories of number: (1) numbers that the subscriber has asked to be blocked, such as "in-bound only" numbers (numbers that should not ever originate a call), and (2) unassigned numbers, as the use of such a number indicates that the calling party is intending to defraud a consumer. Notwithstanding the efforts above, based on their long history, scammers appear determined to continue their attempts to defraud consumers. Robocalls make these efforts easier. The FTC asserts that law enforcement on its own cannot completely solve the problem of robocalls. Technological solutions, including robust call-blocking technology, likely will also be required. The DNO Registry, a technology solution that has been proven to significantly decrease robocalls, is supported by most stakeholders, but concerns remain with legitimate telemarketers who fear it may negatively impact them. The FCC intended to address these concerns in 2018. The impacts of the FTC initiatives on fraudulent robocalls, and the resulting impacts in the telemarketing industry, may continue to be oversight issues for Congress. In the 115th Congress, three hearings have been held, and 13 bills aimed at curtailing robocalls and protecting consumers have been introduced. Most of these bills are focused on the larger issue of spoofing, as well as curtailing robocalls for debt collection and politically oriented messages; two bills are aimed at protecting seniors from predatory robocalls intended to defraud them.

Introduction The economic downturn that began in December 2007 had a significant impact on U.S. manufacturing in general and automobile manufacturing in particular. The automotive industry underwent major restructuring in 2008 and 2009. To facilitate the restructuring, the U.S. government provided two U.S. automakers—General Motors (GM) and Chrysler—with financial assistance. In addition, on February 20, 2009, the Obama Administration announced the creation of the Presidential Task Force on the Auto Industry. The task force was a Cabinet level group, which was led by Secretary of the Treasury Timothy Geithner and the Director of the National Economic Council, in the Office of the President, Larry Summers; it consisted of Cabinet and other executive branch officials. The Task Force was to "discuss recently submitted restructuring plans from Chrysler LLC and General Motors Corporation" and "to conduct additional analysis and form initial recommendations in their [members of the Task Force's] areas of expertise." U.S. automakers deal with an extensive network of parts suppliers and components makers. These companies faced financial difficulties as a result of the setbacks in the automotive industry. Companies in the automotive supply chain were also a concern of some policy makers during the restructuring. Delphi Corporation is a "Tier 1" supplier that provides parts and components directly to vehicle manufacturers; GM is Delphi's largest customer. In 2005, Delphi declared bankruptcy. As part of Delphi's reorganization, GM agreed to assist Delphi by assuming some of the company's pension liabilities. GM declared bankruptcy on June 1, 2009, and in July 2009, GM announced that it would not assume any of Delphi's pension liabilities. The Pension Benefit Guaranty Corporation (PBGC) assumed responsibility for Delphi's defined benefit (DB) pension plans. Once the PBGC assumed responsibility, some Delphi retirees may have seen their pension benefits reduced if their monthly benefit was larger than the statutory maximum benefit that the PBGC may pay. Some union workers whose pensions have been reduced by the PBGC may be receiving supplemental "top-off" benefits provided by GM. GM negotiated agreements with some of the unions who represent some Delphi workers to provide supplemental benefit if the pensions are transferred to the PBGC. GM honored these "top-off" agreements when Delphi's pensions were terminated. In September 2009, a group of current and future salaried employees filed a lawsuit against the PBGC seeking restoration of their pension benefits and claiming that the Delphi pensions were wrongly terminated. The case has not yet been resolved. Background on Delphi Corporation Prior to 1989, GM directly owned many of the makers of parts and components for GM automobiles. In 1989, GM combined many of these suppliers into one subsidiary company (Automotive Components Group, or ACG). ACG was renamed "Delphi" in 1995. In 1999, GM sold (or "spun-off") Delphi by conducting an Initial Public Offering (IPO) of Delphi common stock. Since 1999, Delphi has been a separate publicly owned corporation, although GM continued to be Delphi's largest customer. Delphi workers who had been participants in the GM pension plans were transferred to newly formed Delphi pension plans. Workers who had accumulated benefits in GM pension plans had their benefit obligations transferred to Delphi plans. According to GM, GM transferred assets sufficient to cover these benefit obligations. Delphi's workforce consisted of hourly employees and salaried employees. In general, the hourly workers were union members whereas the salaried workers were not. The groups of workers had separate benefit plans. To win their approval for the spin-off, GM made agreements with the unions to protect certain post-retirement health and pension benefits. Because they were non-union and therefore not subject to collective bargaining procedures, GM did not need the salaried workers' approval for the spin-off and salaried workers did not receive any benefit guarantees. Background on Pension Benefits About half of the U.S. workforce participates in one or more employer-sponsored pension plans. The two kinds of pension plans are defined contribution (DC) and defined benefit (DB) pension plans. In DC plans, contributions from individual employees—and often their employers—are placed in tax-advantaged accounts that accrue investment returns. The accounts are then used as a source of retirement income. In DC plans, individual employees usually direct the investment decisions in their own accounts and bear the risk for investment losses. These DC plans are known as 401(k), 403(b), or 457 plans, based on the appropriate sections of the tax code. Employees are responsible for most of the decisions affecting their individual accounts. DB pensions are employer-funded pension plans through which employees accrue monthly benefits using a formula based on a combination of the number of years of service and salary. For example, a plan might offer a benefit of 1.5% multiplied by the number of years of an employee's service multiplied by the average of the employee's highest five years of salary. So a worker who was employed for 30 years and averaged $50,000 for the final five years of employment would receive a benefit of $22,500 per year or $1,875 per month. Employers are responsible for ensuring that there are sufficient funds in DB pension plans to pay for current and future benefit payments. Employee Retirement Income Security Act The Employee Retirement Income Security Act (ERISA; P.L. 93-406 ) protects the interests of participants in qualified employee benefit plans. ERISA requires that benefit plans be operated solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries. Among other provisions, ERISA protects workers' pensions by establishing vesting requirements (how long a person has to work to be entitled to benefits); funding requirements (how much the employer must set aside to pay for current and future benefit obligations); and pension insurance (which will pay participant benefits in case of the plan sponsor's bankruptcy). Under ERISA, participants in DB plans do not own the plan assets, but have a claim on the amount of their vested benefits. Pension plan sponsors may not reduce workers' vested pension benefits. Pension Benefit Guaranty Corporation ERISA established a government corporation to insure the pension benefits of workers in private sector DB plans. When an insured DB pension plan has insufficient funds and cannot pay all of the promised benefits to the workers, the plan may be "terminated" and the retirees receive their benefits from the Pension Benefit Guaranty Corporation (PBGC). Not all underfunded pension plans are trusteed by the PBGC. The PBGC pays the pension benefits to which workers are entitled, up to limits established by law (29 U.S.C. 1322). The PBGC does not pay benefits for unpredictable contingent events or for a portion of benefits increased in the five years prior to termination. The benefits to retirees paid by PBGC do not come from taxpayer funding, and the benefit obligations of the PBGC are not obligations of the United States. To pay for its benefit obligations, the PBGC collects insurance premiums from employers that sponsor insured pension plans, receives funds from pension plans it takes over, and earns money from investments. PBGC Maximum Guarantee The maximum guarantee for a pension that was terminated in 2009 is $4,500 per month ($54,000 per year) for retirees who begin receiving pensions at the age of 65. The amounts are reduced so that retirees receive "actuarially neutral" pension benefits if they choose benefits in a form other than straight life annuity or if they begin receiving benefits before the age of 65. For example, the maximum benefit for individuals who retire at 65 years old and choose a Joint and 50% Survivor Annuity benefit is $4,050 per month ($48,600 per year). For retirees that choose to receive single life annuity benefits at 55 years old, the maximum benefit is $2,025 per month ($24,300 per year). The PBGC reported in 2006 that 84% of retirees who receive benefits from the PBGC are paid the full benefit amount they earned under their retirement plan. Major Events of Delphi Pension Plans Since 1999 Pension Benefits and the Delphi Spin-Off As part of the spin-off in 1999, GM continued to pay the pension benefits to workers who retired prior to October 1, 2000. The pension benefits of workers who retired on or after October 1, 2000, became the obligations of the various Delphi pension plans. GM also entered into Benefit Guarantee Agreements with three unions representing its hourly employees: the United Auto Workers (UAW); the International Union (IUE-CWA); and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union (USW). These agreements obligated GM in the event of a termination of the Delphi hourly pension plans to supplement the benefits for workers who received the statutory maximum benefit from the PBGC. GM agreed to pay each covered employee the difference between the benefit received from the PBGC and the benefit the individual would have received had the plan not been terminated. Salaried employees did not have similar agreements in place. This is most likely because the agreement of salaried employees was not necessary to complete the spin-off. Delphi Bankruptcy and Pension Plan Terminations Delphi filed for bankruptcy in October 2005. As part of the bankruptcy reorganization plan, GM agreed to the transfer of up to $3.4 billion of liabilities from the Delphi Hourly Plan to the GM Hourly-Rate Employees Pension Plan. On September 29, 2008, Delphi transferred liabilities of approximately $2.6 billion and assets of approximately $0.5 billion from the Delphi Hourly Plan to the GM Hourly-Rate Employees Pension Plan. On June 1, 2009, GM filed for bankruptcy. It subsequently received U.S. government financial assistance to assist with its reorganization. In July 2009, GM advised Delphi that it would not assume the Hourly Plan and would not transfer additional liabilities from Delphi to the GM pension plans. Because GM declined to assume additional liabilities from the Delphi pension plans, the PBGC terminated the Delphi pension plans, effective July 31, 2009. GM announced that it would fulfill its obligations to the Hourly Plan retirees by supplementing the pension benefits of those retirees who were receiving the maximum benefit from the PBGC. According to GM, [a]s a result of bargaining at the time of the spin-off, General Motors Corporation did agree to supplement pension benefits for certain limited groups of hourly employees and retirees in the event that the Delphi hourly pension plan was terminated. As with other union agreements that it has assumed from the old GM, General Motors Company will honor these commitments. Termination of Delphi Pension Plans ERISA provides for three types of single-employer pension plan terminations: standard, distress, and involuntary. The plan administrator initiates a standard or distress termination, whereas the PBGC initiates an involuntary termination. The Delphi pension plans were subject to an involuntary termination. Under 29 U.S.C. 1342(a), the PBGC may initiate involuntary termination proceedings if one of the following criteria is met: the plan has not met the minimum funding requirements or the plan has been notified by the Treasury Secretary that a notice of deficiency concerning the initial tax on a funding deficiency has been mailed; the plan will not be able to pay benefits when due; a distribution of at least $10,000 has been made to a participant who is a substantial owner of the sponsoring company and, immediately after the distribution, the plan has unfunded nonforfeitable benefits; or the long-run loss to the PBGC "may reasonably be expected to increase unreasonably if the plan is not terminated." The PBGC indicated that the Delphi plans met several of the criteria for termination. Delphi had not made required contributions to the pension plans in the previous four years and the plan had assets to pay for only half of its benefit obligations. The PBGC has assumed responsibility for the following pension plans sponsored by Delphi: Delphi Hourly-Rate Employees Pension Plan—approximately 47,176 participants, Delphi Retirement Program For Salaried Employees—approximately 20,203 participants, Packard-Hughes Interconnect Non-Bargaining Retirement Plan—approximately 1,383 participants, ASEC Manufacturing Retirement Program—approximately 533 participants, Packard-Hughes Interconnect Bargaining Retirement Plan—approximately 165 participants, and Delphi Mechatronic Systems Retirement Program—approximately 148 participants. On September 14, 2009, the Delphi Salaried Retiree Association (DSRA) filed a lawsuit against, among others, the PBGC, the U.S. Treasury Department, and the Presidential Task Force on the Auto Industry. Some of the DSRA's claims include the termination of the Delphi Retirement Program for Salaried Employees was in violation of the Due Process Clause of the Fifth Amendment to the U.S. Constitution; the termination of the Delphi Retirement Program for Salaried Employees was in violation of ERISA; and the agreement between GM and the unions representing hourly employees to "top-off" the hourly employees' pensions was a violation of the Equal Protection Clause of the Fifth Amendment to the U.S. Constitution. The DSRA says that GM, acting as a government actor owing to the U.S. Treasury's role in the GM bankruptcy, unfairly discriminated against the salaried employees "solely on the basis of their choice not to associate with a union." The DSRA feels that GM's bankruptcy in June 2009 voided the 1999 "top-up" agreements and that GM renegotiated and provided the "top-up" to the unions' pension plans for political motivations. The DSRA sought a preliminary injunction to prevent the PBGC from reducing the payments to the pension plan participants while the case is pending. On January 26, 2010, the court ruled that the PBGC could reduce the payments. The DSRA subsequently claimed that the PBGC has violated the terms of that ruling. On September 9, 2011, the U.S. district court dismissed the claims against the U.S. Treasury. The PBGC remains a defendant in the case. The DSRA submitted an affidavit from a pension actuary stating that the PBGC miscalculated the benefit obligations of the Delphi plans and that the pension plan for salaried employees was 86.52% funded. It also said that it was rare for pension plans with this amount of funding to require termination. According to PBGC estimates, at time of termination the plans for the Delphi Salaried Employees had $2.4 billion in assets and liabilities of $5 billion. The PBGC indicated that it expected to be responsible for about $2.2 billion of the plan's estimated $2.6 billion in underfunding. The Delphi court case remains ongoing. Delphi emerged from bankruptcy in October 2009 after a group of Delphi's lenders purchased most of Delphi's assets. In addition, GM purchased Delphi's steering business and four manufacturing facilities located in three states (Indiana, Michigan, and New York). Delphi reported $13.8 billion in sales in 2010. For comparison purposes, the company reported $26.9 billion in revenue in 2005. On March 31, 2011, the PBGC announced that it had redeemed the PBGC's stake in Delphi for $594 million. The PBGC acquired the stake in Delphi as part of the pension plan termination proceedings. The PBGC indicated that it did not know how this action would affect Delphi retirees' benefits, as the PBGC is continuing the process for determining final benefit amounts for Delphi retirees. The PBGC has indicated that final determinations on benefits will be completed in 2013. On March 5, 2013, the Congressional Auto Industry Pension Task Force Representative requested an update on the status of final benefit determinations for the Delphi Salaried pension plan. On March 12, 2013, PBGC indicated that it expected to complete final benefit determinations by September 30, 2015. On August 13, 2012, the House Ways and Means Committee Chairman Dave Camp sent requests to the White House Counsel, U.S. Department of Treasury, and PBGC for documents related to Delphi and GM's interest in Delphi. On October 3, 2012, Chairman Camp indicated that while the PBGC provided nearly a complete response, the Treasury provided an incomplete response. On October 4, 2012, Chairman Camp sent follow up requests to the U.S. Treasury and to the White House Counsel. On October 23, 2012, Chairman Camp sent additional letters to the U.S. Treasury and to the White House Counsel indicating that the Treasury's response to the October 4, 2012, request was "demonstrably incomplete" and that the White House Counsel's response was "unresponsive and perplexing." Chairman Camp indicated that he would "be forced to consider using compulsory process to secure production of the documents." The Congressional Research Service (CRS) is not aware of any public response from the U.S. Treasury or White House Counsel to Chairman Camp's October 12, 2012, requests. The House Oversight and Government Reform Committee has held several hearings and made several requests to officials in the Obama Administration regarding GM's decision to honor the top-up agreements with the union workers. For example, on August 9, 2013, Representative Darrell Issa, chair of the House Oversight and Government Reform Committee, subpoenaed Treasury Secretary Jacob Lew for "information related to the Committee's investigation into the preferential treatment afforded to Delphi's unionized employees during the bankruptcy and taxpayer-funded bailout of General Motors." The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) issued a report on August 15, 2013, entitled "Treasury's Role in the Decision for GM To [sic] Provide Pension Payments to Delphi Employees." The report noted that the decision to honor the top-up agreement was a joint decision by the U.S. Treasury and GM. The top-up agreement was honored because of the need to have the UAW approve GM's bankruptcy. The report also noted that GM did not top up the pensions of other former employees at Delphi because they did not have active employees at GM and had no leverage to hold up GM's bankruptcy. Legislation and Congressional Hearings In the 111 th , 112 th , and 113 th Congresses, legislation has been introduced and several committees have held hearings related to Delphi and the decision to top up the pensions of union but not salaried workers. Legislation in the 113th Congress Three bills were introduced in the first session of the 113 th Congress with regard to Delphi Corporation. These bills would extend the Health Coverage Tax Credit (HCTC), a refundable tax credit for 72.5% of an eligible individual's health care premiums. Retirees under the age of 62 who receive pension benefits from PBGC are among those who are eligible for the HCTC. The bills introduced are H.R. 2783 , To amend the Internal Revenue Code of 1986 to provide for continued eligibility for the health care tax credit for PBGC pension recipients eligible for the credit at the end of 2013, introduced by Representative Tim Ryan on July 22, 2013, would extend the HCTC for those PBGC recipients if they were eligible for the HCTC in December 2013. S. 1446 , the Health Care Coverage for Displaced Workers Act, introduced by Senator Jay Rockefeller on August 1, 2013, would permanently extend the HCTC. S. 1859 , the Tax Extenders Act of 2013, introduced by Senator Harry Reid on December 19, 2013, would extend the HCTC until December 31, 2014. Legislation in the 112th Congress The following legislation was introduced in the 112 th Congress with regard to Delphi Corporation: S. 3544 (Senator Sherrod Brown) and H.R. 6404 (Representative Tim Ryan), the Delphi Pensions Restoration Act of 2012, were introduced on September 13, 2012. These identical bills would have established a fund to provide for retirement benefits of retired employees of Delphi whose pensions have been reduced by the PBGC and who are not subject to "top-up" agreements with GM. Funds would have come from the sale of stock, warrants, and other financial instruments acquired by the U.S. Treasury while providing financial assistance to GM. H.R. 4232 , the Restoring Essential Safeguards for a Transparent, Open, and Reliable Executive under FOIA Act, was introduced by Representative Michael Turner on March 21, 2012. This bill would have made subject to the requirements of the Freedom of Information Act (FOIA) (1) any instrumentality in which the United States owns any stock or equity in a corporation (other than through a pension fund) or (2) agencies or instrumentalities that carry out the authority or interests of the U.S. government in entities in which the U.S. government own an equity stake. Representative Turner indicated that this bill would have made the agencies that were carrying out the Troubled Asset Relief Program (TARP) subject to FOIA requests. The U.S. interest in GM was administered under the authority of the TARP program. Legislation in the 111th Congress The following legislation was introduced in the 111 th Congress with regard to Delphi Corporation: S. 3526 was introduced by Senator Roger Wicker on June 23, 2010 and H.R. 6046 was introduced by Representative Christopher Lee on July 30, 2010. These identical bills would have required the Government Accountability Office (GAO) to evaluate the propriety of assistance provided to General Motors Corporation under the Troubled Asset Relief Program. H.R. 3455 was introduced by Representative Tim Ryan on July 31, 2009, and S. 1663 was introduced by Senator Sherrod Brown on September 11, 2009. These identical bills would have provided up to $3 billion from the Emergency Economic Stabilization Act of 2008 ( P.L. 110-343 ) to fund a Voluntary Employees' Beneficiary Association (VEBA) for former employees of Delphi or General Motors whose health care coverage was discharged as a result of the companies' bankruptcy. This bill would not have provided any pension benefits to any former Delphi employees. No further action was taken on either bill. H.Res. 591 was introduced by Representative John Boehner on June 26, 2009. Among other provisions, this resolution would have requested that President Obama transmit to the House of Representatives details of the role of the Presidential Task Force on the Auto Industry in any aspect relating to the levels of and reductions in the benefits of General Motors' and Delphi Corporation's employees and retirees. The resolution was reported favorably to the House by the Committee on Financial Services on July 24, 2009. Congressional Hearings in the 113th Congress The following congressional hearings were held in the first session of the 113 th Congress with regard to Delphi Corporation: The House Committee on Oversight and Government Reform held a hearing on September 11, 2013, entitled "Oversight of the SIGTARP Report on Treasury's Role in the Delphi Pension Bailout." The Subcommittee on Government Operations of the House Committee on Oversight and Government Reform held a hearing on June 10, 2013, entitled "The Delphi Pension Bailout: Unequal Treatment of Retirees." Congressional Hearings in the 112th Congress The following congressional hearings were held in the 112 th Congress with regard to Delphi Corporation: The House Committee on Oversight and Government Reform held a hearing on July 10, 2012, entitled "The Administration's Auto Bailouts and the Delphi Pension Decisions: Who Picked the Winners and Losers?" The House Committee on Oversight and Government Reform held a field hearing in Dayton, Ohio, on November 14, 2011, entitled, "Delphi Pension Fallout: Federal Government Picked Winners and Losers, So Who Won and Who Lost?" The Regulatory Affairs, Stimulus Oversight, and Government Spending Subcommittee of the House Committee on Oversight and Government Reform held a hearing on June 22, 2011, entitled "Lasting Implications of the General Motors Bailout." Congressional Hearings in the 111th Congress The following congressional hearings were held in the 111 th Congress with regard to Delphi Corporation: The Financial Services Oversight and Investigations Subcommittee of the House Financial Services Committee held a field hearing on July 13, 2010, in Canfield, Ohio, entitled "After the Financial Crisis: Ongoing Challenges Facing Delphi Retirees." The Health, Employment, Labor, and Pensions Subcommittee of the House Education and Labor Committee held a hearing on December 2, 2009, entitled "Examining the Delphi Bankruptcy's Impact on Workers and Retirees." The Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on October 29, 2009, entitled "Pensions in Peril: Helping Workers Preserve Retirement Security through a Recession." Bruce Gump, Chairman of Delphi Salaried Retirees Association provided testimony.

The Delphi Corporation is a parts and components supplier to auto makers that was created in 1999 as a spin-off from General Motors (GM). In May 2009, the pension plans of Delphi were terminated and responsibility for the payment of benefits to plan participants was turned over to the Pension Benefit Guaranty Corporation (PBGC), which is a government-run corporation that insures private pension benefits for workers in defined benefit (DB) pension plans. Although most workers in pension plans that are terminated by the PBGC receive their promised benefits, some workers may receive less than their full benefit. The PBGC may not pay an individual more than a statutory maximum benefit. In 1999, GM and some unions representing Delphi workers negotiated an agreement as part of the spin-off. GM agreed to provide the workers covered by the agreements the difference between the benefits earned under the plan and the maximum that the PBGC would pay if the pension plans were terminated. Some union workers and the non-union-salaried employees of Delphi did not have such a "top-off" agreement. Some contend that GM honored the top-off agreement under pressure from the Presidential Task Force on the Auto Industry and that the Delphi pension plans were terminated to facilitate restructuring in the auto industry. A group of former Delphi salaried employees has filed a lawsuit against the PBGC. This report provides background on Delphi Corporation, relevant pension law, the role of the PBGC, a description of major events at Delphi since 1999, and a listing of congressional hearings and legislation introduced related to the Delphi Corporation since the 111th Congress.

Introduction and Overview The Energy and Water Development appropriations bill includes funding for civil works projects of the U.S. Army Corps of Engineers (Corps), the Department of the Interior's Central Utah Project (CUP) and Bureau of Reclamation (Reclamation), the Department of Energy (DOE), and a number of independent agencies, including the Nuclear Regulatory Commission (NRC) and the Appalachian Regional Commission (ARC). FY2017 funding for energy and water development programs was provided by Division D of the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), an omnibus funding measure passed by Congress May 4, 2017, and signed into law the following day. (This followed a series of continuing resolutions.) Total funding for Division D was $38.89 billion, offset by $436 million in rescissions. That total was $1.27 billion above the Obama Administration request and $1.54 billion over the FY2016 level, excluding rescissions. The Obama Administration also had proposed $2.26 billion in new mandatory funding for DOE, which was not approved. Proposed reductions for the Corps, Reclamation, and CUP were also rejected. Figure 1 compares the major components of the Energy and Water Development bill. The Senate Appropriations Committee approved its version of the FY2017 Energy and Water Development appropriations bill on April 14, 2016 ( S. 2804 , S.Rept. 114-236 ). For floor consideration, the Senate called up the House-passed FY2016 Energy and Water Development bill ( H.R. 2028 ) and substituted the language of S. 2804 as passed by the Senate Appropriations Committee. The Senate approved the measure May 12, 2016, by a vote of 90-8. Total appropriations in the bill were $261 million (0.7%) above the request, including budget scorekeeping offsets. The House Appropriations Committee completed action on April 19, 2016 ( H.R. 5055 , H.Rept. 114-532 ). As passed by committee, the House bill would have provided an increase of $4 million over the request. However, the House rejected the bill May 26, 2016, by a vote of 112-305. The bill's defeat in the House was widely ascribed to the adoption of several controversial amendments from both sides of the aisle, such as language on sexual orientation and gender identity and a provision to block heavy water imports from Iran. Similarly to FY2017, funding for FY2016 Energy and Water Development programs was included in an omnibus funding measure for the entire federal government passed on December 18, 2015, the Consolidated Appropriations Act, 2016 ( P.L. 114-113 ). The omnibus measure provided a total of $37.3 billion for energy and water programs for FY2016, an increase of 5.8% over FY2015. Funding in the omnibus measure included $29.7 billion for DOE (up 5.7%), $6.0 billion for the Corps (up 9.8%), $1.3 billion for Reclamation (up 11.8%), and $342 million for independent agencies (up 27.0%). For more information, see CRS Report R43966, Energy and Water Development: FY2016 Appropriations , by [author name scrubbed]. Budgetary Limits Congressional consideration of the annual Energy and Water Development appropriations bill is affected by certain procedural and statutory budget enforcement measures. The procedural budget enforcement is primarily through limits associated with the budget resolution on total discretionary spending and spending under the jurisdiction of each appropriations subcommittee. Statutory budget enforcement is derived from the Budget Control Act of 2011 (BCA; P.L. 112-25 ). The BCA established limits on defense and nondefense discretionary spending. These limits are in effect for each of the fiscal years from FY2012 through FY2021, and are primarily enforced by an automatic spending reduction process called sequestration. The Bipartisan Budget Act of 2013 ( P.L. 113-67 ) established higher levels for the FY2014 and FY2015 spending limits than what would have otherwise been in effect. The original BCA process to calculate the limits would have again become effective starting in FY2016, but higher limits for FY2016 and FY2017 were enacted by the Bipartisan Budget Act of 2015 ( P.L. 114-74 ). For more information on discretionary spending limits, see CRS Insight IN10389, Bipartisan Budget Act of 2015: Adjustments to the Budget Control Act of 2011 , by [author name scrubbed], and CRS Report R44062, Congressional Action on FY2016 Appropriations Measures , by [author name scrubbed]. Funding Issues and Initiatives Congressional consideration of Energy and Water Development appropriations for FY2017 included debate over several controversial proposals. The issues described in this section—listed approximately in the order they appear in the Energy and Water Development bill—were selected based on the total funding involved and the percentage of increases or decreases, the amount of congressional attention received, and their impact on broader public policy considerations. Proposed Cuts to Corps and Reclamation Budgets For the Army Corps of Engineers, the Obama Administration requested $4.620 billion in FY2017 and $4.732 billion in FY2016. Congress appropriated $6.038 billion for the Corps in FY2017 and $5.989 billion in FY2016. Similarly, the FY2017 and FY2016 requests for the Bureau of Reclamation were $1.112 billion and $1.106 billion, respectively, and Congress appropriated $1.307 billion in FY2017 and $1.275 billion in FY2016. Both the House Appropriations Committee and the Senate had voted to reject the Administration's proposed FY2017 budget reductions for the Corps, instead recommending increases over the FY2016 appropriations level. For Reclamation, the House Appropriations Committee had approved a reduction from FY2016, while the Senate had approved level funding. Definition of "Fill Material" Under the Clean Water Act As approved by the Senate, H.R. 2028 (§103) prohibited the Corps during FY2017 from changing the definition of "fill material" or "discharge of fill material" in relation to the Federal Water Pollution Control Act. The Obama Administration objected to the restriction, contending that it "could hamstring future regulatory work in this area, putting our water resources at risk." However, the prohibition was included in the enacted measure. California Drought and Central Valley Project Operations During consideration of the FY2017 Energy and Water Development Appropriations Bill, California was in the midst of a long-standing drought, and drought-related provisions derived from a previously enacted House bill, H.R. 2898 , were incorporated by the House Appropriations Committee as new general provisions in H.R. 5055 for the Bureau of Reclamation. However, those provisions were not included in the FY2017 Consolidated Appropriations Act. Sections 204 and 205 of H.R. 5055 would have, among other things, authorized alterations to pumping restrictions related to certain species listed under the Endangered Species Act (ESA). These restrictions govern how much water the Federal Central Valley Project (CVP) and the California State Water Project (SWP) can send (or "export") south of the Sacramento/San Joaquin Delta (Delta). The changes were generally consistent with provisions in H.R. 2898 , with some exceptions. For example, similar to Section 103(a)-(e) of H.R. 2898 , Section 204 of H.R. 5055 would have set negative flows on the Old and Middle Rivers as they pertain to listed species. Like H.R. 2898 , the House bill would have set these flows at -5,000 cubic feet per second, or the high end of allowable flows under current Biological Opinions, unless collected information allowed the Secretary of the Interior to conclude that a lower flow rate (i.e., less pumping) would be needed to protect species. While most of the drought provisions in Sections 204-205 of H.R. 5055 were derived from Sections 103 and 307 of H.R. 2898 , there are some notable differences between comparable sections in the two bills, in particular Sections 205(b) and 205(g). Similarly, Section 206 of H.R. 5055 included provisions similar to Sections 501-504 of H.R. 2898 , which aimed to protect certain California water rights priorities, among other things. However, Sections 206(b) and 206(d) of H.R. 5055 contained several notable differences compared to comparable provisions in H.R. 2898 . Large Proposed Increase for Energy Efficiency and Renewables The Obama Administration requested an increase of $829.2 million (40.1%) in discretionary funding for DOE's Office of Energy Efficiency and Renewable Energy (EERE) for FY2017, for a total of $2.898 billion. In addition, the Administration requested mandatory funding of $1.335 billion for 21 st Century Clean Transportation Plan Investments within EERE. Both the House Appropriations Committee and the Senate voted to reject the Administration's proposed FY2017 budget increases for EERE, with the House panel approving a cut from FY2016 and the Senate approving level funding. The Obama Administration "strongly" objected to the rejection of the proposed EERE funding increases. According to a Statement of Administration Policy on the Senate bill, "At this funding level, the number of research, development, and demonstration projects supported in cooperation with industry, universities, and the national labs would be reduced, limiting innovation and technological advancement." The Consolidated Appropriations Act provided $2.09 billion, a $17.2 million (0.9%) increase over the FY2016 funding level. The mandatory funding proposals were not enacted. For more information, see CRS Report R44262, DOE's Office of Energy Efficiency and Renewable Energy (EERE): Appropriations Status , by [author name scrubbed]. Nuclear Waste Management DOE proposed to triple its funding for the Integrated Waste Management System (IWMS) in FY2017—from $22.5 million to $76.3 million. The funding would have accelerated development of "consent based" storage and disposal sites for highly radioactive "spent," or "used," fuel from nuclear power plants. In addition, research and development (R&D) on used fuel disposition would have risen from $62.5 million to $74.3 million, an increase of nearly 19%. According to DOE's budget justification, IWMS was to focus during the next 10 years on opening a pilot interim storage facility, initially for spent fuel from closed reactors, development of a spent fuel transportation system, and making progress on a larger storage facility. DOE's proposed consent-based waste facilities were to be an alternative to a planned permanent underground repository at Yucca Mountain, NV, which the Obama Administration wanted to abandon but that the Trump Administration has proposed to revive. The Obama Administration also proposed that, starting in FY2018, discretionary funds for IWMS be supplemented by mandatory appropriations from the Nuclear Waste Fund, a Treasury account that holds fees paid by nuclear power plants. The House Appropriations Committee, reiterating its position of previous years, provided no funding for IWMS and instead approved $150.0 million for DOE to resume work on the Yucca Mountain project (as well as $20 million for NRC licensing). In contrast, the Senate approved $61.0 million for IWMS and included an authorization (§306) and a $10.0 million appropriation for DOE to develop a consent-based waste storage pilot facility. The Consolidated Appropriations Act provided $22.5 million for IWMS and nothing for Yucca Mountain. The Obama Administration's mandatory funding proposal was not enacted. For more background, see CRS Report RL33461, Civilian Nuclear Waste Disposal , by [author name scrubbed]. Fossil Fuels R&D Budget Reorganization The Obama Administration proposed to no longer categorize the DOE Fossil Fuels Research and Development program by type of fuel (coal, oil, and natural gas) in FY2017. Instead, fossil fuels R&D was to consist of subprograms focusing on carbon capture and storage and advanced power systems, fuel supply impact mitigation, and National Energy Technology Laboratory activities. The total funding request of $600 million was to be offset by $240 million of prior-year balances, leaving a net appropriation of $360 million. The Obama Administration's proposed restructuring of the fossil fuels budget and the proposed funding reduction were mostly rejected by the House Appropriations Committee and the Senate, and in the Consolidated Appropriations Act, which provided a total of $668 million for fossil energy R&D. International Thermonuclear Experimental Reactor The International Thermonuclear Experimental Reactor (ITER), under construction in France, continues to draw congressional concerns about management, schedule, and cost. The United States is to pay 9.09% of the project's construction costs, including contributions of components, cash, and personnel. The total U.S. share of the cost was estimated in 2015 at between $4.0 billion and $6.5 billion, up from $1.45 billion to $2.2 billion in 2008. The Obama Administration's proposed U.S. contribution for FY2017 was $125.0 million, $10.0 million above the FY2016 enacted level. As directed by P.L. 114-113 , DOE issued a report in May 2016 on whether the United States should continue as an ITER partner or terminate its participation. DOE recommended that U.S. participation continue at least two more years but be reevaluated before FY2019. The House Appropriations Committee approved the Administration's $125.0 million request for FY2017, pending the recommendation of the DOE report. The Senate approved no funding, as the Senate Appropriations Committee had recommended the previous year. The Consolidated Appropriations Act provided $50 million. Upgrading Nuclear Weapons Infrastructure The Weapons Activities account in DOE's National Nuclear Security Administration (NNSA) supports programs that maintain U.S. nuclear missile warheads and gravity bombs and the infrastructure programs that support that mission. In hearings on the FY2017 budget, NNSA Administrator Frank G. Klotz testified, "The age and condition of NNSA's infrastructure will, if not addressed, put the mission, the safety of our workers, the public, and the environment at risk. More than half of NNSA's facilities are over 40 years old while 30% of them date back to the Manhattan Project era. The FY2017 budget request for Infrastructure and Operations was $2.722 billion, an increase of $442.8 million, 19.4% above the FY2016 enacted level." For the entire Weapons Activities account, the DOE budget request for FY2017 totaled $9.235 billion, an increase of approximately 4.4% over FY2016. That funding total was approved by the Senate, while the House panel recommended an additional $8.4 million. The Consolidated Appropriations Act provided $9.246 billion for Weapons Activities, including $2.808 for Infrastructure and Operations. Surplus Plutonium Disposition The Mixed-Oxide Fuel Fabrication Facility (MFFF), which would make fuel for nuclear reactors out of surplus weapons plutonium, has faced sharply escalating construction and operation cost estimates. Because of those rising costs, DOE had proposed to terminate the MFFF project in FY2017, reducing the program's funding from $340.0 million to $270.0 million. DOE completed a congressionally mandated study of MFFF and a potentially less expensive alternative plutonium disposal method during FY2015, to dilute the surplus plutonium for disposal at the Waste Isolation Pilot Plant (WIPP) in New Mexico. For FY2017, DOE proposed to complete a preconceptual design for the dilute and dispose option. The Senate approved the Obama Administration's funding request, while the House panel voted to continue construction at the FY2016 funding level. The Consolidated Appropriations Act provided $335 million to continue MFFF construction, a 1.5% reduction from FY2016. Congress had previously rejected Obama Administration proposals to place MFFF in "cold standby" in FY2015 and FY2016, contending that the project was needed to satisfy an agreement with Russia on disposition of surplus weapons plutonium and promises to the state of South Carolina, where MFFF is located. For more information, see CRS Report R43125, Mixed-Oxide Fuel Fabrication Plant and Plutonium Disposition: Management and Policy Issues , by [author name scrubbed] and [author name scrubbed]. Cleanup of DOE Nuclear Facilities DOE's Office of Environmental Management (EM) is responsible for environmental cleanup and waste management at the department's nuclear facilities. The total FY2017 appropriations request for EM activities was $5.445 billion, a reduction of $773 million (14.2%) from FY2016. That discretionary funding was to be supplemented by $673.7 million in mandatory funding from the U.S. Enrichment Corporation (USEC) Fund, an account that had been used by USEC when it was a government corporation, before being privatized in 1996. Mandatory spending from the USEC fund would have been offset by renewed fee collections from nuclear utilities to pay for cleaning up DOE uranium enrichment facilities. The House Appropriations Committee recommended a slight decrease for nuclear facility cleanup, while the Senate approved a slight increase. Both the House committee and the Senate rejected the proposed offsets, and they were not they included in the Consolidated Appropriations Act, which provided $6.42 billion for EM activities. Bill Status and Recent Funding History Table 1 indicates the steps taken during consideration of FY2017 Energy and Water Development appropriations, which were enacted as Division D of the Consolidated Appropriations Act, 2017, P.L. 115-31 . (For more details, see the CRS Appropriations Status Table at http://www.crs.gov/AppropriationsStatusTable/Index .) Table 2 includes budget totals for energy and water development appropriations enacted for FY2009 through FY2017. Description of Major Energy and Water Programs The annual Energy and Water Development Appropriations bill includes four titles: Title I—Corps of Engineers—Civil; Title II—Department of the Interior (Central Utah Project and Bureau of Reclamation); Title III—Department of Energy; and Title IV—Independent Agencies, as shown in Table 3 . Major programs in the bill are described in this section in the approximate order they appear in the bill. Previous appropriations and recommendations for FY2017 are shown in the accompanying tables, and additional details about many of these programs are provided in separate CRS reports as indicated. Agency Budget Justifications FY2017 budget justifications for the largest agencies funded by the annual Energy and Water Development Appropriations bill can be found at Title I, Army Corps of Engineers, Civil Works, http://www.usace.army.mil/Missions/CivilWorks/Budget.aspx Title II Bureau of Reclamation, http://www.usbr.gov/budget/2017/fy2017_budget_justifications.pdf Central Utah Project, https://www.doi.gov/sites/doi.gov/files/uploads/FY2017_CUPCA_Budget_Justification.pdf Title III, Department of Energy, http://energy.gov/cfo/downloads/fy-2017-budget-justification Title IV, Independent Agencies Nuclear Regulatory Commission, http://www.nrc.gov/reading-rm/doc-collections/nuregs/staff/sr1100/ Appalachian Regional Commission, http://www.arc.gov/images/newsroom/publications/fy2017budget/FY2017PerformanceBudgetFeb2016.pdf Defense Nuclear Facilities Safety Board, http://www.dnfsb.gov/sites/default/files/About/Budget%20Requests/2017/FY%202017%20CONG%20Budget%20Request_0.pdf Delta Regional Authority, https://issuu.com/deltaregionalauthority/docs/j-book-insert_finalforprint Denali Commission, https://www.denali.gov/images/documents/budget_justification/FY_2017_Budget_Justification_FINAL_.pdf Corps of Engineers The U.S. Army Corps of Engineers is an agency in the Department of Defense with both military and civilian responsibilities. Under its civil works program, which is funded by the Energy and Water Appropriations bill, the Corps plans, builds, operates, and in some cases maintains water resources facilities for coastal and inland navigation, riverine and coastal flood risk reduction, and aquatic ecosystem restoration. In recent decades, Corps studies, construction projects, and other activities have been generally authorized in Water Resources Development Acts before they were considered eligible for Corps appropriations. Congress enacted a water resources development act in June 2014, the Water Resources Reform and Development Act of 2014 (WRRDA, P.L. 113-121 ). This bill authorized new Corps projects and altered numerous Corps policies and procedures. Unlike highways and municipal water infrastructure programs, federal funds for the Corps are not distributed to states or projects based on a formula or delivered via competitive grants. Instead, the Corps generally is directly involved in the planning, design, and construction of projects that are cost-shared with nonfederal project sponsors. In addition to the President's budget request for the Corps identifying funding for site-specific projects, Congress identified during the discretionary appropriations process many additional Corps projects to receive funding or adjusted the funding levels for the projects identified in the President's request. In the 112 th Congress, site-specific project line items added by Congress (i.e., earmarks) became subject to House and Senate earmark moratorium policies. As a result, Congress generally has not added funding at the project level since FY2010. In lieu of the traditional project-based increases, Congress has included "additional funding" for select categories of Corps projects (e.g., "ongoing navigation work"), and provided direction and limitations on the use of these funds. In FY2016, Congress added $1.257 billion in additional funding for Corps activities. For more information, see CRS In Focus IF10361, Army Corps of Engineers: FY2017 Appropriations , by [author name scrubbed], and CRS In Focus IF10176, Army Corps of Engineers: FY2016 Appropriations , by [author name scrubbed]. Bureau of Reclamation Most of the large dams and water diversion structures in the West were built by, or with the assistance of, the Bureau of Reclamation. While the Army Corps of Engineers built hundreds of flood control and navigation projects, Reclamation's original mission was to develop water supplies, primarily for irrigation to reclaim arid lands in the West for farming and ranching. Reclamation has evolved into an agency that assists in meeting the water demands in the West while protecting the environment and the public's investment in Reclamation infrastructure. Reclamation municipal and industrial water deliveries have more than doubled since 1970. Today, Reclamation manages hundreds of dams and diversion projects, including more than 300 storage reservoirs in 17 western states. These projects provide water to approximately 10 million acres of farmland and a population of 31 million. Reclamation is the largest wholesale supplier of water in the 17 western states and the second-largest hydroelectric power producer in the nation. Reclamation facilities also provide substantial flood control, recreation, and fish and wildlife benefits. Operations of Reclamation facilities are often controversial, particularly for their effect on fish and wildlife species and conflicts among competing water users during drought conditions. As with the Corps of Engineers, the Reclamation budget is made up largely of individual project funding lines and relatively few "programs." Also similar to the Corps, these Reclamation projects have often been subject to earmark disclosure rules. The current moratorium on earmarks restricts congressional steering of money directly toward specific Reclamation projects. Reclamation's single largest account, Water and Related Resources, encompasses the agency's traditional programs and projects, including construction, operations and maintenance, dam safety, and ecosystem restoration, among others. Reclamation also typically requests funds in a number of smaller accounts, and has proposed additional accounts in recent years. Congress has provided Reclamation additional appropriations in recent years to address drought conditions in the West, including $50 million in FY2015 and $100 million in FY2016. Implementation and oversight of the Central Utah Project (CUP) is conducted by a separate office within the Department of the Interior. For more information, see CRS In Focus IF10375, Bureau of Reclamation: FY2017 Appropriations , by [author name scrubbed]. Department of Energy The Energy and Water Development bill has funded all DOE programs since FY2005. Major DOE activities include research and development (R&D) on renewable energy, energy efficiency, nuclear power, and fossil energy, the Strategic Petroleum Reserve, energy statistics, general science, environmental cleanup, and nuclear weapons and nonproliferation programs. Table 6 provides the recent funding history for DOE programs, which are briefly described further below. Energy Efficiency and Renewable Energy The Obama Administration had declared energy efficiency and renewable energy (EERE) to be a high priority, contending that they were essential for job creation, economic growth, and U.S. manufacturing competitiveness. Congress did not support most of President Obama's proposed annual funding increases, although a boost of about $150 million was approved for FY2016. The Sustainable Transportation program area includes electric vehicles, vehicle efficiency, and alternative fuels. DOE's electric vehicle program is driven by the 10-year EV-Everywhere Challenge (launched in 2012), which aims to cut costs in half for battery and electric drivetrains for plug-in electric vehicles (EVs) by 2022. A key supporting technology goal is to cut the cost of battery capacity from $264/kilowatt-hour (kwh) in 2015 to $125/kwh by 2022. The fuel cell program targets a cost of $40 per kilowatt (kw) and a durability of 5,000 hours (equivalent to 150,000 miles) by 2020. For hydrogen produced from renewable resources, the target is to bring the cost below $4.00 per gasoline gallon-equivalent (gge) by 2020. Bioenergy goals include the development of "drop-in" fuels that would be largely compatible with existing energy infrastructure. Renewable power programs focus on electricity generation from solar, wind, water, and geothermal sources. DOE's SunShot Initiative is aimed at halving the cost of solar power to 6 cents per kwh to make solar power cost-competitive without subsidies by 2020. For land-based windfarms, there is a cost target of 5.7 cents/kwh by 2020. For offshore wind settings, the target is 16.7 cents/kwh (unsubsidized) by 2020. The geothermal program aims to lower the risk of resource exploration and cut power production costs to 6 cents/kwh for newly developed technologies by 2030. In the energy efficiency program area, the advanced manufacturing program is intended to support deployment of industrial efficiency and clean energy manufacturing technologies, including the installation of 40 gigawatts of new combined heat and power capacity by 2020 and improving the energy efficiency of commercial and industrial buildings by 20% during the next decade. The building technologies program has a goal of reducing building energy use 30% by 2030. The EERE program also provides grants to fund energy efficiency improvements and energy planning. Weatherization grants support state and local governments in providing home energy services to low-income families that help them reduce energy costs and save money. State energy grants support both administrative and program activities at many state energy offices. Electricity Delivery and Energy Reliability The DOE Office of Electricity Delivery and Energy Reliability (OE) has the mission of supporting more economically competitive, environmentally responsible, secure, and resilient U.S. energy infrastructure. To achieve that mission, OE supports electric grid modernization and resiliency through research and development (R&D), demonstration projects, partnerships, facilitation, modeling and analytics, and emergency preparedness and response. It is the federal government's lead entity for energy sector-specific responses to energy security emergencies—whether caused by physical infrastructure problems or by cybersecurity issues. DOE's 2015 Grid Modernization Multi-Year Program Plan describes the department's vision for "a future electric grid that provides a critical platform for U.S. prosperity, competitiveness, and innovation by delivering reliable, affordable, and clean electricity to consumers where they want it, when they want it, how they want it." To help achieve this vision, DOE has established three key national goals: 10% reduction in the economic costs of power outages by 2025; 33% decrease in the cost of reserve margins while maintaining reliability by 2025; and 50% decrease in the net integration costs of distributed energy resources by 2025. For more details, see CRS Report R44357, DOE's Office of Electricity Delivery and Energy Reliability (OE): A Primer, with Appropriations for FY2017 , by [author name scrubbed]. Nuclear Energy DOE's nuclear energy program for FY2017 has four major stated goals: Improve the safety, reliability, and economics of nuclear power plants; Implement a "consent based" strategy for developing nuclear waste storage and disposal facilities; Develop improved waste management and fuel cycle technologies; and Understand and minimize the risks of nuclear proliferation and terrorism. The Reactor Concepts program area includes research on advanced reactors, including advanced small modular reactors, and research to enhance the "sustainability" of existing commercial light water reactors. Advanced reactor research focuses on "Generation IV" reactors, as opposed to the existing fleet of commercial light water reactors, which are generally classified as generations II and III. R&D under this program focuses on advanced coolants, fuels, materials, and other technology areas that could apply to a variety of advanced reactors. The program also is supporting NRC efforts to develop a new, "technology neutral" licensing framework for advanced reactors. Cost-shared research with the nuclear industry is also conducted on extending the life of existing commercial light water reactors beyond 60 years, the maximum operating period currently licensed by NRC. This subprogram is also conducting research to understand the Fukushima disaster and to develop accident prevention and mitigation measures. The nuclear energy program also provides design and licensing funding for small modular reactors (SMRs), which range from about 40 to 300 megawatts of electrical capacity. Support under this subprogram is currently being provided to the NuScale Power SMR, which has a generating capacity of 50 megawatts, and for licensing two potential SMR sites. Under the company's current concept, up to 12 reactors would be housed in a single pool of water, which would provide emergency cooling. A design certification application for the NuScale SMR was fully submitted to NRC on January 25, 2017. FY2017 is to be the final year of funding for SMR licensing support, according to DOE's budget justification. The Fuel Cycle Research and Development program conducts generic research on nuclear waste management and disposal, as well as implementing the Integrated Waste Management System, which seeks to find "consent based" nuclear waste sites. In general, the program is investigating ways to separate radioactive constituents of spent fuel for reuse or to be bonded into stable waste forms. Other major research areas in the Fuel Cycle R&D program include the development of accident-tolerant fuels for existing commercial reactors, evaluation of fuel cycle options, development of improved technologies to prevent diversion of nuclear materials for weapons, and exploration of deep borehole disposal technology. Fossil Energy Research and Development DOE's FY2017 Fossil Energy R&D Program focuses primarily on carbon capture and storage for power plants fueled by coal and natural gas. Major activities include the following: Carbon Capture subprogram for separating CO 2 in both precombustion and postcombustion systems; Carbon Storage subprogram on long-term geologic storage of CO 2 , including storage site characterization, brine extraction storage tests, and postinjection monitoring technologies; Advanced Energy Systems subprogram on advanced fossil energy systems integrated with CO 2 capture and sequestration; Supercritical Transformational Electric Power (STEP) Generation Program, developing technology to replace the conventional steam cycle in electric turbine-generators with supercritical carbon dioxide; and Cross-Cutting Research and Analysis on innovative systems. For more information, see CRS In Focus IF10589, DOE Fossil Energy Research & Development: Funding for CCS , by [author name scrubbed], CRS Report R44472, Funding for Carbon Capture and Sequestration (CCS) at DOE: In Brief , by [author name scrubbed], and CRS Report R44387, Recovery Act Funding for DOE Carbon Capture and Sequestration (CCS) Projects , by [author name scrubbed]. Strategic Petroleum Reserve The Strategic Petroleum Reserve (SPR), authorized by the Energy Policy and Conservation Act ( P.L. 94-163 ) in 1975, consists of caverns built within naturally occurring salt domes in Louisiana and Texas. The SPR provides strategic and economic security against foreign and domestic disruptions in U.S. oil supplies via an emergency stockpile of crude oil. The program fulfills U.S. obligations under the International Energy Program, which avails the United States of International Energy Agency (IEA) assistance through its coordinated energy emergency response plans, and provides a deterrent against energy supply disruptions. By early 2010, the SPR's capacity reached 727 million barrels. The federal government has not purchased oil for the SPR since 1994. Beginning in 2000, additions to the SPR were made with royalty-in-kind (RIK) oil acquired by the Department of Energy in lieu of cash royalties paid on production from federal offshore leases. In September 2009, the Secretary of the Interior announced a transitional phasing out of the RIK Program. DOE has been conducting a major maintenance program to address aging infrastructure and a deferred maintenance backlog at SPR facilities. In the summer of 2011, the President ordered an SPR sale in coordination with an International Energy Administration sale under treaty obligation because of Libya's supply curtailment. The U.S. sale of 30.6 million barrels reduced the SPR inventory to 695.9 million barrels. In March 2014, DOE's Office of Petroleum Reserves conducted a test sale that delivered 5.0 million barrels of crude oil over a 47-day period that netted $468.6 million in cash receipts to the U.S. government (SPR Petroleum Account). In 2015, DOE purchased 4.2 million barrels of crude oil for the SPR using proceeds from the 2014 test sale. According to the DOE budget justification, the SPR's drawdown capacity in FY2017 will be 4.25 million barrels per day. Currently, the SPR contains about 685 million barrels. The Bipartisan Budget Act of 2015 ( P.L. 114-74 ) authorizes the sale of 58 million barrels of oil from the SPR. The authorized sales total 5 million barrels per fiscal year for 2018-2021, 8 million barrels in FY2022, and 10 million barrels per year in FY2023-FY2025. In addition, the Fix America's Surface Transportation Act ( P.L. 114-94 ) authorizes the sale of 66 million barrels of oil from the SPR. The authorized sales would total 16 million barrels in FY2023 and 25 million barrels in each of fiscal years 2024 and 2025. Science The DOE Office of Science conducts basic research in six program areas: advanced scientific computing research, basic energy sciences, biological and environmental research, fusion energy sciences, high-energy physics, and nuclear physics. According to DOE's FY2017 budget justification, the Office of Science "is the Nation's largest Federal sponsor of basic research in the physical sciences and the lead Federal agency supporting fundamental scientific research for our Nation's energy future." DOE's Advanced Scientific Computing Research (ASCR) program focuses on developing and maintaining computing and networking capabilities for science and research in applied mathematics, computer science, and advanced networking. The program plays a key role in the DOE-wide effort to advance the development of exascale computing, which seeks to build a computer that can solve scientific problems a thousand times faster than today's best machines. DOE has asserted that the department is on a path to have a capable exascale machine by the early 2020s. Basic Energy Sciences (BES), the largest program area in the Office of Science, focuses on understanding, predicting, and ultimately controlling matter and energy at the electronic, atomic, and molecular level. The program supports research in disciplines such as condensed matter and materials physics, chemistry, and geosciences. BES also provides funding for scientific user facilities (e.g., the National Synchrotron Light Source II, and the Linac Coherent Light Source-II), and certain DOE research centers and hubs (e.g., Energy Frontier Research Centers, as well as the Batteries and Energy Storage and Fuels from Sunlight Innovation Hubs). Biological and Environmental Research (BER) seeks a predictive understanding of complex biological, climate, and environmental systems across a continuum from the small scale (e.g., genomic research) to the large (e.g., Earth systems and climate). Within BER, Biological Systems Science focuses on plant and microbial systems, while Biological and Environmental Research supports climate-relevant atmospheric and ecosystem modeling and research. BER facilities and centers include three Bioenergy Research Centers and the Environmental Molecular Science Laboratory at Pacific Northwest National Laboratory. Fusion Energy Sciences (FES) seeks to increase understanding of the behavior of matter at very high temperatures and to establish the science needed to develop a fusion energy source. FES provides funding for the International Thermonuclear Experimental Reactor (ITER) project, a multinational effort to design and build an experimental fusion reactor. According to DOE, ITER "aims to generate fusion power 30 times the levels produced to date and to exceed the external power applied ... by at least a factor of ten." However, many U.S. analysts have expressed concern about ITER's cost, schedule, and management, as well as the budgetary impact on domestic fusion research. The High Energy Physics (HEP) program conducts research on the fundamental constituents of matter and energy, including studies of dark energy and the search for dark matter. Nuclear Physics supports research on the nature of matter, including its basic constituents and their interactions. A major project in the Nuclear Physics program is the construction of the Facility for Rare Isotope Beams at Michigan State University. The Continuous Electron Beam Accelerator Facility Upgrade project is to be completed is to be completed in FY2017, according to the DOE budget justification. A separate DOE office, the Advanced Research Projects Agency–Energy (ARPA-E), was authorized by the America COMPETES Act ( P.L. 110-69 ) to support transformational energy technology research projects. DOE budget documents describe ARPA-E's mission as overcoming long-term, high-risk technological barriers to the development of energy technologies. For more details, see CRS Report R44516, Federal Research and Development Funding: FY2017 , coordinated by [author name scrubbed] Loan Guarantees and Direct Loans DOE's Loan Programs Office provides loan guarantees for projects that deploy specified energy technologies, as authorized by Title XVII of the Energy Policy Act of 2005 (EPACT05, P.L. 109-58 ), and direct loans for advanced vehicle manufacturing technologies. Section 1703 of the act authorizes loan guarantees for advanced energy technologies that reduce greenhouse gas releases, and Section 1705 established a temporary program for renewable energy and energy efficiency projects. Title XVII allows DOE to provide loan guarantees for up to 80% of construction costs for eligible energy projects. Successful applicants must pay an up-front fee, or "subsidy cost," to cover potential losses under the loan guarantee program. Under the loan guarantee agreements, the federal government would repay all covered loans if the borrower defaulted. This would reduce the risk to lenders and allow them to provide financing at below-market interest rates. The following is a summary of loan guarantee amounts available for various technologies: $8.3 billion for non-nuclear technologies under Section 1703; $2 billion for unspecified projects from FY2007 under Section 1703; $18.5 billion ceiling for nuclear power plants ($8.3 billion committed); $4 billion allocated for loan guarantees for uranium enrichment plants; $1.183 billion ceiling for renewable energy and energy efficiency projects under Section 1703, in addition to other ceiling amounts, which can include applications that were pending under Section 1705 before it expired; and An appropriation of $161 million for subsidy costs for renewable energy and energy efficiency loan guarantees under Section 1703. If the subsidy costs averaged 10% of the loan guarantees, this funding could leverage loan guarantees totaling about $1.6 billion. Nuclear Weapons Activities In the absence of explosive nuclear weapons testing, the United States has adopted a science-based program to maintain and sustain confidence in the reliability of the U.S. nuclear stockpile. Congress established the science-based Stockpile Stewardship Program in the FY1994 National Defense Authorization Act ( P.L. 103-160 ). The goal of the program, as amended by the FY2010 National Defense Authorization Act ( P.L. 111-84 , §3111), is to ensure "that the nuclear weapons stockpile is safe, secure, and reliable without the use of underground nuclear weapons testing." The program is operated by the National Nuclear Security Administration (NNSA), a semiautonomous agency within DOE that Congress established in the FY2000 National Defense Authorization Act ( P.L. 106-65 , Title XXXII). NNSA implements the Stockpile Stewardship Program through the activities funded by Weapons Activities account in the NNSA budget. Most of NNSA's weapons activities take place at the nuclear weapons complex (the "complex"), which consists of three laboratories (Los Alamos National Laboratory, NM; Lawrence Livermore National Laboratory, CA; and Sandia National Laboratories, NM and CA); four production sites (Kansas City National Security Campus, MO; Pantex Plant, TX; Savannah River Site, SC; and Y-12 National Security Complex, TN); and the Nevada National Security Site (formerly Nevada Test Site). NNSA manages and sets policy for the complex; contractors to NNSA operate the eight sites. There are three major program areas in the Weapons Activities account. Directed Stockpile Work involves work directly on nuclear weapons in the stockpile, such as monitoring their condition; maintaining them through repairs, refurbishment, life extension, and modifications; conducting R&D in support of specific warheads; and dismantlement. The number of warheads has fallen sharply since the end of the Cold War, and continues to decline. As a result, a major activity of Directed Stockpile Work is interim storage of warheads to be dismantled; dismantlement; and disposition (i.e., storing or eliminating warhead components and materials). Research, Development, Test, and Evaluation (RDT&E) includes five programs that focus on "efforts to develop and maintain critical capabilities, tools, and processes needed to support science based stockpile stewardship, refurbishment, and continued certification of the stockpile over the long-term in the absence of underground nuclear testing." This area includes operation of some large experimental facilities, such as the National Ignition Facility at Lawrence Livermore National Laboratory. Infrastructure and Operations (formerly Readiness in Technical Base and Facilities) has as its main funding elements material recycle and recovery, recapitalization of facilities, and construction of facilities. The latter included two controversial and expensive projects, the Uranium Processing Facility (UPF) at the Y-12 National Security Complex (TN) and the Chemistry and Metallurgy Research Replacement (CMRR) Project, which deals with plutonium, at Los Alamos National Laboratory (NM). Weapons Activities also has several smaller programs, including the following: Secure Transportation Asset, providing for safe and secure transport of nuclear weapons, components, and materials; Defense Nuclear Security , providing operations, maintenance, and construction funds for protective forces, physical security systems, personnel security, and related activities; Information Technology and Cybersecurity , whose elements include cybersecurity, enterprise secure computing, and Federal Unclassified Information Technology; and Legacy Contractor Pensions , providing supplemental funds for pensions for retirees from Los Alamos and Lawrence Livermore National Laboratories who began employment when the University of California was the contractor for those labs. For more information, see CRS Report R44442, Energy and Water Development: FY2017 Appropriations for Nuclear Weapons Activities , by [author name scrubbed]. Defense Nuclear Nonproliferation DOE's nonproliferation and national security programs provide technical capabilities to support U.S. efforts to prevent, detect, and counter the spread of nuclear weapons worldwide. These nonproliferation and national security programs are administered by NNSA's Office of Defense Nuclear Nonproliferation, which was reorganized in 2015. Global Materials Security has two major program elements. The "First Line of Defense" focuses on increasing the security of vulnerable stockpiles of nuclear material in other countries. The "Second Line of Defense" is intended to "improve partner countries' abilities to deter, detect, and interdict illicit trafficking," according to DOE's FY2016 budget justification. Activities toward achieving those goals include the provision of equipment and training, workshops and exercises, and collaboration with international organizations. Materials Management and Minimization conducts activities to minimize and, where possible, eliminate stockpiles of weapons-useable material around the world. Major activities include conversion of reactors that use highly enriched uranium (useable for weapons) to low enriched uranium, removal and consolidation of nuclear material stockpiles, and disposition of excess nuclear materials. Nonproliferation and Arms Control works on "strengthening the nonproliferation and arms control regimes in order to reduce proliferation and terrorism risks," according to the FY2016 justification. This program conducts reviews of nuclear export applications and technology transfer authorizations, implements treaty obligations, and analyzes nonproliferation policies and proposals. Other programs under Defense Nuclear Nonproliferation include research and development and construction. The Nonproliferation Construction program consists of the Mixed Oxide (MOX) Fuel Fabrication Facility (described under " Surplus Plutonium Disposition " above), which the Administration proposes to terminate. Nuclear Counterterrorism and Incident Response (formerly under Weapons Activities) "supports nuclear incident engagement to strengthen and exercise national and international radiological and nuclear counterterrorism, counterproliferation, and incident response capabilities," according to the FY2017 budget justification. Cleanup of Former Nuclear Sites The development and production of nuclear weapons for national defense purposes during half a century since the beginning of the Manhattan Project resulted in a waste and contamination legacy that continues to present substantial challenges today. In 1989, DOE established the Office of Environmental Management primarily to consolidate its responsibilities for the cleanup of former nuclear weapons production sites that had been administered under multiple offices. DOE's nuclear cleanup efforts are broad in scope and include the disposal of large quantities of radioactive and other hazardous wastes generated over decades; management and disposal of surplus nuclear materials; remediation of extensive contamination in soil and groundwater; decontamination and decommissioning of excess buildings and facilities; and safeguarding, securing, and maintaining facilities while cleanup is underway. The Office of Environmental Management also is responsible for the cleanup of DOE sites that were involved in civilian nuclear energy research, which also generated wastes and contamination. These research sites add a nondefense component to the office's mission, albeit smaller in terms of the scope of their cleanup and associated funding. DOE has identified more than 100 "geographic" sites in over 30 states that historically were involved in the production of nuclear weapons and nuclear energy research for civilian purposes. The geographic scope of these sites is substantial, collectively encompassing a land area of approximately 2 million acres. Cleanup remedies are in place and operational at the majority of these sites. The responsibility for the long-term stewardship of these sites has been transferred to the Office of Legacy Management and other offices within DOE for the operation and maintenance of cleanup remedies and monitoring. Some of the smaller sites for which DOE initially was responsible were transferred to the Army Corps of Engineers in 1997 under the Formerly Utilized Sites Remedial Action Program (FUSRAP). Once the Corps completes the cleanup of a FUSRAP site, it is transferred back to DOE for long-term stewardship under the Office of Legacy Management. Much work remains to be done at the sites that are still administered by the Office of Environmental Management. DOE expects cleanup to continue for several years or even decades at some of these sites, and estimates additional cumulative funding needs ranging from $191.6 billion to $224.3 billion over the long term to fulfill the cleanup liability of the United States. The Office of Environmental Management has completed the cleanup of 91 sites in 30 states and the Commonwealth of Puerto Rico, and plans to continue the cleanup of 16 sites in 11 states in FY2017. Three appropriations accounts fund the Office of Environmental Management. The Defense Environmental Cleanup account is the largest in terms of funding, and it finances the cleanup of former nuclear weapons production sites. The Non-Defense Environmental Cleanup account funds the cleanup of federal nuclear energy research sites. Title XI of the Energy Policy Act of 1992 ( P.L. 102-486 ) established the Uranium Enrichment Decontamination and Decommissioning (D&D) Fund to pay for the cleanup of three federal facilities that enriched uranium for national defense and civilian purposes. Title X of P.L. 102-486 also authorized the reimbursement of uranium and thorium licensees for their costs of cleaning up contamination at sites that processed nuclear materials for national defense purposes at these federal facilities. The three federal uranium enrichment facilities are located near Paducah, KY; Piketon, OH (Portsmouth plant); and Oak Ridge, TN. The adequacy of funding for the Office of Environmental Management to attain cleanup milestones across the entire site inventory has been a recurring issue. Cleanup milestones are enforceable measures incorporated into compliance agreements negotiated among DOE, EPA, and the states. These milestones establish time frames for the completion of specific actions to satisfy applicable requirements at individual sites. Power Marketing Administrations DOE's four Power Marketing Administrations (PMAs)—Bonneville Power Administration (BPA), Southeastern Power Administration (SEPA), Southwestern Power Administration (SWPA), and Western Area Power Administration (WAPA)—were established to sell the power generated by the dams operated by the Bureau of Reclamation and the Army Corps of Engineers. The primary purpose of these projects in many cases was conservation and management of water resources—including irrigation, flood control, recreation, or other objectives. Title IV: Independent Agencies Independent agencies that receive funding from the Energy and Water Development bill include the Nuclear Regulatory Commission (NRC), the Appalachian Regional Commission (ARC), and the Denali Commission. Their recent appropriations history is shown in Table 7 . Nuclear Regulatory Commission NRC is an independent agency that establishes and enforces safety and security standards for nuclear power plants and users of nuclear materials. Major budget categories for NRC are Nuclear Reactor Safety ($462.3 million for FY2017), Nuclear Materials and Waste Safety ($113.7 million), Decommissioning and Low-Level Waste ($27.2 million), and Integrated University Program ($15.0 million). NRC is required by law to charge fees to nuclear reactors and other regulated entities that are equal to about 90% of its total budget, excluding specified items. As a result, NRC's net appropriation is only about 10% of its total funding level. Congressional Hearings The following hearings have been held by the Energy and Water Development subcommittees of the House and Senate Appropriations Committees on the FY2017 budget request. Testimony and opening statements are posted on most of the web pages cited for each hearing, along with webcasts in many cases. House Nuclear Regulatory Commission , February 10, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394347 . Bureau of Reclamation , February 11, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394349 . Army Corps of Engineers, Civil Works , February 26, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394385 . Department of Energy , March 1, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394427 . Department of Energy, National Nuclear Security Administration , March 1, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394426 . Department of Energy, Applied Energy Programs , March 2, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394425 . Department of Energy, Office of Science , March 2, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394425 . Department of Energy, Environmental Management , March 15, 2016, http://appropriations.house.gov/calendararchive/eventsingle.aspx?EventID=394441 . Senate Nuclear Regulatory Commission , February 24, 2016, http://www.appropriations.senate.gov/hearings/energy-and-water-hearing-on-fy17-nuclear-regulatory-commission-budget-request . Army Corps of Engineers and Bureau of Reclamation , March 2, 2016, http://www.appropriations.senate.gov/hearings/hearing-on-the-fy17-budget-request-for-the-army-corps-of-engineers-and-the-us-dept-of-the-interior-bureau-of-reclamation . Department of Energy , March 9, 2016, http://www.appropriations.senate.gov/hearings/hearing-on-the-fy17-us-dept-of-energy-budget-request . National Nuclear Security Administration , March 16, 2016, http://www.appropriations.senate.gov/hearings/hearing-to-review-the-fy17-budget-request-for-the-national-nuclear-security-administration .

The Energy and Water Development appropriations bill provides funding for civil works projects of the Army Corps of Engineers (Corps), the Department of the Interior's Bureau of Reclamation (Reclamation) and Central Utah Project (CUP), and the Department of Energy (DOE), as well as the Nuclear Regulatory Commission (NRC) and several other independent agencies. DOE typically accounts for about 80% of the bill's total funding. FY2017 funding for energy and water development programs was provided by Division D of the Consolidated Appropriations Act, 2017 (P.L. 115-31), an omnibus funding measure passed by Congress May 4, 2017, and signed into law the following day. (This followed a series of continuing resolutions.) Total funding for Division D was $38.89 billion, offset by $436 million in rescissions. That total was $1.27 billion above the Obama Administration request and $1.54 billion over the FY2016 level, excluding rescissions. The Obama Administration also proposed $2.26 billion in new mandatory funding for DOE, which was not approved. Proposed reductions for the Corps, Reclamation, and CUP were also rejected. The Senate approved its version of the FY2017 Energy and Water Development appropriations bill on May 12, 2016 (H.R. 2028, S.Rept. 114-236), which would have increased budget authority for energy and water programs by $261 million over the request (0.7%), including adjustments. The House Appropriations Committee completed action on April 19, 2016 (H.R. 5055, H.Rept. 114-532), but the bill was defeated on the House floor on May 26, 2016. As passed by the Appropriations Committee, the House version would have provided $4 million more than the request, after offsets and other adjustments. Major Energy and Water Development funding highlights for FY2017 include Definition of "Fill Material" Under the Clean Water Act. The Senate-passed bill included provisions to prohibit the Corps during FY2017 from changing the definition of "fill material" in relation to the Federal Water Pollution Control Act. The restriction was included in the enacted omnibus measure. 40% Requested Boost for Energy Efficiency and Renewable Energy. The Obama Administration requested an increase of $829.2 million (40.1%) in discretionary funding for DOE's Office of Energy Efficiency and Renewable Energy (EERE) for FY2017, which the House committee and the Senate did not approve. The omnibus measure provided a 0.9% funding increase. Nuclear Waste "Consent-Based Siting." The Obama Administration proposed to triple funding in FY2017 for DOE to develop a consent-based nuclear waste siting program, to $76.3 million. The House Appropriations Committee rejected the proposal, instead providing $170 million to pursue a waste repository at Yucca Mountain, NV. The Senate approved $61.0 million for consent-based siting. The omnibus measure provided $22.5 million for consent-based siting, $62.5 million for used fuel R&D, and no funds for Yucca Mountain. Surplus Plutonium Disposition. Construction of the Mixed-Oxide Fuel Fabrication Facility (MFFF), which would make fuel for nuclear reactors out of surplus weapons plutonium, would have been terminated beginning in FY2017 by the Obama Administration's budget request. The Senate approved the Administration halt, while the House panel voted to continue construction. The omnibus measure continued construction with a 1.5% funding cut from FY2016.

Introduction The federal bureaucracy of the present day is the product of more than two centuries of legislative and administrative actions by successive generations of elected and appointed officials. As such, the diverse organizations and processes of the federal government are a consequence of the influence and decisions of thousands of officials with differing viewpoints about the role of government and diverse policy preferences. The federal bureaucracy's organizational arrangements are also reflective of ongoing competition between Congress and the President to influence the behavior of agencies. With its size, complexity, and idiosyncratic history, the federal bureaucracy is sometimes perceived as immutable. Notwithstanding this perception, federal organizational structures and processes are under continual congressional and administrative study and alteration in response to changing contexts and priorities. Most changes in organizational arrangements occur deep within departments and agencies, affecting a small number of subunits and not attracting wide notice. Occasionally, broader, more widely known changes, such as a structural reorganization establishing a new department or a redelegation of responsibilities among agencies, are undertaken. These activities are expected developments in a government that is evolving and adapting in response to changing needs, policy priorities, political contexts, and technology, among other factors. Government reorganization is a process that may be undertaken in pursuit of administrative and political goals. Such activities have been associated with both potential benefits and potential drawbacks, some of which are discussed in a text box near the end of this report. As used in this report, the term reorganization is used to encompass the "purposeful (intended) changes in purpose, functions, procedures, assignments, and relationships in organizations." It involves more than just structural rearrangement of organizational units and personnel, and it can occur within agencies as well as among two or more agencies. Government reorganizations can also entail changes in interagency processes or the distribution of resources and functions among agencies. The government organizations that are the focus of this report are those that exercise significant federal legal authority. Primary constitutional responsibility for the structural organization of the executive branch of the federal government, as well as the creation of the principal components of that branch, rests with Congress. Moreover, Congress has long sought to promote efficiency, transparency, accountability, public participation, and economy in the operations of the executive departments, agencies, and other governmental entities through specifications of both government-wide and agency-specific processes. Key tools that Congress uses to shape the contours of the federal government include authorizing legislation, appropriations legislation, and oversight. The President has often played a leadership role in reorganization of the executive branch by transmitting proposals and advocating legislative action in public statements and private negotiations. Presidents and their appointed agency heads also have a variety of administrative tools at their disposal for making smaller-scale structural and procedural organizational changes. Each of these governing actors has tried to bridge divides between entities with shared missions, similar functions, or overlapping jurisdiction by establishing interagency coordinative mechanisms of one kind or another. Such mechanisms may be considered tools of reorganization in that they often lead to changes in procedures, assignments, and relationships within and between organizations. This report begins with discussions of some tools available to Congress, the President, and agency leaders for initiation and implementation of executive branch reorganization. It then discusses interagency coordinative mechanisms that are sometimes used by each of these actors to bridge interorganizational gaps. The report concludes with general observations regarding federal reorganization efforts. Congressional Tools Statutory Reorganization Reorganizations that exceed the boundaries of one department or agency, or that are inconsistent with existing law, generally are accomplished through the legislative process. Consequently, Congress has a fundamental role in shaping and reshaping the federal agency landscape. It creates, structures, and locates or relocates offices; delegates to them specific or general missions, powers, duties, and functions; defines the parameters of personnel systems; confirms an agency's leadership; provides funding; and ultimately evaluates whether or not an agency shall continue in existence. At times, Congress has also specified, in statute, organizational process requirements, such as those that shape decisionmaking and coordination. Reorganization legislation may be initiated by Members, congressional committees, or the President, with proposals by the latter transmitted to Congress and introduced as a courtesy. Once introduced in the House or Senate, such legislation is routinely referred to each chamber's government operations committee: the House Committee on Oversight and Government Reform, and the Senate Committee on Homeland Security and Governmental Affairs. In the House, reorganization legislation may also be referred concurrently or sequentially to other committees with jurisdiction over the affected agencies and programs. The President may attempt to influence the development of reorganization legislation, including by threatening its veto. Efforts carried out through the statutory process can be narrowly targeted or far-reaching. Many reorganization proposals that have become law have been developed through hearings and antecedent legislative initiatives over the course of several Congresses. In addition, galvanizing events have sometimes created political climates favorable to structural reorganizations. For example, this was the case during the 2003 establishment of the Department of Homeland Security (DHS) in the aftermath of the terrorist attacks in 2001. Appropriations as a Tool of Reorganization In some cases, Congress has changed organizational arrangements within a department or agency by shifting funding and functions between offices. In 1987, for example, such an effort was undertaken in the House, with regard to the Agriculture Department appropriations act for FY1988. In this case, a Member sought to defund an assistant secretary office completely; in a compromise, funding for the assistant secretary position was maintained, but most of the funds and functions were shifted to the Office of the Secretary. According to the 1987 CQ Almanac, At the urging of Jamie L. Whitten, ... chairman of the House Appropriations Committee and its subcommittee on Agriculture, the House provided no administrative funds for the assistant secretary [for natural resources], who had authority over the Forest Service and the Soil Conservation Service. Whitten had long complained that the administration was trying to do away with traditional agricultural conservation programs in favor of a new Conservation Reserve Program that paid farmers to take erodible land out of production. He expressed his wrath by "z eroing out" the pay and office expenses of Assistant Secretary George S. Dunlop, although Whitten insisted he had "nothing personal" against him. Dunlop was staff director of the Senate Agriculture Committee under its previous chairman, Jesse Helms.... Whitten ultimately agreed to a compromise creating a new office of assistant secretary for unspecified "special purposes," funded at $416,000—the level earmarked by the Senate for the natural resources position. But the new office was given no authority over the Soil Conservation Service or the Forest Service. The directors of those agencies were required to report directly to the agriculture secretary. The provision regarding the Office of the Secretary in the resulting statute reflects this change. It begins, For necessary expenses of the Office of the Secretary of Agriculture, including the direct supervision of the Soil Conservation Service and the Forest Service. As noted below, under " Congressional Responses to Particular Agency Head Actions ," Congress has also used the appropriations process as a means of blocking or shaping administrative reorganizations initiated by the President or agency heads. Presidential Tools As noted above, the President has often played a leadership role in reorganization of the executive branch by transmitting proposals and advocating legislative action in public statements and private negotiations. The President may also direct members of his Administration to conduct reorganizations using the authorities discussed below (" Agency Tools "). In some instances, Presidents have used executive orders to direct the establishment of offices. In addition, the President can redelegate functions that have been vested in him by Congress, as discussed below. Finally, Congress has sometimes delegated to the President circumscribed authority to conduct time- and agency-specific reorganization activities. During the middle of the 20 th century, Congress sometimes enacted so-called "presidential reorganization authority," which provided for a fast-track legislative process, led by the President, for certain reorganization activities. This authority is no longer operative, but it is discussed below nonetheless because it was an important mechanism for reorganization during the period in which it was in effect, and many reorganization plans from that era underpin current organizational arrangements in the executive branch. Redelegation of Authorities Vested in the President Where functions are statutorily vested in the President, they may be delegated and redelegated under authority provided in Section 301 of Title 3 of the U.S. Code . This provision states, The President of the United States is authorized to designate and empower the head of any department or agency in the executive branch, or any official thereof who is required to be appointed by and with the advice and consent of the Senate, to perform without approval, ratification, or other action by the President (1) any function which is vested in the President by law, or (2) any function which such officer is required or authorized by law to perform only with or subject to the approval, ratification, or other action of the President: Provided, That nothing contained herein shall relieve the President of his responsibility in office for the acts of any such head or other official designated by him to perform such functions. Such designation and authorization shall be in writing, shall be published in the Federal Register, shall be subject to such terms, conditions, and limitations as the President may deem advisable, and shall be revocable at any time by the President in whole or in part. By redelegating such functions, the President can effect a reorganization of authorities among executive branch agencies. The Administration cannot move the funds and other resources that might be necessary to carry out such functions among budget accounts, however, unless Congress provides transfer authority to do so. Statutorily Circumscribed Authority Through statute, Congress has sometimes provided the President with circumscribed authority to plan and implement a specified reorganization. Statutes providing such authority have specified, for example, the entity or entities within the executive branch that may be affected, the duration of the authority, and the means by which the President's plan may be modified. Congress has used this tool at least twice to empower the President to make organizational refinements during a statutory reorganization involving several agencies. Congress provided authority of this type in the Foreign Affairs Agencies Consolidation Act of 1998, for example. The applicable provision directed the President to submit to the appropriate congressional committees, within 60 days of enactment, a plan and a report regarding reorganizations of specified foreign affairs-related agencies. It also specified elements that were to be included in the plan and in the report. The provision permitted the President to modify the plan "on the basis of consultations with the appropriate congressional committees" until the plan's effective date. Congress provided similar authority of this type to the President in the Homeland Security Act of 2002, which established the Department of Homeland Security. Section 1502 of the act directed the President to submit to the appropriate congressional committees, within 60 days after enactment, a reorganization plan regarding the "transfer of agencies, personnel, assets, and obligations to the Department" pursuant to the act and "any consolidation, reorganization, or streamlining of agencies transferred to the Department" under the act. As with the authority discussed above, the provision specified plan elements that were to be included and a process for modifying the plan after congressional consultations during the period between submission and the plan's effective date. Presidential Reorganization Authority (Inoperative) Between 1932 and 1984, Congress periodically delegated authority to the President that allowed him to develop plans for reorganization of portions of the federal government and to present those plans to Congress for consideration under special expedited procedures. The statute is no longer in effect, however. Prior to 1983, under these procedures, the President's plan would go into effect unless one or both houses of Congress passed a resolution rejecting the plan, a process referred to as a "legislative veto." This process favored the President's plan because, absent congressional action, the default was for the plan to go into effect. Unlike the dynamics under the regular legislative process, the burden of action under these versions of presidential reorganization authority rested with opponents rather than supporters of the plan. Presidents used this presidential reorganization authority regularly, submitting more than 100 plans between 1932 and 1984. The plans proposed a variety of changes, from relatively minor reorganizations within individual agencies to the creation of large new organizations, including the Department of Health, Education, and Welfare (HEW) in 1953; the Environmental Protection Agency (EPA) in 1970; and an independent Federal Emergency Management Agency (FEMA) in 1979. The terms of the delegation varied greatly over the century; in general, Congress tended to provide more restrictive versions of presidential reorganization authority over time. In 1983, the Supreme Court ruled in INS v. Chadha that the legislative veto process was unconstitutional. Subsequently, Congress approved the Reorganization Act Amendments of 1984, which extended the presidential reorganization authority from November 1984 to December 31, 1984. Under this authority, once the President submitted a reorganization plan, Congress was to consider, under an expedited procedure, a joint resolution approving the plan. The expedited procedure included limitations on the duration of committee consideration, the duration of floor debate, and amendments (although the President could amend or modify his plan during the first 60 days after submission). As a joint resolution, this vehicle had to be approved by the President to have the force of law. Unlike the legislative veto, the burden of action was placed on the proponents of the plan, rather than its opponents. As is the case under the regular legislative process, the default would be the status quo. The process of reorganizing the government was thus made somewhat more difficult than it would have been under earlier versions of presidential reorganization authority. This last statutory provision of presidential reorganization authority was never used, and it lapsed at the end of 1984. In the decades since this authority last expired, some presidential administrations have advocated for its restoration, and some have not. Neither the Reagan Administration, which did not use the authority in 1984, nor the George H. W. Bush Administration sought its extension. Initial reports issued by the Clinton Administration's National Performance Review included the recommendation that the reorganization authority be reauthorized, but President Clinton did not directly request this action from Congress. The George W. Bush Administration called for a renewal of presidential reorganization authority, and legislation introduced during the 108 th Congress included provisions that would have renewed the authority in modified form. This legislation was not enacted. President Barack Obama also called for a renewal of the authority, and legislation introduced during the 112 th Congress would have provided for a modified version. As was the case in the earlier legislative effort, the legislation was not enacted. Agency Tools In general, department heads have discretion, consistent with existing statutory mandates, to organize and manage the day-to-day operations of the organizations for which they are responsible. In addition, since the 1950s, the powers, duties, and functions of the component offices of most agencies have been vested in the agency head, who is, in turn, empowered to delegate these powers, duties, and authorities. Furthermore, Section 301 of Title 5 of the U.S. Code provides that the "head of an Executive department or military department may prescribe regulations for the government of his department, the conduct of its employees, the distribution and performance of its business." These authorities do not, however, supersede or conflict with specific statutory directives, limitations, or organizational arrangements. Delineated Secretarial Authority Congress has sometimes delineated secretarial reorganization authority for individual departments. In such cases, the scope and limitations of the Secretary's authority are more specific. For example, the Homeland Security Act of 2002, which established the Department of Homeland Security, granted the Secretary relatively broad reorganization authority: The Secretary may allocate or reallocate functions among the officers of the Department, and may establish, consolidate, alter, or discontinue organizational units with the Department, but only ... after the expiration of 60 days after providing notice of such action to the appropriate congressional committees, which shall include an explanation of the rationale for the action.... [This authority] does not extend to the abolition of any agency, entity, organizational unit, program, or function established or required to be maintained by statute. The first part of this provision arguably widens the scope of potential reorganizational actions beyond the range that would otherwise be available to the Secretary. In addition, it requires that Congress be informed in advance of an action under this authority, but includes no mechanism for congressional "veto" of that action. The final part of the cited provision explicitly prevents the Secretary from overriding statutes for the purpose of abolishing entities, programs, or functions. Congressional Responses to Particular Agency Head Actions When an agency head has reorganized a portion of his or her agency under such delegated authority, Congress has, on occasion, endorsed the action without giving it statutory underpinnings. For example, Congress has sometimes validated an agency reorganization through the appropriations process, by adjusting the agency's appropriation to match the new configuration or by addressing the action in the conference report. In one such instance, the conference report for DHS appropriations included the following text: On July 13, 2005, the Department announced a major reorganization that reflects the findings of [an internal departmental review]. A budget amendment was submitted on July 21, 2005, requesting the appropriations structure be modified for fiscal year 2006 to reflect this reorganization proposal. For the most part, the conferees have complied with these requests. The conferees concur with the Department's decision to abolish the Office of the Under Secretary for Border and Transportation Security (BTS); BTS functions have been merged into other offices and component agencies throughout the Department. The conferees have agreed to split the Directorate of Information Analysis and Infrastructure Protection into two new components—Analysis and Operations and the Preparedness Directorate—and move all State and local grants and associated activities to the new Preparedness Directorate. The conferees concur with the Secretary's recommendation to transfer the Federal Air Marshals to the Transportation Security Administration. Finally, the conferees have included and expanded the roles and responsibilities of the Office of Policy. A more detailed discussion of this reorganization is contained under statement of managers language for each impacted office. Similarly, Congress has recognized some newly created entities by delegating to them specific authorities, or otherwise making reference to them in statute. On the other hand, Congress can also register its disapproval of a reorganization by appropriating little or no funding for a new entity, by placing a limitation on related expenditures in appropriations bill language, by condemning the action in conference report language, or by redelegating authority to competing organizations. General Limits on Reorganizations in Specific Agencies As a general matter, agency heads are limited in their reorganization actions by the provisions of the authorizing statute for the agencies they head. In some cases, Congress also has selectively limited secretarial reorganization authority by statute. For example, the Secretary of Energy is "authorized to establish, alter, consolidate or discontinue such organizational units or components within the Department as he may deem to be necessary or appropriate." This authority does not, however, extend to the National Nuclear Security Administration (NNSA), which is located within the Department of Energy. Instead, Congress elected to delegate the authority to reorganize NNSA to the administrator of that organization. Likewise, although the Secretary of Homeland Security has the statutory authority, under Section 872 of the Homeland Security Act, to reorganize most parts of DHS, the Post-Katrina Emergency Management Reform Act of 2006 exempts FEMA from that authority. In a related example, the Homeland Security Act transferred the U.S. Coast Guard to the Department of Homeland Security as a "distinct entity." In doing so, it explicitly provided that "the authorities, functions, and capabilities of the Coast Guard to perform its missions shall be maintained intact and without significant reduction after the transfer" and that [n]o mission, function, or asset (including for purposes of this subsection any ship, aircraft, or helicopter) of the Coast Guard may be diverted to the principal and continuing use of any other organization, unit, or entity of the Department, except for details or assignments that do not reduce the Coast Guard's capability to perform its missions. An appropriations limitation with regard to the reorganization authority of the Secretary of Homeland Security illustrates another tool Congress has used to generally proscribe such activity. Beginning in May 2007, Congress limited the use of appropriated funds for carrying out the Section 872 reorganizations described above. Section 3501 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, enacted on May 25, 2007, instituted such limitations for the balance of FY2007, stating, None of the funds provided in this Act, or P.L. 109-295 [Department of Homeland Security Appropriations Act, 2007], shall be available to carry out section 872 of P.L. 107-296 [Homeland Security Act of 2002]. Succeeding DHS appropriations acts included similar provisions. However, such an appropriation limitation was not included in the DHS appropriations for FY2017. For some agencies, appropriations legislation has included language limiting the use of funds for reorganization activities, for the agencies covered by the act, without consulting, or gaining the approval of, the two Committees on Appropriations. One such act provides as follows: Except as otherwise provided in this Act, none of the funds provided in this Act, provided by previous appropriations Acts to the agencies or entities funded in this Act that remain available for obligation or expenditure in fiscal year 2017, or provided from any accounts in the Treasury derived by the collection of fees and available to the agencies funded by this Act, shall be available for obligation or expenditure through a reprogramming of funds that: (1) creates a new program; (2) eliminates a program, project, or activity; (3) increases funds or personnel for any program, project, or activity for which funds have been denied or restricted by the Congress; (4) proposes to use funds directed for a specific activity by the Committee on Appropriations of either the House of Representatives or the Senate for a different purpose; (5) augments existing programs, projects, or activities in excess of $5,000,000 or 10 percent, whichever is less; (6) reduces existing programs, projects, or activities by $5,000,000 or 10 percent, whichever is less; or (7) creates or reorganizes offices, programs, or activities unless prior approval is received from the Committees on Appropriations of the House of Representatives and the Senate: Provided, That prior to any significant reorganization or restructuring of offices, programs, or activities, each agency or entity funded in this Act shall consult with the Committees on Appropriations of the House of Representatives and the Senate.... Reorganization Through Interagency Coordination Federal government observers have identified potential duplication, overlap, and fragmentation of programs as areas of concern in executive branch organization. These concerns received renewed focus in the GPRA Modernization Act of 2010. Among other things, this statute established new processes related to setting goals and measuring performance in crosscutting policy areas, reflecting congressional interest in better coordination and cooperation among federal agencies in addressing issues that transcend any one agency's boundaries. Each of the three major governing actors discussed in this report—Congress, the President, and agency heads—has tried to bridge the interagency (and, sometimes, intra-agency) divide by establishing interagency coordinative mechanisms of one kind or another. Arguably, a mechanism set by statute could be more durable across Administrations, while one established by executive order reflects the incumbent President's interest and authority. An agency head's directive might be used to establish a working group to communicate across within-agency silos that are unique to that agency. Interagency coordinative mechanisms are often used in an effort to establish cooperation among agencies with shared missions, similar functions, or overlapping jurisdiction. Some arrangements provide for collaboration among equals, while others designate a lead agency with authority to direct activities. In many cases, interagency coordinative mechanisms lead to changes in procedures, assignments, and relationships within and between organizations. In this way, they are tools of reorganization. They are particularly noteworthy for their widespread use and generally low profile. Such mechanisms include, for example, interagency working groups, task forces, joint decisionmaking processes, memoranda of understanding (MOUs), and White House coordinators. These arrangements sometimes exist informally, but numerous arrangements have also been established formally by public law, executive order, administrative directive, or MOU. Among other effects, such formal agreements and directives may be helpful in clarifying relationships among different agencies that have overlapping jurisdiction or shared responsibilities, because such arrangements fall outside the control of any single agency head. Interagency coordinative groups, as well as other mechanisms, can address organizational problems while avoiding some of the potential pitfalls of a structural reorganization. Where effective, for example, such a group might reduce unnecessary policy fragmentation, improve policy formulation and implementation, provide a forum for mitigating misunderstanding and conflict among agencies, reduce unnecessary redundancy, increase efficiency, and facilitate oversight and accountability. It might also help program implementers to work around vague or imprecise legislative language, or statutory limitations on individual agencies that might hamstring effective or efficient administration of a shared program. In some circumstances, such arrangements might be used temporarily to facilitate effective implementation of a law with known imperfections until such time as Congress develops legislative remedies. Interagency coordinative groups are not always perceived as beneficial, however. In some cases, a coordinative entity could be perceived as too powerful, if it has substantial authority over others. Such arrangements might undercut existing programs or offices in one or more participating agencies. The effectiveness of a particular arrangement might be limited by a lack of control over budgetary or other resources. Such limitations might be especially troubling to agencies and congressional committees that lose jurisdiction. Some mechanisms might also be perceived as additional layers of bureaucracy, imposing greater costs and using scarce resources without demonstrating added value. In some cases, coordinative entities may become self-perpetuating and endure beyond the period during which they are needed or useful. As noted above, a memorandum of understanding might be used to establish an arrangement among agencies, or it might be a coordinative mechanism in and of itself. The interagency coordination it establishes could result in a reorganization of procedures, assignments, and relationships between agencies. Such agreements are common among agencies. Where two or more agencies have overlapping or closely related responsibilities, such an agreement might be used to specify the division of responsibility, establish processes or structured protocols for sharing information, and make mutual, lasting commitments for cooperating in a shared policy area. As noted by an observer of these agreements, they might serve one or more different purposes: (1) delineating jurisdictional lines, (2) establishing procedures for information sharing or information production, (3) agreeing to collaborate in a common mission, (4) coordinating reviews or approvals where more than one agency has authority to act in a particular substantive area, and (5) in rarer cases (and potentially subject to additional procedures under the Administrative Procedure Act) ... agreeing on substantive policy. Alternatively, agencies might enter into more formal interagency agreements or contracts. In some instances where interagency MOUs or contracts shift significant responsibilities for carrying out statutory functions from one agency to another, congressional action might be necessary to authorize or appropriate accompanying shifts in resources. Another kind of interagency mechanism might be used to increase adherence to the President's policy direction. Modern Presidents have sometimes tried to coordinate policy development and implementation among departments and agencies from the White House. To the extent that such efforts shift the locus of authority and decisionmaking from one agency to another, they might be considered reorganization actions. Presidents have, for example, sometimes appointed high-level presidential advisors and given them such a role. Such advisors have been referred to, by the Administration in some cases, and by the media, as "czars." The precise role and authority of such individuals in the policy development and implementation processes is often difficult for Congress and the public to discern. In some cases, this lack of clarity of role and authority and the perceived lack of accountability to Congress have been the source of controversy. Reorganization: An Administrative and Political Process Government reorganization is often cast in terms of potential administrative benefits. For example, whenever Congress has delegated general reorganization authority to the President (see " Presidential Reorganization Authority " above), it has clearly stated in the statutory provisions that the objective of reorganization is administrative improvement, and it has often required that reorganization plans submitted by the President articulate the plan's means of achieving such improvements. Administrative goals of reorganization include, for example, improved program effectiveness, greater efficiency, reduced cost, and improved policy integration across related programs. In addition to these administrative goals, reorganization efforts often have spoken or unspoken political goals and outcomes. The political nature of reorganization arises from the fact that it redistributes power and resources. Although it may have beneficial outcomes over time, it is axiomatic that a government reorganization is disruptive, at least in the short term, to the functioning of the organizations involved. Implementation of a reorganization plan can affect existing power dynamics, rearrange relationships, create uncertainty, and generally interrupt the flow of work. Government workers in the reorganized agencies will often be the most directly affected, but congressional committees of jurisdiction and outside interest groups are affected as well. These parties, including policy advocates, usually work toward obtaining the organizational outcome most beneficial to their own particular interests. Such efforts may continue through the implementation phase of the reorganization, where the distribution of power and resources may be decided in finer detail. Government reorganizations have potential benefits and drawbacks, some of which are identified in the text box below. The vantage point of the observer might influence the degree to which a particular reorganization is viewed as beneficial. For example, increased independence for a regulatory entity might be seen as beneficial by those who think that regulatory activities are best carried out with insulation from day-to-day political considerations and from the policy preferences of any one Administration. Others might view such independence as an unwarranted abridgement of the President's role in controlling and directing the executive branch bureaucracy. In addition, observers with different perspectives might weight potential benefits and drawbacks differently. For example, one observer might view potential efficiencies that might be gained from a reorganization to be insufficient to outweigh the disruption of functioning that the associated activities are expected to entail, while another observer might regard anticipated short-term disruption to be a small price to pay for the benefits of what is perceived to be long-overdue updating of an agency's mission and operations. Research suggests that successful governmental reorganizations—statutory or otherwise—are characterized by political consensus on the goals and approaches. Where goals are unarticulated or consensus has not been achieved prior to a reorganization, affected interests may intentionally or unintentionally undermine the success of the new arrangement. The result of such a situation may be instability leading to further reorganization within a relatively short time. Political consensus concerning new organizational arrangements may be achieved, in part, through negotiation and accommodation among affected interests. In an effort to achieve such consensus, a reorganization directive or statute might articulate its goals. Identifying these goals could also aid in determining, after implementation, whether or not they have been achieved. Reorganization directives or statutes might also include agreed-upon methods for assessing progress toward those goals. Absent such explicit goals and agreed-upon methods, Congress may find it difficult to evaluate the success or failure of a particular reorganization project.

The federal bureaucracy of the present day is the product of more than two centuries of legislative and administrative actions by successive generations of elected and appointed officials. As such, the diverse organizations and processes of the federal government are a consequence of the influence and decisions of thousands of officials with differing viewpoints about the role of government and diverse policy preferences. The federal bureaucracy's organizational arrangements are also reflective of ongoing competition between Congress and the President to influence the behavior of agencies. With its size, complexity, and idiosyncratic history, the federal bureaucracy is sometimes perceived as immutable. Notwithstanding this perception, federal organizational structures and processes are under continual congressional and administrative study and alteration in response to changing contexts and priorities. The term reorganization may be defined to encompass the intended alterations in the purpose, functions, procedures, assignments, and relationships within and among organizations. It involves more than just structural rearrangement of organizational units and personnel, and it can occur within agencies as well as among two or more agencies. Government reorganizations can also entail changes in interagency processes or the distribution of resources and functions among agencies. The government organizations that are the focus of this report are those that exercise significant federal legal authority. Primary constitutional responsibility for the structural organization of the executive branch of the federal government, as well as the creation of the principal components of that branch, rests with Congress. Congress also has delimited the operations of the executive departments, agencies, and other governmental entities through specifications of both government-wide and agency-specific processes. Key tools that Congress uses to shape the contours of the federal government include authorizing legislation, appropriations legislation, and oversight. The President has often played a leadership role in reorganization of the executive branch by transmitting proposals and advocating legislative action in public statements and private negotiations. Presidents and their appointed agency heads also have a variety of administrative tools at their disposal for making structural and procedural organizational changes that are not in conflict with statutes. In addition to the tools just mentioned, each of the three major governing actors discussed in this report—Congress, the President, and agency heads—has tried to address the challenge of coordination across organizational boundaries by establishing interagency coordinative mechanisms of one kind or another. These are often used in an effort to establish cooperation among agencies with shared missions, similar functions, or overlapping jurisdiction. Some arrangements provide for collaboration among equals, while others designate a lead agency with authority to direct activities. This report discusses some tools available to Congress, the President, and agency leaders, respectively, for initiation and implementation of executive branch reorganization. It also discusses the interagency coordinative mechanisms that are sometimes used by each of these actors to bridge interorganizational gaps. The report concludes with general observations regarding federal reorganization efforts.

Introduction Under current tax law, firms may expense (or deduct as a current rather than a capital expense) up to $1 million of the total cost of new and used qualified assets they purchase and place in service in tax years beginning in 2018 under Section 179 of the federal tax code. They also have the option under Section 168(k) of expensing the entire cost of qualified assets they acquire and place in service between September 28, 2017, and December 31, 2022. Many of the assets that qualify for the Section 179 expensing allowance are also eligible for the Section 168(k) expensing allowance (which is also known as bonus depreciation). Expensing is the most accelerated form of depreciation. It has the potential to stimulate business investment by reducing the cost of capital for favored investments and by increasing the cash flow of firms undertaking such investments. As a result, economists view the two allowances as significant investment tax subsidies, especially since firms are allowed to take advantage of both allowances in the same tax year. P.L. 115-97 (known informally as the Tax Cuts and Jobs Act of 2017) made several notable changes in both tax provisions. Specifically, the new tax law permanently increased the annual dollar limitation for expensing under Section 179 to $1 million, raised the phaseout threshold to $2.5 million, indexed both amounts for inflation, and expanded the range of assets eligible for the allowance. P.L. 115-97 also increased the Section 168(k) bonus depreciation allowance to 100% of the cost of eligible assets acquired and placed in service from September 28, 2017, through the end of 2022 and made certain changes in the property eligible for the allowance. This report examines the current status, legislative history, and main economic effects (including their efficacy as a tool for economic stimulus) of the Section 179 and bonus depreciation allowances. Current Expensing Allowances Section 179 Section 179 of the Internal Revenue Code (IRC) is a permanent tax provision. It gives firms in all lines of business and all sizes the option, within certain limits, of expensing the cost of new and used qualified property in the tax year when the assets are placed in service. Business taxpayers that cannot (or choose not to) claim the allowance may recover capital costs over longer periods and at slower rates by claiming the appropriate depreciation deductions under the Modified Accelerated Cost Recovery System (MACRS) or Alternative Depreciation System (ADS). Maximum Expensing Allowance The maximum Section 179 expensing allowance is set at $1 million for qualified assets bought and placed in service in 2018 and thereafter. (See Table 1 for the annual expensing allowances from 1987 to 2018.) Qualified Property Under current law, new and used tangible property—as specified in Section 1245(a)(3)—qualifies for the allowance if it is depreciable under Section 168 (which contains the MACRS) and acquired for use in the active conduct of a trade or business. For the most part, this property consists of machinery and equipment used in manufacturing, mining, transportation, communications, the generation and transmission of electricity, gas and water distribution, and sewage disposal. Research and bulk storage facilities do qualify for the allowance, as do single-purpose agricultural structures, storage facilities for petroleum products, and railroad grading and tunnel bores. In addition, the cost of off-the-shelf computer software used in a business or trade that is acquired and placed in service in tax years starting in 2003 may be expensed under Section 179. Improvements to the interior of nonresidential real property, as well as fire protection and alarm systems, security systems, roofs, and heating, ventilation, and air conditioning systems installed in such property, are also eligible for Section 179 expensing. Limitations on Use of the Section 179 Allowance Use of the allowance is subject to two limitations: an investment (or dollar) limitation and an income limitation. Under the dollar limitation, the maximum allowance a taxpayer is permitted to claim in a tax year is reduced, dollar for dollar but not below zero, by the amount by which the aggregate cost of the qualified property a firm buys and places in service during that year exceeds a phaseout threshold. That threshold is set at $2,500,000 in 2018 and thereafter (see Table 1 for the limitations going back to 1987). As a result, a taxpayer may claim no Section 179 expensing allowance in 2018 when the total cost of qualified property it acquires and places in service equals or exceeds $3,500,000. The income limitation bars a taxpayer from claiming a Section 179 allowance greater than its taxable income (including wages and salaries) from the active conduct of a trade or business. The limitation is determined after the application of the investment limitation. So, if a company has $50,000 in taxable income in 2018 from its business and may claim a Section 179 allowance of $75,000 under the investment limitation, it could expense no more than $50,000 of the cost of qualified property and recover the remaining $25,000 through the MACRS or carry it forward to a future tax year when the company is able to deduct it under Section 179. Taxpayers are not allowed to carry forward any allowance from the current tax year that cannot be used because of the investment limitation, but they may carry forward indefinitely allowances that cannot be used because of the income limitation. Claiming the Allowance To claim the allowance, a taxpayer must specify on Form 4562 the items to which the election applies and the portion of the cost of each item that is deducted immediately. Historically, an election to claim the Section 179 allowance could be revoked only with the consent of the Internal Revenue Service (IRS). Congress suspended this rule for tax years beginning in 2002 to 2014 and repealed it through the PATH Act for tax years beginning in 2015 and thereafter. Repeal of the rule means that taxpayers may revoke any part of an election to expense qualified property without the IRS's consent, regardless of whether the election is made on an original or amended return (IRS regulation 1.179-5). To revoke an election, a taxpayer merely submits an amended return for the tax year in question using a different depreciation method. Bonus Depreciation Allowance Businesses may also claim a 100% expensing (or bonus depreciation) allowance under Section 168(k) for eligible property acquired and placed in service after September 27, 2017, and before January 1, 2023. The allowance is equal to 100% of the cost of qualified property. Under current law, this rate is to remain in effect through 2022; it is scheduled to decrease to 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% for property acquired and placed in service in 2027 and thereafter. Qualified property with relatively long production times is allowed an extra year of bonus depreciation over this period. The initial bonus depreciation allowance (BDA) was set at 30% and applied to qualified property acquired and placed in service between September 12, 2001, and December 31, 2004. In 2003, Congress raised the allowance to 50% of the cost of qualified property acquired and placed in service from 2003 to 2005. It expired at the end of 2005. Congress reinstated it in 2007 for property acquired and placed in service in 2008 (or 2009 for property with long production times and certain aircraft). Owing to several subsequent extensions and enhancements, a BDA of 50% or 100% was available for property acquired and placed in service in 2009 to 2015. Like the Section 179 expensing allowance, the Section 168(k) allowance accelerates the depreciation of qualified property, lowering the cost of capital for investment in those assets and boosting the cash flow of businesses making such investments. Congress created the allowance to spur increased business investment during periods of negative or sluggish economic growth, such as the severe recession that lasted from late 2007 to mid-2009 and the relatively weak recovery that persisted into early 2014. The BDA applies to new or used qualified property. In general, this is property that is eligible for depreciation under the MACRS with recovery periods of 20 or fewer years, off-the-shelf computer software, and qualified improvement property (which is considered 15-year property even though eligible improvements apply to nonresidential real property that is depreciated over 39 years). In a change in the BDA enacted in P.L. 115-97 , property acquired and placed in service after September 27, 2017, by rate-regulated utilities that provide electrical power and water, sewage disposal, the local distribution of gas or steam, or the transportation of gas or steam by pipeline no longer qualifies for the BDA. Option to Exchange the BDA for Unused Credits From 2008 and through 2015, C corporations had the option under Section 168(k)(4) of cashing in some or all of their alternative minimum tax (AMT) and research tax credits carried over from tax years before 2006, in lieu of taking the BDA. Corporations choosing the accelerated credit also had to use the straight-line method over MACRS recovery period for the bonus depreciation property to recover its cost. The credit was refundable and limited to a corporation's bonus depreciation amount. This amount was equal to 20% of the difference between the bonus depreciation and regular depreciation a company could claim for the current tax year and the depreciation it could claim for that year without bonus depreciation. From 2008 to 2010, the bonus depreciation amount was limited to the lower of (1) 6% of the sum of its carried-forward (or unused) AMT and research tax credits from tax years before 2006, or (2) $30 million. For bonus depreciation property placed in service from 2011 to 2015, corporations could claim the accelerated credit for unused AMT credits from tax years before 2006 only. The credit was provided indirectly through an increase in the limitations on the use of the AMT credit (under Section 53(c)) and the research tax credit (under Section 38(c)); the increase was treated as a refundable overpayment of tax. A corporation was most likely to claim the initial version of the credit if it was both cash-strapped and at risk of incurring a net operating loss if it were to claim bonus depreciation. Since the maximum credit a corporation could take in tax years beginning on or after April 1, 2008, and before January 1, 2016, was $30 million, it had to place in service in a tax year $150 million in bonus depreciation property to equal that amount (20% of $150 million = $30 million). The corporation also needed $500 million in unused AMT and research tax credits from tax years beginning before 2006 to reach the $30 million ceiling (6% of $500 million = $30 million). Different rules applied in 2016 and 2017. C and S corporations were allowed to claim a refundable and accelerated AMT credit under Section 168(k)(4), instead of taking bonus depreciation for qualified property they acquire and place in service during that period. The method for calculating the credit was complicated, and the rules for electing it varied for taxpayers in different circumstances. Taxpayers taking the credit had to recover the cost of their bonus depreciation property using the straight-line method over the MACRS recovery period. The amount of the credit was equal to a taxpayer's "bonus depreciation amount," which in turn was equal to 20% of the difference between the regular and bonus depreciation the company could claim in the year the property was placed in service and the total depreciation the company could claim that year without bonus depreciation. A company's bonus depreciation amount could not exceed its "maximum increase amount (MIA)," which was the lower of (1) 50% of the firm's minimum tax credit under Section 53(b) for the first tax year ending after December 31, 2015, or (2) its minimum tax credit for the current year, as determined by the company's adjusted net minimum tax (as defined in Section 53(d)) for tax years ending before 2016. There was a simple rationale for the credit: for companies that invest in bonus depreciation property, it was intended to provide roughly the same net tax benefit to a profitable corporation that paid the AMT as it did to a corporation with an NOL. P.L. 115-97 repealed the corporate AMT and the option to exchange a BDA for unused AMT credits for tax years beginning in 2018. Interaction with Other Depreciation Allowances, Including the Section 179 Allowance In general, a company that invests in assets eligible for both the Section 179 and Section 168(k) expensing allowances is required to recover their cost in a prescribed order. The Section 179 expensing allowance has to be taken first, lowering the company's basis in the asset by that amount. The taxpayer then may apply the bonus depreciation allowance to any remaining basis amount, further reducing the company's basis in the property. Finally, the company is allowed to claim a depreciation allowance under the MACRS for any remaining basis, using the double declining balance method. A simple example illustrates how this process works. Assume that the only investment a company makes in a tax year is the acquisition of 10 new machine tools at a total cost of $700,000. Such a purchase qualifies for both the Section 179 expensing allowance ($500,000) and the BDA (50% of acquisition cost) for that year. Therefore, it is required to recover that cost for federal tax purposes in the following order: First, the company claims a Section 179 expensing allowance of $500,000 on its federal tax return for that year, lowering its basis in the property to $200,000 ($700,000-$500,000). Then it claims a bonus depreciation allowance of $100,000 ($200,000 x 0.5), further lowering its basis to $100,000 ($200,000-$100,000). Next, the company claims a deduction for depreciation under the MACRS on the remaining $100,000. Given that the MACRS recovery period for machine tools is five years and five-year property is depreciated using the double-declining-balance method, the company takes an additional depreciation allowance equal to 20% of $100,000, or $20,000, under the half-year convention. The company then recovers the remaining basis of $80,000 ($100,000-$20,000) by taking MACRS depreciation deductions over each of the next five years at rates of 32%, 19.2%, 11.52%, 11.52%, and 5.76%, respectively. As a result, the company is able to deduct nearly 89% of the purchase price of the machine tools it buys in the year they are placed in service. Legislative History of the Two Expensing Allowances Section 179 The Section 179 expensing allowance has been a permanent fixture of the federal tax code since September 1958. It started out as a first-year depreciation allowance that Congress included in the Small Business Tax Revision Act of 1958 (P.L. 85-866). Its purpose then was no different from its purpose today: to reduce the tax burden on small business owners, stimulate small business investment, and simplify tax accounting for smaller firms. The original deduction was limited to $2,000 (or $4,000 in the case of a married couple filing a joint return) of the cost of new and used business machines and equipment with a tax life of six or more years that were acquired and placed in service in a tax year. No change was made in the allowance until the enactment of the Economic Recovery Tax Act of 1981 (ERTA; P.L. 97-34 ). ERTA raised the expensing allowance to $5,000 and laid down a timetable for a gradual increase in the allowance to $10,000 by 1986. In spite of the 150% increase in the allowance for single filers, few firms took advantage of it. Some attributed the tepid response to the limitations on the use of an investment tax credit that ERTA established. A business taxpayer could claim the investment tax credit only for the portion of an eligible asset's cost that was not expensed, so the full credit could be used only if the company claimed no expensing allowance. For many firms, the tax savings from the credit outweighed the tax savings from a combination of the credit and the allowance. To stem the rise in the federal budget deficit in the early 1980s, Congress passed the Deficit Reduction Act of 1984 ( P.L. 98-369 ). Among other things, the act postponed from 1986 to 1990 the scheduled increase in the expensing allowance to $10,000. Still, use of the allowance rose markedly following the repeal of the investment tax credit by the Tax Reform Act of 1986. The allowance rose to $10,000 in 1990, as scheduled, and remained at that level until the passage of the Omnibus Budget Reconciliation Act of 1993 (OBRA93; P.L. 103-66 ). OBRA93 increased the allowance to $17,500 (as of January 1, 1993) and created a variety of tax benefits for impoverished areas known as "enterprise" zones and "empowerment" zones (or EZs for both). The benefits included an enhanced expensing allowance for qualified assets placed in service in such a zone. To be designated an EZ, an area had to meet certain eligibility criteria relating to population, poverty rate, and geographic size. With the enactment of the Small Business Job Protection Act of 1996 (SBJPA, P.L. 104-188 ), the regular expensing allowance again was placed on a timetable for scheduled increases. Specifically, the act allowed the allowance to rise to $18,000 in 1997, $18,500 in 1998, $19,000 in 1999, $20,000 in 2000, $24,000 in 2001 and 2002, and $25,000 in 2003 and thereafter. The Community Renewal Tax Relief Act of 2000 ( P.L. 106-554 ) added "renewal communities" (RCs) to the list of economic development areas and granted businesses located in them the same tax benefits available to businesses in EZs, including an enhanced expensing allowance. In addition, it added a premium of $35,000 to the regular allowance for qualified assets placed in service in economic development areas (including RCs). To lessen the economic losses associated with the terrorist attacks of September 11, 2001, Congress established a variety of tax benefits through the Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ). The benefits were intended to encourage new business investment in the area in lower Manhattan in New York City that bore the brunt of the aerial attacks on the World Trade Center. Owners of firms located in the "Liberty Zone" were allowed to claim the same enhanced expensing allowance for qualified investments that was available to small business owners in EZs and RCs. After the SBJPA, no changes were made in the regular allowance until the passage of Jobs and Growth Tax Reduction and Reconciliation Act of 2003 (JGTRRA). Under the act, the allowance rose four-fold to $100,000 (as of May 6, 2003), stayed at that amount in 2004 and 2005, and then reset in 2006 and beyond at its level before JGTRRA ($25,000). JGTRRA also raised the phaseout threshold to $400,000 from May 2003 to the end of 2005, indexed the regular allowance and the threshold for inflation in 2004 and 2005, and added off-the-shelf software for business use to the list of depreciable assets eligible for expensing in the same period. The American Jobs Creation Act of 2004 (AJCA; P.L. 108-357 ) extended the changes made by JGTRRA through the end of 2007. In an effort to aid the recovery of the economies in the areas of Louisiana, Mississippi, and Alabama struck by Hurricane Katrina in 2005, Congress passed the Gulf Opportunity Zone Act of 2005 ( P.L. 109-135 ). Among other things, the act created a "Gulf Opportunity Zone" (GOZ) in those areas and offered a variety of tax incentives to boost business investment in the GOZ, including an enhanced expensing allowance for qualified assets purchased on or after August 28, 2005, and placed in service by December 31, 2007. The GOZ allowance could be as much as $100,000 above the regular allowance, and its phaseout threshold was $600,000 greater than the threshold for the regular allowance. It also applied to a wider range of tangible depreciable assets than the regular allowance did. The Tax Increase Prevention and Reconciliation Act of 2005 ( P.L. 109-222 ) extended the changes in the allowance made by JGTRRA through 2009. In the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Appropriations Act, 2007 ( P.L. 110-28 ), Congress further extended those changes through 2010, raised the maximum allowance to $125,000 and the phaseout threshold to $500,000 for tax years beginning in 2007 to 2010, and indexed both amounts for inflation in that period. The act also extended through 2008 the special GOZ allowance. In an effort to stimulate more business investment in the midst of a severe economic downturn, Congress increased the allowance to $250,000 and the phaseout threshold to $800,000 for qualified assets bought and placed in service in 2008 in the Economic Stimulus Act of 2008 (ESA, P.L. 110-185 ). Under the act, those amounts were supposed to reset at $125,000 and $500,000 in 2009 and 2010, with adjustments for inflation. Several laws enacted during the 111 th Congress modified the Section 179 expensing allowance yet again. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) extended the enhanced allowance from ESA through 2009, and the Hiring Incentives to Restore Employment Act of 2010 ( P.L. 111-147 ) further extended it through 2010. Under the Small Business Jobs Act of 2010 ( P.L. 111-240 ), the expensing allowance increased to $500,000, and the phaseout threshold to $2 million, for tax years beginning in 2010 and 2011. Starting in 2012 and thereafter, the maximum allowance was scheduled to reset at $25,000 and the phaseout threshold at $200,000. The act also expanded the definition of qualified property to include qualified leasehold improvement property, qualified retail improvement property, and qualified restaurant property; in 2010 and 2011, a business could write off up to $250,000 of the annual cost of such property under Section 179. The Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ) increased the maximum allowance to $125,000 and the phaseout threshold to $500,000 for qualified assets acquired and placed in service in 2012, indexed those amounts for inflation, set the maximum allowance at $25,000 and the phaseout threshold at $200,000 beginning in 2013 and thereafter, and extended the eligibility of off-the-shelf computer software for the allowance through 2012. As a result of the American Taxpayer Tax Relief Act of 2012, the maximum expensing allowance rose to $500,000, and the phaseout threshold to $2 million, in 2012 and 2013. The act also made purchases of off-the-shelf software eligible for the allowance in 2013 and extended through 2013 the maximum annual $250,000 expensing allowance for qualified improvement property that first became available in 2010. In December 2014, Congress extended through 2014 the Section 179 expensing allowance that was available in 2012 and 2013 by passing the Tax Increase Prevention Act of 2014 ( P.L. 113-295 ). Nearly one year later, Congress again extended the $500,000 allowance and $2 million phaseout threshold from 2012 and 2013. Under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act, P.L. 114-113 ), the Section 179 expensing allowance was permanently set at $500,000, and the phaseout threshold at $2 million, starting in 2015. Both amounts were indexed for inflation beginning in 2016. Off-the-shelf computer software and leasehold, restaurant, and retail improvement property became permanently eligible for the allowance. And the dollar limit on the amount of improvement property that could be expensed in a tax year was lifted. Congress made additional changes in Section 179 with the passage of a tax revision bill ( P.L. 115-97 ) in December 2017. Under the new tax law, the maximum expensing allowance rises to $1 million, and the phaseout threshold to $2.5 million, and both amounts are indexed for inflation starting in 2019. In addition, the law expands the definition of qualified real property for the Section 179 allowance to include the following improvements to nonresidential real property: roofs; heating, ventilation, and air conditioning units; fire protection and alarm systems; and security systems. It also repeals the previous exclusion of property connected to lodging and indexes for inflation the $25,000 expensing limit for heavy-duty motor vehicles. Bonus Depreciation Allowance The Job Creation and Worker Assistance Act of 2002 ( P.L. 107-147 ) created the BDA. It was equal to 30% of a company's adjusted basis in new qualified property acquired and placed in service between September 12, 2001, and December 31, 2004. A one-year extension of that deadline was available for property with MACRS recovery periods of 10 or more years and lengthy production periods, as well as for certain aircraft. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 ( P.L. 108-27 ), Congress raised the allowance to 50% of a company's adjusted basis in qualified property acquired and placed in service after May 5, 2003, and before January 1, 2006. Once again, an extended deadline was available for property with relatively long production times. The Economic Stimulus Act of 2008 renewed the 50% BDA that expired at the end of 2005. It applied to qualified property acquired and placed in service in 2008. Later in 2008, Congress passed the Housing Assistance Tax Act of 2008 ( P.L. 110-289 ). It included a provision that gave C corporations only the option to exchange any BDA they could claim for property acquired and placed in service between April 1 and December 31, 2008, for a refundable tax credit equal to the lesser of $30 million or 6% of the sum of any research and AMT credits carried forward from tax years before 2006. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) extended the 50% BDA and the optional refundable credit through 2009. Congress further extended the 50% allowance and the credit to qualified property acquired and placed in service in 2010 by passing the Small Business Jobs Act of 2010 ( P.L. 111-240 ). Under the Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010 ( P.L. 111-312 ), the BDA rose to 100% for qualified property acquired and placed in service from September 9, 2010, to December 31, 2011. The act also established a 50% allowance for property acquired and placed in service in 2012. But it limited the optional refundable credit to unused AMT credits from tax years before 2006; unused research tax credits from the same period could no longer be monetized in this manner. The American Taxpayer Relief Act of 2012 (ATRA) extended the 50% BDA through 2013. ATRA also extended the optional refundable credit through 2013 for AMT credits carried forward from tax years before 2006. The Tax Increase Prevention Act of 2014 (TIPA) extended the 50% BDA through 2014. In December 2015, Congress passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act, P.L. 114-113 ). Among other things, it extended the BDA through 2019. In 2015 to 2017, the allowance was equal to 50% of the cost of qualified property acquired and placed in service during that period; the rate was scheduled to drop to 40% in 2018, and then to 30% in 2019. No allowance was available in 2020 and thereafter. The act also extended through 2019 the optional refundable credit. Unlike the credit that was available from 2008 to 2015, there was no specified dollar limit on the amount that could be claimed in lieu of the BDA. The credit a corporation could claim was equal to its bonus depreciation amount; this amount, in turn, could not exceed the lower of 50% of the corporation's AMT credit under Section 53(b) for its first tax year ending in 2016, or the AMT credit for the current tax year calculated by taking into account only the adjusted new minimum tax (as defined in Section 53(d)) for tax years ending before January 1, 2016. In addition, the PATH Act extended the BDA to domestic planted or grafted trees or vines that bore fruits or nuts and had a preproduction period of over two years from the time of planting or grafting to the time of bearing fruits or nuts. Congress made a number of significant changes in the BDA in P.L. 115-97 . Specifically, the act set the rate for the BDA at 100% for qualified property acquired and placed in service between September 28, 2017, and December 31, 2022. The rate then is scheduled to decrease to 80% for property placed in service in 2023, 60% for property placed in service in 2024, 40% for property placed in service in 2025, 20% for property placed in service in 2026, and 0% starting in 2027 and thereafter. Each placed-in-service date is extended one year for long-production property and certain aircraft. Eligible property includes trees and vines that bear fruits and nuts. As a result of unintentional language in the final bill, qualified improvement property is not eligible for the BDA until Congress amends the law to assign a 15-year recovery period to such property. Under the act, the property of rate-regulated utilities acquired and placed in service after September 27, 2017, is not eligible for the BDA. But used qualified property acquired and placed in service in the same period does qualify for the allowance. The same is true for film and television productions and live theatrical productions released or broadcast after September 27, 2017. And the option to claim a refundable AMT credit in lieu of a BDA is repealed for tax years starting in 2018 and thereafter. Economic Effects of the Section 179 and Bonus Depreciation Allowances Many lawmakers view the Section 179 expensing and bonus depreciation allowances as effective policy tools for promoting the growth of small firms and stimulating the economy during periods of slow or negative growth. And many business owners think of the two allowances as valuable and desirable instruments for increasing their cash flow and simplifying tax accounting. But many economists have a more nuanced understanding of the effects of those allowances. In their view, the disadvantages of the allowances may outweigh the advantages. Specifically, they maintain that the allowances have the potential to promote an inefficient allocation of capital among domestic industries and investment opportunities, and to lessen the federal tax burden on upper-income business owners, who account substantial shares of noncorporate business profits and corporate stock ownership and dividends. At the same time, many economists acknowledge that expensing can reduce the cost of tax compliance, especially for smaller firms. These effects correspond to three traditional criteria used by economists to evaluate actual or proposed tax policies: efficiency, equity, and simplicity. Each effect is examined below. The discussion begins with a review of what is known about the effectiveness of the Section 179 expensing and bonus depreciation allowances as policy instruments for economic stimulus. Accelerated Depreciation as a Policy Tool for Economic Stimulus Since 2003, Congress has passed eight bills that either temporarily enhanced the Section 179 expensing allowance and its phaseout threshold or included a temporary or permanent extension of an already enhanced allowance. And since 2002, 10 bills have been enacted that extend or enhance the bonus depreciation allowance. Each extension or enhancement was largely intended to spark increases in business investment in equipment and machinery, relative to a baseline reflecting prior law. When Congress first took these steps in 2002 and 2003, many assumed the measures would boost short-term business investment in qualified assets, imparting a needed boost to domestic GDP. This expectation rested on the knowledge that expensing lowered the user cost of capital for investment in such assets and expanded the cash flow of companies that relied on internal sources of financial capital to make such investments. The user cost (or rental price) of capital is one of the key influences on business investment decisions. It combines the opportunity cost of an investment (i.e., the highest pretax rate of return a company could earn by investing in a low-risk asset like a U.S. Treasury bond) with its direct costs, such as depreciation, the actual cost of the asset, and income taxes. In effect, the user cost of capital determines the after-tax rate of return an investment must earn in order to be profitable—and thus worth undertaking. In general, the larger the user cost of capital, the fewer projects companies can profitably undertake, and the lower their desired capital stock. In theory, when a change in tax law decreases the user cost of capital, businesses can be expected to increase the amount of capital they wish to own, boosting business investment in the short run, all other things being equal. How does expensing affect the user cost of capital? As the most accelerated form of depreciation, expensing lowers this cost by reducing the tax burden on the discounted returns to an eligible investment. This reduction can be considerable. Expensing the cost of an asset is equivalent to the U.S. Treasury providing a firm with a tax rebate equal to the firm's marginal tax rate multiplied by the cost of the asset. It leads to a marginal effective tax rate of 0% on the returns to eligible investments. Several studies have concluded that investment in equipment is somewhat sensitive to changes in the user cost of capital. Estimates of the price elasticity of demand for equipment (which measures the percentage change in spending on equipment divided by the percentage change in its user cost of capital) range from -0.25 to -0.66. Some economists argue that the elasticity is probably close to -0.50, though a recent study of the impact of bonus depreciation that took into effect frictions in the financing of investment came up with a much larger elasticity estimate: 1.6. An elasticity of that size means that a 10% decline in the user cost of capital should result in a 16% rise in business spending on equipment in the short run, all other things being equal. Another significant influence on business investment decisions is cash flow. There are several reasons why a company may finance new investments largely or entirely from retained earnings. It may wish to limit the company's exposure to external debt and the risk of default it carries. Or the company may have to rely on retained earnings since it has limited access to debt and equity markets. Younger firms investing in the development of new commercial technologies may find it hard to raise the needed capital in debt or equity markets when the owners know more about the sales and growth potential of their services and products than investors and lenders do. For companies in such a situation, the cost of internal funds would be lower than the cost of external funds, so they clearly would be better off financing new investments out of retained earnings. Expensing can increase a profitable firm's cash flow in the short run because it allows the firm to deduct the full cost of qualified assets in the tax year when they are placed in service, reducing its tax liability. But expensing has no such benefit for firms with net operating losses. While cash flow's role as a driver of business investment makes sense in theory, its actual contribution to such investment has proven difficult to measure or verify in practice. The contribution of cash flow to business investment (especially small business investment) remains unclear. A few studies have found a significant positive correlation between changes in a firm's net worth and its investment spending, and this correlation was strongest for firms with limited or no access to debt and equity markets. Yet these findings do not prove that firms with relatively high retained earnings relative to net worth invest more than firms with relatively low or negative amounts. A strong correlation between two factors does not necessarily mean that one caused the other. In the case of cash flow and business investment, a plausible explanation for the strong correlation was that firms with relatively high cash flows invested more, on average, than firms with relatively low cash flows for reasons that have nothing to do with the relative cost of internal and external funds. What can be said with certainty is that the relationship between cash flow and business investment is complicated, and that additional research may be needed to assess the impact of the former on the latter. In theory, full or partial expensing should boost business investment in qualified assets relative to a baseline scenario with no expensing. This raises the question of how effective (and cost-effective) the Section 179 and bonus depreciation allowances have been in stimulating business investment, especially during the severe recession of 2007 to 2009. Several studies have analyzed the effects of the allowances on short-run business investment. Their findings indicated that the allowances did spur a rise in business investment in equipment and standardized software. But the studies differed over the extent of this increase, among other things. According to the results of a 2005 study by Matt Knittel from the Department of the Treasury, small businesses did not increase their use of the Section 179 expensing allowance and the bonus depreciation allowance after both were expanded in 2003. Specifically, Knittel found that the share of small firms claiming the Section 179 allowance changed little from 2001 or 2002 to 2003, when it rose from $25,000 to $100,000. Similarly, 39% of noncorporate business owners and 54% of small corporations claimed bonus depreciation in 2002, but these shares actually decreased to 33% for noncorporate business owners and 49% for small corporations in 2003, even though the bonus depreciation allowance rose from 20% of the cost of qualified assets placed in service in 2002 to 30% in 2003. A 2006 study by Darrel Cohen and Jason Cummings found that although over half of all C and S corporations claimed bonus depreciation from 2002 to 2004, only 10% of those companies deemed the allowances an important consideration in determining the timing or amount of qualifying investments. These findings raised the possibility that many of the investments that benefited from bonus depreciation would have been undertaken without it, but their timing was altered so they would qualify for the allowance. Moreover, the study showed that bonus depreciation had no discernible effect on investment in short-lived assets, such as computer hardware and software. In another 2006 study, Christopher House and Matthew Shapiro estimated that bonus depreciation had a minor impact on gross domestic product and employment in 2002 and 2003. According to their findings, bonus depreciation "probably" led to a cumulative increase in GDP of 0.07% to 0.14%, and in total employment of 100,000 to 200,000 workers, during that period. In a related analysis, House and Shapiro also found that the allowance had a strong impact on investment in qualified assets relative to other assets, and on investment in longer-lived qualified assets relative to those with relatively short depreciation lives. They estimated an investment price-elasticity of supply for those capital goods that ranged from 6% to 14%. In a 2007 study, Knittel estimated that the take-up rate for the bonus depreciation allowance among corporations from 2002 to 2004 was substantially below 100%, but that the rate did rise over that period. The take-up rate measures (as its name implies) the share of eligible investment for which the allowance was claimed. According to the results of the study, the take-up rate ranged from 54% in 2002 to 61% in 2004 for C corporations and from 65% in 2002 to 70% in 2004 for S corporations. Though the analysis did not investigate why so many corporations opted to forgo bonus depreciation when they could have taken it, Knittel cited two possible explanations. First, many corporations had net operating losses from 2002 to 2004, so bonus depreciation offered no immediate benefit to them, or to companies that had loss or credit carry-forwards or claimed new credits. Second, many states disallowed bonus depreciation allowances for the purpose of computing state income tax liability, and that may have deterred some companies from claiming it for federal income tax purposes. Knittel also found that the take-up rate was highest for industries where a small number of companies accounted for most of the investment in long-lived assets, such as telecommunications. A 2017 study of the impact of bonus depreciation on business investment by Eric Zwick and James Mahon came up with strikingly different results. Using a model that accounted for "frictions" or imperfections in capital markets, they estimated that the allowance had a significant impact on investment in qualifying assets, boosting it by 10.4% from 2001 to 2004, and by 16.9% from 2008 to 2010. These estimates were consistent with the response found by House and Shapiro but greater than the results of other studies of the impact of bonus depreciation on business investment. Zwick and Mahon noted that their analysis produced higher estimates of the effects of the allowance because it allowed for financial frictions, which caused firms to "sharply discount future deductions, making bonus depreciation more appealing. The study also found that small and medium-sized firms were much more responsive to bonus depreciation than larger firms. Finally, firms that relied on internal cash reserves were more responsive to the incentive than firms that used debt and equity to finance new investments in qualified property. There are at least five reasons why it is likely that the allowances had a modest impact on the U.S. economy as a whole since the early 2000s. First, the design of each allowance limits their impact on the level of overall economic activity. Neither allowance applies to investments in inventory, structures, and land. And the Section 179 allowance phases out once a company's total investment in qualified assets in a tax year exceeds a specified dollar amount ($2.5 million in 2018). Second, spending on the assets eligible for the two expensing allowances tends to account for a relatively small slice of U.S. business investment. One measure of this relationship is the value of depreciation allowances claimed by businesses in a tax year. According to IRS data, corporations claimed a total of $621.0 billion in depreciation allowances in the 2013 tax year. Of that amount, Section 179 allowances amounted to $13.2 billion (or 2.1% of the total amount) and bonus depreciation allowances came to $217.1 billion (or 35.0% of the total amount). In total, the two allowances represented less than 40% of total corporate depreciation allowances that year. Third, expensing is likely to impart less of a stimulus when an economy is mired in a recession than when it is expanding. This is because business investment generally is driven more by current economic conditions and the short-term outlook for sales and earnings than it is by tax considerations. An increase in expensing when an economy is contracting and many companies are burdened with excess capacity and increasing debt is likely to affect the timing of some planned investments. Still, the increase by itself is unlikely to spur a permanent increase in the domestic capital stock under those conditions. Some companies may accelerate planned investments to take advantage of the enhanced expensing, but that does not necessarily mean that a short-term increase in net investment reflects an increase in the desired capital stock of the many companies experiencing declines in profits or financial losses. Fourth, an investment tax subsidy like expensing offers no immediate benefit to companies with NOLs. In this case, a company claiming an expensing allowance would simply increase the size of its NOL. Fifth, the firm-level benefit from the Section 179 expensing and Section 168(k) bonus depreciation allowances depends on the length of a qualified asset's recovery period. The House-Shapiro study found that the bonus depreciation allowances enacted for 2002 and 2003 boosted business investment, but the increase was concentrated among long-lived equipment. And the Cohen-Cummins study concluded that the same provisions had no effect on investment in eligible short-lived assets. This difference in investment stemmed from the fact that the net present value of the tax benefit was proportional to the recovery period of the qualified assets. The forces shaping the stimulative potential of Section 179 expensing and bonus depreciation have affected their cost-effectiveness as a means of boosting economic activity. Other approaches may produce better results, especially those that quickly put more money in the hands of unemployed individuals. A 2010 analysis by the Congressional Budget Office (CBO) shed light on the comparative benefits of alternative policies for economic stimulus. For example, it estimated that increasing financial aid to the unemployed would have increased GDP from $0.70 to $1.90 for each $1.00 of budgetary cost from 2010 to 2015; by contrast, allowing full or partial expensing of investment costs would have raised GDP from $0.20 to $1.00 for each $1.00 of budgetary cost. Efficiency Effects Efficiency lies at the core of economic theory and analysis. It refers to the allocation of resources in an economy and how that allocation affects the welfare of consumers and of producers. An allocation of resources is considered efficient when it yields the greatest possible economic surplus (which is the total value to consumers of the goods and services they purchase minus the total cost to sellers of providing the goods and services), given existing constraints on the supply of labor and capital and the productivity of that capital. But when the allocation becomes inefficient, some of the possible gains from exchanges among buyers and sellers are not realized. For example, an allocation of resources is deemed inefficient when most suppliers of a good fail to produce it at the lowest marginal cost permitted by current technology. In this case, a shift in supply from high-cost producers to low-cost producers, driven by consumers seeking greater value, would lower the economic cost of providing the good, perhaps increasing any economic surplus. Expensing is equivalent to exempting from taxation the normal returns on investment. As such, it would be the preferred method of capital cost recovery under a consumption tax, such as a flat tax or a value-added tax. But under an income tax, expensing becomes a tax preference because it allows those normal returns to go untaxed. When this happens, new opportunities for tax arbitrage open up. Expensing allows taxpayers to borrow funds to purchase new depreciable assets, deduct the full cost of those assets in the year they are placed in service, and deduct interest payments on the debt incurred to acquire the assets, leading to a negative marginal effective tax rate on the returns to those investments. How does the expensing allowance affect the allocation of capital within an economy? In theory, all taxes, except lump-sum taxes, generate inefficient economic outcomes because they influence the decisions of consumers and producers in ways that leave one group or the other, or both, worse off. Income taxes have this effect because they distort the economic choices facing individual and business taxpayers, leading them to allocate resources on the basis of how the taxes affect the costs and benefits of the goods and services they buy and sell, rather than according to their actual costs and benefits. Such a distortion entails what economists call a deadweight loss: a condition where the amount of revenue raised by a tax is less than the loss of economic welfare associated with it. The Section 179 expensing and bonus depreciation allowances distort the allocation of resources in an economy by driving a wedge between the return on investment in favored assets and the return on investment in all other assets. Other things being equal, expensing increases the after-tax rates of return for investments in favored assets relative to the after-tax rates of return for investments in all other assets. As a result, it could encourage inefficient levels of investment in favored assets, at least in the short run, depriving more productive investments with lower after-tax rates of return of needed capital. In general, how beneficial is expensing to companies? One way to illustrate the potential tax benefit is to show how expensing affects the marginal effective tax rate on the returns to an investment. This rate encapsulates the tax provisions that affect the returns on an investment and is calculated by subtracting the expected after-tax rate of return on a new investment from the expected pretax rate of return and dividing by the pretax rate of return. Under expensing, the pretax and after-tax rates of return are the same for the investment, which means that expensing produces a marginal effective tax rate of 0%. This equivalence reflects a key effect of expensing: it reduces the total after-tax return over the life of an eligible asset and its total cost by the same factor: an investor's marginal tax rate. For example, if a small business owner's income is taxed at a rate of 35%, and the entire cost of a depreciable asset is expensed, the federal government effectively becomes a partner in the investment with a 35% interest. Through the tax code, the federal government assumes 35% of the cost of the asset by allowing its entire cost to be deducted in the first year of use, but it shares in 35% of the income earned by the investment in subsequent years, assuming no change in the owner's tax rate. By the same token, expensing allows the small business owner to receive 65% of the returns from the investment over its lifetime but to bear only 65% of the cost. Is there evidence that the two Section 179 expensing and bonus depreciation allowances have caused shifts in the size and composition of the domestic capital stock in recent decades? This question is difficult to answer, largely because no studies have been done that assess the impact of either allowance on capital formation in the period they have been available. Given that the expensing allowance lowers the cost of capital and can boost the cash flow of firms claiming it, and that investment in many of the assets eligible for the allowance seems at least somewhat sensitive to changes in the cost of capital, it would be reasonable to conclude that the allowance may have caused domestic investment in those assets to be greater than it otherwise would have been. But it can also be argued that much of this additional investment would have taken place in any event, and that the main effect of expensing is to accelerate the timing of those investments so the firms making them can take advantage of the tax subsidy. Most economists would agree that investment in the assets eligible for the Section 179 expensing allowance is driven more by expectations for future growth in sales and profits by firms that purchase these assets, the nature of the assets, and conditions in debt and equity markets than by tax considerations. This view finds some support in the available data on use of the expensing allowance: although 22% of corporations filing federal tax returns claimed the allowance from 1999 through 2003, the total value of Section 179 property placed in service was equal to 5% of gross domestic investment in equipment and computer software. When seen through the lens of economic theory, expensing has efficiency effects that may worsen the deadweight loss associated with the federal tax code. Under the reasonable assumption that the amount of capital in the economy is fixed in the short run, a tax subsidy like the allowance is likely to divert some capital away from relatively productive uses and into tax-favored ones. According to standard economic theory, in an economy free of significant market failures and ruled by competitive markets, a policy of neutral or uniform taxation of capital income minimizes the efficiency losses associated with business income taxation. But the Section 179 and Section 168(k) allowances encourage firms to invest in a specific set of assets. As such, they represent a departure from the norm of neutral taxation. In addition, expensing arguably distorts a firm's incentives to grow. Like any subsidy targeted at firms of a certain size, the Section 179 allowance gives smaller firms an incentive to limit their investment so they can continue to benefit from the allowance. Such an effect is the result of the rise in the marginal effective tax rate on the income earned by qualified assets over the allowance's phaseout range ($2.5 million to $3.5 million in 2018). Douglas Holtz-Eakin, a former director of the Congressional Budget Office, has labeled this incentive effect a "tax on growth by small firms." Equity Effects Equity is another basic concept in economic analysis. It generally refers to the distribution of income among the individuals or households. In the field of public finance, equity usually denotes the distribution of after-tax income among households or individuals. Economists who analyze the equity effects of income taxes focus on two kinds of equity: horizontal equity and vertical equity. A tax is considered horizontally equitable if it imposes similar burdens on individuals with similar incomes or living standards. And a tax system is said to be vertically equitable if the burdens it imposes vary according to an individual's or household's ability to pay. The principle of vertical equity provides the intellectual foundation for a progressive income tax system. Under such a system, an individual's tax liability, measured as a fraction of income, rises with income. The current federal income tax system may lean more in the direction of vertical equity than horizontal equity. Many individuals with similar incomes before taxes end up in the same tax bracket. But because of existing tax preferences (e.g., deductions, preferential rates, deferrals, exclusions, exemptions, and credits), a substantial number of individuals with similar before-tax incomes end up being taxed at different effective rates. At the same time, the income received by those with relatively high pretax incomes is generally taxed at higher rates than the incomes of those with relatively low pretax incomes. How does the expensing allowance affect vertical and horizontal equity? To answer this question, one must consider who the main recipients of the tax benefits associated with the expensing allowance are and how those benefits affect the recipients' federal income tax burden. The main direct tax benefit from the allowance is a reduction in the marginal effective tax rate on the income earned by eligible assets. How much of a reduction depends on the proportion of an asset's cost that is expensed. As was noted earlier, if the entire cost is expensed, then the marginal effective rate on the returns falls to zero. Yet the allowance does not change the actual marginal rates at which this income is taxed. Accelerated depreciation does not reduce the federal taxes paid on the stream of income earned by an asset over its useful life. Rather, it delays or defers the payment of taxes on that income by enabling firms to take a larger share of depreciation deductions for the asset in its first year or two of use than would be possible under the MACRS. This front loading of depreciation allowances increases the present discounted value of the tax savings from depreciation relative to other depreciation schedules such as the MACRS. Most assets eligible for the Section 179 allowance are held by smaller firms. Therefore, any gains in profits due to the allowance go to small business owners. Since the tax benefits associated with capital income tend to be concentrated in upper-income households, it can be argued that the expensing allowance tilts the federal income tax away from vertical equity. The allowance lowers the effective tax burden on small business income relative to other sources of income. While this effect makes investment in qualified assets more attractive, it does not change the fact that the allowance itself has no effect on the nominal taxes paid by small business owners over time on the income from eligible assets. Over the useful life of such an asset, the stream of depreciation deductions remains the same, regardless of whether its cost is expensed or not. As a result, it seems fair to conclude that the allowance has no lasting effect on the distribution of after-tax incomes. Tax Administration Yet another policy issue raised by the Section 179 and Section 168(k) expensing allowances concerns their impact on the cost of tax compliance for business taxpayers. Most public finance economists agree that a key element of a desirable income tax system is that it imposes relatively low costs for administration and compliance. Research indicates that those costs hinge on three factors: (1) the records that must be kept in order to comply with tax laws, (2) the complexity of those laws, and (3) the types of income subject to taxation. Most public finance economists would also agree that the federal income tax system fails this test on all counts. In their view, the costs of complying with tax laws and regulations and of collecting income taxes and enforcing compliance with those laws are needlessly high, and the primary cause is the growing complexity of the federal tax code. P.L. 115-97 appears to have done little to counter that trend and may have worsened it, particularly with regard to the new 20% deduction for passthrough business income under Section 199A. A large number of small business owners have long complained about the costs imposed on them by the record keeping and filings required by federal income and employment taxes. The two expensing allowances address this concern by simplifying tax accounting for depreciation. It takes less time and less paperwork to write off the entire cost of a depreciable asset in its first year of use than it does to write off that cost over a longer period using allowable depreciation schedules. But this advantage does come with a cost of its own: the rules governing the use of the allowances complicate the tasks of administering and complying with the tax code. Tax simplification is a long-standing policy objective for many small business owners. The relatively high cost of complying with federal tax laws for many small businesses lies behind this stance. According to a study prepared for the Office of Advocacy at the Small Business Administration (SBA), the estimated cost per U.S. employee for tax compliance in 2000 was $665 for all firms, $1,202 for firms with fewer than 20 employees, $625 for firms with 20 to 499 employees, and $562 for firms with 500 or more employees. Similarly, a study by four researchers of 2004 business tax return data, which was included in the proceedings of the National Tax Association's 100 th Annual Conference on Taxation, found that the direct monetary cost per employee of complying with the federal income tax ranged from $805 for firms with less than $10,000 in total assets to $264 for firms with more than $1 million in assets. And a 2010 study by two economists from Lafayette College (also prepared for the SBA) estimated that the federal tax compliance cost per employee in 2008 was $1,584 for firms with fewer than 20 employees, $760 for firms with 20 to 499 employees, and $517 for firms with 500 or more employees. These findings demonstrate that the cost of business tax compliance is inversely proportional to firm size.

Expensing is the most accelerated form of depreciation. Section 179 of the Internal Revenue Code allows a taxpayer to expense (or deduct as a current rather than a capital expense) up to $1 million of the total cost of new and used qualified depreciable assets it buys and places in service in 2018, within certain limits. Firms unable to claim this allowance may recover the cost of qualified assets over longer periods, using the depreciation schedules from Sections 167 or 168. While the Section 179 expensing allowance is not expressly targeted at smaller firms, the limits on its use effectively tend to confine its benefits to such firms. Section 168(k) allows taxpayers to expense 100% of the cost of qualified assets bought and placed in service between September 28, 2017, and December 31, 2022. There is considerable overlap between the property eligible for the Section 179 and Section 168(k) expensing allowances. Since 2002, the two allowances have been used primarily as tax incentives for stimulating the U.S. economy. Several studies have assessed the economic effects of the 30% and 50% bonus depreciation allowances from 2002 to 2004 and from 2008 to 2010. Their findings suggested that accelerated depreciation did affect investment in qualified assets, but that it was a relatively ineffective tool for stimulating the U.S. economy during periods of weak or negative growth. Available evidence also suggests that the expensing allowances have a moderate effect at best on the level and composition of business investment and its allocation among industries, the distribution of the federal tax burden among different income groups, and the cost of tax compliance for smaller firms. The allowances of course have advantages and disadvantages. On the one hand, an expensing allowance simplifies tax accounting, and a temporary allowance has the potential to stimulate increased business investment in favored assets in the short run by reducing the user cost of capital, increasing the cash flow of investing firms, and giving firms an incentive to make qualifying investments before the incentive expires. On the other hand, an expensing allowance is likely to interfere with an efficient allocation of capital among investment opportunities by diverting capital away from more productive uses with relatively low after-tax returns. In December 2017, the House and the Senate agreed on a measure (H.R. 1, P.L. 115-97) to revise key parts of the federal tax code. The new tax law made significant changes to both Section 179 and Section 168(k). In the case of the Section 179 expensing allowance, P.L. 115-97 permanently raised the maximum allowance to $1 million, and the phaseout threshold for the allowance to $2.5 million, beginning in 2018; it also indexed both amounts for inflation starting in 2019. The act also expanded the definition of qualified property to include qualified improvement property, specified improvements (e.g., new roofs and heating systems) to nonresidential real property, and property used in connection with lodging. In another change, the $25,000 expensing limit for heavy-duty sport utility vehicles imposed in 2003 was indexed for inflation starting in 2019. In the case of the bonus depreciation allowance, P.L. 115-97 increased it to 100% for qualified property acquired and placed in service between September 28, 2017, and December 31, 2022; the allowance is scheduled to phase out to 0% starting in 2027. In addition, the placed-in-service deadlines for property with relatively long production periods and for noncommercial aircraft were set one year longer. The wording of the final bill led to the unintended result that qualified improvement property became ineligible for bonus depreciation, as it no longer had a 15-year recovery period. As things now stand, such property is treated as 39-year nonresidential real property, unless Congress alters the language.

Introduction Congress has seen a renewed interest in questions related to the market for private health insurance since the passage of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 , as amended). Recent health insurance marketplace changes include a different way to purchase health insurance (exchanges) and a new system of categorizing the generosity of plans' health coverage based on the names of various metals (e.g., bronze and silver). Some consumers may face different choices of health insurance plans than in the past. Not all consumers are comfortable with the various concepts governing which health insurance plan might be best for them. This report provides an overview of private-sector (as opposed to government-provided) health insurance. It serves as an introduction to health insurance from the point of view of consumers under the age of 65 who purchase a health insurance plan. No background in health insurance is assumed, and all terms are defined. The report therefore can be viewed as an introduction to the more comprehensive discussion of health insurance found in the Congressional Research Service (CRS) health insurance primer. What Is Health Insurance? This section of the report covers the differences between a consumer's purchase of health care and his or her purchase of other goods and services. For example, budgeting for health care expenses may be more difficult than budgeting for other services. The purchase of health insurance reduces the risks and unpredictability inherent in a consumer's health care expenses. The consumer pays for a health insurance policy and then is subsequently (partly) reimbursed for his or her future expenditures on health care. The Challenges of Purchasing Health Care A consumer may find the purchase of health care different from some other purchases. For example, a consumer buying a gallon of milk each week often knows in advance what kind of milk he or she wants and the approximate price of each variety of milk. In addition, expenditures on milk are rarely an especially high proportion of the consumer's monthly spending. The consumer's decision to purchase health care, however, is more complicated. Health care can be expensive, especially for major illnesses or injuries. In addition, the consumer may not know in advance when (if at all) over the course of a year he or she will purchase the health services, what services he or she will need, and how much the services will cost. Each of these characteristics of health care decreases the consumer's ability to plan financially and increases the exposure to financial risk. Few other goods and services have these characteristics. When a consumer thinks about other large expenditures, four years of college might come to mind. However, the potential students and their parents know when college expenses will become due well in advance of the due date. It is much easier to predict that Junior will need $20,000 in August 2015 to pay freshman tuition than that Junior will need $5,000 to pay for health care after he breaks his leg skiing over winter break. Health care also may differ from other types of unpredictable expenditures. If a consumer were unexpectedly invited to a black-tie event, she may decide to purchase a gown. Even though this purchase was unpredictable, the cost of the gown often is a much smaller percentage of her monthly income than the cost of most medical treatments. Finally, consumers are likely to know what types of gowns (and milk) they prefer. They may be less clear whether they need a cast or a splint to repair their injured ankle. Consumers therefore are more likely to rely on their doctors' opinions when using health care than on their grocery clerks' opinions when buying milk. All these features increase the financial riskiness and unpredictability associated with using health care. Health Insurance Can Help Consumers Manage Risk The purchase of health insurance reduces the risks and unpredictability inherent in a consumer's cost of health care. Typically, a consumer selects a particular health insurance plan just before the start of the health insurance plan year and then pays a monthly premium to the health insurer. In return, if the consumer receives health care over the course of the year, the health insurer may pay some (or all) of the costs, depending on the details of the plan. For example, if the consumer does use health care, he or she often has to pay something out of his or her own pocket. The level of out-of-pocket (OOP) expenses varies across health insurance plans. Although health insurance may never make health care free of charge for the consumer, it often results in lower OOP expenses, especially when evaluated over the entire term of the plan. Not all holders of health insurance end up using health care over the year. However, when considered over a multiyear period, health insurance may help a consumer manage the risk associated with a large potential financial loss from health care costs. Consumers also may buy health insurance because they may be required either to maintain health insurance coverage or pay a penalty. In other words, many consumers face a mandate to be insured. How Can a Consumer Purchase Health Insurance? A consumer may obtain health insurance from an employer (or other group) or individually from another source. From an Employer or Other Group Some consumers obtain health insurance plans offered by employers to their employees and their employees' dependents as fringe benefits. When employees obtain health insurance through their employer, the cost of the health insurance plan often is shared between the employee and the employer. In addition, other groups whose members share a common bond, such as labor unions and some other associations, can offer members an opportunity to purchase health insurance through the group. If an employee purchases insurance offered through his or her employer (employer-sponsored insurance, or ESI), the employee enrolls in a plan through the employer without interacting with salespeople and other representatives of health insurers. ESI is therefore relatively easy to obtain. If an employee does not want to accept an offer of group insurance, he or she is free to purchase health insurance from another source. When a consumer with ESI leaves his or her place of employment for any reason, that consumer may lose health insurance. Those who retire any time after reaching the age of 65 usually will be eligible for Medicare, the federal health insurance entitlement program for those with disabilities and those aged 65 and older. Consumers terminated from employment without cause generally are eligible for COBRA, a federal program through which certain terminated consumers may continue to receive their ESI for a period of time as long as they pay the total cost of the insurance plan. Consumers also may be eligible for other federal and state health insurance programs or can choose to purchase private insurance that is not from a group. Not from a Group Consumers who are not offered or who do not purchase group insurance may use insurance brokers and agents, including web-based brokers, to learn about health insurance plans. Brokers and agents are licensed by the states and generally are paid on commission by insurers. Agents work with one insurer, whereas brokers can work with more than one insurer. Consumers may purchase health insurance policies either directly from insurers (perhaps represented by brokers and agents) or from exchanges, which sell the insurers' plans . Insurance exchanges serve as marketplaces for health insurance plans in that they facilitate transactions between the buyers of insurance (consumers) and sellers of insurance (insurers). In general, consumers must use exchanges in their states of residence. How Do Health Insurance Plans Differ? Health insurance plans can differ in terms of their coverage of consumers and services, their costs to the consumers (and consumers' dependents or employers, if relevant), special features, and generosity, among other properties. By Coverage Covered Individuals The consumer may buy a health insurance plan covering one person, a family, or other groupings. Under self-only coverage, the consumer is the only person insured. Family coverage applies to the consumer and any spouse and/or dependents. Other possibilities include self plus one and self plus children. If their parent's health insurance plan covers children, children can be added to their parent's plan until they turn 26 years of age. Those children under the age of 26 can join or remain on their parent's plan even if they are married, not living with a parent, attending school, not financially dependent on a parent, or eligible to enroll in their own employer's plan. Many consumers with ESI obtain and renew their employer's plan during open enrollment season. During open season , consumers can change health insurance policies. Outside of open season, consumers cannot change their health insurance plan unless they experience a qualifying life event. Qualifying life events include marriage, moving to a new state, divorce, and childbirth. Open season in the exchanges is similar to open season in ESI. Covered Services A consumer might use a variety of health care services over the course of the year. Office visits to a health care provider may include routine well-adult exams, nonroutine flu care, and urgent treatment for bone breaks. The consumer might require X-rays and laboratory tests at some visits. More serious matters may require treatment at a hospital. Some consumers may need medical equipment, others may need a recovery program for substance abuse, and still others may find a single prescription treatment sufficient. Given the breadth of possible health care, a consumer probably will not find a health insurance plan that covers all possible care. For example, almost no policies cover health care that is not deemed medically necessary by the insurer. Medically necessary care is "needed to prevent, diagnose or treat an illness, injury, condition, disease or its symptoms and that meet accepted standards of medicine." For example, reconstructive breast surgery following a mastectomy performed as part of breast cancer treatment is medically necessary (as well as required by law). In addition, health insurance generally covers breast augmentation to correct a congenital defect in breast development. However, it generally does not cover breast augmentation for cosmetic purposes. Not all insurers consider the same medical goods and services to be medically necessary. Even among services widely agreed to be medically necessary among insurers, consumers will find that not all health insurance plans cover the same health services. In addition, the specifics of the covered service may differ across plans. For example, plans may differ across coverage of the number of routine maternal visits and the conditions under which a caesarean section is a covered service. Similarly, the consumer may choose among plans that cover eating disorder treatments differently. By Costs Premiums Consumers pay premiums , which are the prices of private health insurance plan coverage for a given period of time. Premiums are owed whether or not the consumer actually seeks health care during the time covered by the plan. Consumers who purchase insurance policies directly from insurers or through the exchanges (for individuals) almost always pay the entire amount of the premium themselves. Many consumers who purchase ESI share the premium cost with their employers. In other words, the consumer pays for part of the premium (generally through payroll deductions) and the employer pays for part of the premium (using funds that are not part of an individual's hourly wages or annual salary). Certain consumers who purchase health insurance through the exchanges may be eligible for premium tax credits . These credits reduce the price of the premium by returning part of its dollar value as a portion of the consumer's income tax refund. Eligibility for the tax credits depends on whether the consumer is eligible for various types of health insurance plans and on family income. Cost Sharing Cost sharing refers to the part of the costs for health services covered by the insurance plan that is paid by the consumer (or the person responsible for the consumer's bills). Deductibles, coinsurance, and co-payments are examples of cost sharing. A d eductible is the amount of money an insured consumer may be required to pay the medical care providers OOP (over the term of the insurance policy) before receiving any benefits from the health insurance policy. In other words, the consumer must spend up to the deductible OOP on covered services before the health insurance plan will begin to pay its part of health costs for most covered health services. A consumer is therefore required to meet the deductible before the insurance plan contributes to the costs of his or her health care. Preventive medical services are certain covered services not subject to deductibles (or any other form of cost sharing) when received from in-network providers. In addition, not all health insurance plans have a deductible, and plans may have different deductibles for different types of services. The consumer may pay c oinsurance , which is a percentage of the total amount billed to the consumer. For example, consider a consumer whose chest X-ray is billed at $150. A 20% coinsurance rate means that the consumer pays $30 and the insurer pays $120 (both to the provider) for the X-ray. These calculations assume that the consumer has met the deductible. If the deductible has not been met, the consumer must pay his or her bill in full until the deductible is met. Alternatively, the consumer may pay a flat-rate co - payment . For example, a $20 co-payment for that chest X-ray would mean that the recipient must pay $20 to the provider OOP for the same X-ray, assuming the consumer's deductible has been met. The insurer would then pay $130 to the provider. Once again, if the deductible has not been met, the recipient must pay the amount remaining until the deductible is met. A consumer who requires a significant amount of health care may reach a high level of OOP spending. A maximum OOP limit , however, sets a cap on consumer spending. Once a consumer reaches the OOP spending limit, the insurer is responsible for all billed costs owed by the consumer for covered services from in-network providers. Consumers who are eligible for premium tax credits through the exchanges also may be eligible for cost-sharing subsides through the exchanges. These subsidies reduce the costs associated with the use of covered services. As with the tax credit, eligibility for the cost-sharing subsidies depends on whether the consumer is eligible for various types of health insurance plans and on family income. Select benefits of three representative health insurance policies are roughly characterized in Table 1 . The plans are an ESI plan obtained as a fringe benefit from the consumer's employer, an individual insurance plan purchased directly by a consumer from an insurer, and an individual insurance plan purchased by a consumer through an exchange. In summary, the consumers' costs differ in at least two respects. First, premium tax credits and cost-sharing subsidies are only available for plans purchased through an exchange (for individuals), and not through a private insurer or through ESI. Second, only consumers with ESI can have part of their premiums paid for by their employers. By Networks and Flexibility in Choosing Providers Before a consumer can use health care, he or she must decide from which providers to seek care. Some insurance plans do not provide financial incentives to influence the consumer's choice in any way. Other plans tie the provider that the consumer uses to the level of cost sharing the consumer faces. In particular, some consumers may want to use providers in their health plan network. A network is a group of providers that have agreed to provide health care under specified terms to those consumers who have signed up for a particular insurance plan. Many health plans decrease the consumer's cost-sharing obligations if they use in-network providers. It is thought that the health insurers can negotiate lower prices with their in-network providers. This is because the in-network providers are willing to accept lower prices because their pool of potential patients increases as the providers join the network. The in-network consumers then face lower cost sharing if they stay in-network. In contrast, in some cases, the consumer will owe 100% of the provider's bill for an out-of-network visit. Several broad categories of health plan types and their associated networks exist. The following plan descriptions are generalizations. Health plan rules may differ from what is indicated; for example, a plan that usually does not cover health care received out-of-network often does cover such care when the only provider qualified to perform the care is out-of-network. Indemnity insurance allows the insured consumer to decide when and from whom to seek health care. There is no network of providers; a consumer may see any service provider and owe the level of cost sharing specified by the insurance plan. The consumer's indemnity insurance plan typically has some combination of higher premiums and greater cost sharing (relative to the other insurance plan types) as a way for the consumer to pay for the flexibility of provider choice and the relative inability for the insurer to control costs. Health maintenance organizations (HMOs) usually require that consumers see in-network providers to face the lowest cost-sharing levels for their OOP expenses for covered services. The consumer picks (or is assigned) a primary care provider when he or she joins the HMO. Visits to specialists often require referrals (e.g., permission) from the consumer's primary care providers in order for the insurer to cover the visits. Network size varies across HMOs, as do the rules covering when the insured may go outside the network and receive coverage for medical services. The consumer's HMO insurance typically features some combination of lower premiums and lower levels of cost sharing (relative to the other health insurance plan types) to compensate for the restrictions on provider choice and to incorporate the insurer's ability to control costs. Preferred provider organizations (PPOs) offer intermediate amounts of consumer flexibility in provider choice to be eligible for full coverage. PPOs are associated with a given network. PPOs permit the insured to choose their own primary care providers and to visit specialists without a referral. Most PPOs will cover health care supplied out-of-network, but the cost sharing faced by the consumer will be higher than it would have been if the insured remained in-network. On average, PPOs typically feature intermediate premiums and levels of cost sharing (relative to the other health insurance plan types) because there are restrictions on provider choice in order to obtain the lowest levels of cost sharing and because the PPO insurer has weaker methods for cost control than does the HMO insurer. Consumers may have mixed feelings about networks. Some may like the lower OOP expenses. However, some might discover that their chosen providers are not members of their particular network. In this case, a consumer might change providers, pay more OOP to use an out-of-network provider, or change to a health insurance plan with a different network. By Special Features The " Cost Sharing " section above described select standard cost-sharing features of private health insurance. Some plan types, however, have specialized objectives. Two of these specialized plan types are consumer-directed health care (CDHC) and value-based insurance design (VBID). Both plan types have the potential to lower aggregate health care spending by reducing individual health spending. These plan types are designed to make consumers more aware of the costs of health care and lower consumers' OOP spending for especially valuable types of health care. Consumer-Directed Health Care CDHC encompasses any health care plan that provides monetary incentives for the consumers to become more active in their care by becoming well-informed and choosing practitioners and treatments that best suit their medical needs at the lowest possible costs. One prominent feature of CDHC is price transparency; the consumer is encouraged to find out what his or her OOP expenses will be for a potential health service. High-deductible health plans (HDHPs) are one type of insurance plan associated with CDHC. Consumers are thought to be especially sensitive to price in these plans because the consumers are spending 100% their own money until the high deductible is met. Consumers with HDHPs sometimes have Health Savings Accounts (HSAs), which are tax-preferred savings accounts used to pay for unreimbursed qualified medical expenses such as health insurance deductibles, co-payments, and qualified services not covered by insurance. HSAs are thought to encourage consumers to better save for their health care in retirement because any funds in the HSA accumulate from year to year. Moreover, the combination of HDHPs and HSAs is thought to provide additional incentive for consumers to be more active in their care and to purchase the best possible medical services for the lowest possible cost because consumers may keep all the funds in the HSA and use them to pay for health care in retirement. Value-Based Insurance Design VBID reduces cost sharing for those health care goods and services that have strong evidence of relatively high clinical benefits. VBID also may increase cost sharing for those health care goods and services with strong evidence of relatively low clinical benefits. In short, if a health care service provides substantial benefits for a particular group of consumers (or all consumers), the cost of the service for those consumers (or all consumers) should be lower. Consumers who might benefit from VBID insurance plans typically have predictable expenses for recurring health care with high clinical benefits. Consider a consumer with diabetes who takes long-lasting insulin. This type of insulin has a high clinical benefit, but it can be costly to the diabetic consumer. The principles of VBID suggest that health insurance plans have lower cost sharing for insulin than for other drugs. Therefore, the drug with the high clinical benefit becomes less expensive for diabetic consumers, who in turn become more likely to follow their prescribed dosing regimen because of the lower-than-usual cost. By Actuarial Value A consumer looking for a health insurance plan might want to compare plans by premiums and pick the plan with the lowest premium. Premiums, however, are not the only factor to consider when evaluating any particular plan; cost sharing, covered services, the composition of the network, and other factors also might matter. In addition, higher premiums may be associated with lower cost sharing and not with more comprehensive benefits. In this case, comparing premiums would not be an accurate comparison of plan benefits. Instead of premiums, actuarial values sometimes are used to compare health insurance policies because the plan's actuarial value is a better measure of plan comparability than is the plan's premium. A health insurance plan's actuarial value is a summary measure of the plan's benefit generosity. It is expressed as a percentage of health care expenses for a standard population and a standard set of covered services estimated to be paid by the insurer. Two plans are actuarially equivalent if the estimated percentages of health care expenses paid by the plan for a given population are approximately equal. Nevertheless, two plans can be actuarially equivalent even though the details of their covered benefits and cost sharing differ. Which Health Insurance Plan Might Be Best for a Particular Consumer? Some consumers might be able to choose from a large number of health insurance plans. A particular consumer's best plan depends on a number of factors, some of which have been discussed. This final section brings together several of the concepts introduced in the report. Health Issues Perhaps the most straightforward component of a consumer's selection of a health insurance plan concerns how many consumers the plan will cover. For example, is a self-only or family plan preferable? Another fairly straightforward consideration is the choice of health care providers. If the consumers to be covered already have chosen providers, or if they want to be able to choose providers at a later date (perhaps when they become sick), they need to investigate the network status of providers. The consumers can decide to restrict their choice to plans with networks in which their current providers participate, pay the higher OOP expenses associated with the use of out-of-network providers, or find new (in-network) providers. It would seem like calculating which plans are affordable might be fairly straightforward for the consumer, because the consumer can find out the potential premiums and general levels of cost sharing before purchasing a plan. In addition, the consumer also has some idea of his or her (expected) income, assets, and other items that he or she might want or need to buy. However, affordability encompasses much more than premiums, cost sharing, and maximum OOP expenses. In particular, the consumer cannot know his or her OOP costs in advance. Despite the presence of clear cost-sharing rules, it is virtually impossible for the consumer to know how much and what type of health care he or she will need over the course of the year. Children may or may not get an ear infection, and an adult may or may not get colon cancer. A minor cough could turn out to be a cold, where no visit to a provider is needed, or it could be the flu, where a visit to a provider might be needed. As discussed in " The Challenges of Purchasing Health Care ," a consumer can only approximate his or her health status and use of health services over the year, and therefore can only roughly approximate the affordability of various health insurance plans. Employment Issues In some cases, ESI offers the best value for health insurance policies. But although there are advantages to obtaining ESI coverage, there are challenges as well. From the vantage point of the consumer, one of the biggest disadvantages is the general lack of portability. Because ESI coverage is tied to the job and not the person, any change in employment (such as going from full-time to part-time status or changing jobs) may alter the health plans, health care providers, or services to which the worker has access. Indeed, the consumer may no longer be offered ESI after an employment change. In addition, the consumer's total compensation package may change when the employer offers ESI. Employers that offer health coverage may pay their employees lower wages because the employer uses the remainder of the employee's compensation package to pay for part of the employee's health insurance premiums. Workers who do not take up health insurance from their firms therefore may end up accepting lower wages for a set of benefits they do not use. In short, determining which health insurance plan might be right for a particular consumer is far from simple. It involves, among other things, developing a sense of both what health care usage is likely to be over the term of the health insurance plan and the connections between health care and employment issues.

Congress has seen a renewed interest in the market for private health insurance since the passage of the Patient Protection and Affordable Care Act (ACA; P.L. 111-148, as amended). This report provides an overview of private-sector (as opposed to government-provided) health insurance. It serves as an introduction to health insurance from the point of view of many consumers under the age of 65. No background in health insurance is assumed, and all terms are defined in the body of the report. A consumer may find the purchase of health care inherently different from some other purchases. Health care can be expensive, and many relevant details concerning future health care may not be known when the consumer is choosing an insurance plan, including when over the course of a year (if at all) health care will be purchased, which services will be needed, and the costs of those services. These characteristics of purchasing health care decrease the consumer's ability to plan financially and increase the consumer's exposure to financial risk. The purchase of health insurance reduces the risks and unpredictability inherent in paying for health services. An employed consumer may obtain health insurance from his or her employer if health insurance is offered by the employer (known as employer-sponsored insurance, or ESI) as a fringe benefit. All consumers may purchase health insurance directly (perhaps through an insurance agent or broker) from private insurance firms. In addition, all consumers may obtain health insurance through insurance exchanges, or marketplaces. Exchanges facilitate transactions between buyers and sellers of insurance but are not insurers. Health insurance plans can differ across many dimensions, including coverage, costs, flexibility in choosing providers, special features, and generosity. Two specific health insurance plan types that may be of interest to Congress are consumer-directed health care (CDHC) and value-based insurance design (VBID). Both these plan types have the potential to lower aggregate health care (however measured) by providing incentives for consumers to seek less care, or less expensive care. Which particular health insurance plan a consumer chooses depends on a number of factors, including the expected health of those covered by the plan, the price of the plan and of the medical services it provides, the consumer's income, and the prices of the other goods and services the consumer wishes to purchase. In addition, because some health insurance plans are tied to employment, the consumer's status as an employee also influences (and is influenced by) his or her choice of health insurance.

Introduction EPA regulatory actions to limit greenhouse gas (GHG) emissions using existing Clean Air Act authority have been the major focus of congressional interest in clean air issues in recent months. Members and Senators from both sides of the aisle have expressed concern that EPA is proceeding with regulations that could have major economic impacts without direct congressional authorization, and/or that EPA should delay taking such action until Congress specifically authorizes it. The Administration counters that it would prefer for Congress to pass new legislation to control greenhouse gas emissions, but the Clean Air Act already requires action: a 2007 Supreme Court decision interpreting that authority found that EPA must weigh whether GHG emissions endanger public health and welfare and, if it concludes that they do, proceed with regulation. The 111 th Congress struggled to produce its own approach to climate change. On June 26, 2009, the House narrowly passed H.R. 2454 , a 1,428-page bill addressing a number of interrelated energy and climate change issues. Among its numerous provisions, the bill would have established cap-and-trade programs for GHG emissions, beginning in 2012. The Senate did not act; however, two Senate committees reported bills, but the prospect of obtaining 60 votes for either bill appeared slim, and neither came to the floor. Given these prospects, a trio of Senators began negotiating a climate bill from scratch, but they also encountered difficulty: the process ultimately lost its Republican sponsor and did not produce an introduced bill. Toward the end of the second session, there was talk of a slimmed-down bill focusing on energy and perhaps electric utilities, but even this limited approach did not come to the floor. Besides legislation and potential EPA regulation of greenhouse gases, a bipartisan group of Senators and EPA both considered addressing issues related to sulfur dioxide (SO 2 ), nitrogen oxides (NOx), and mercury emissions from electric power plants. Regulations addressing these emissions were vacated by the D.C. Circuit Court of Appeals in 2008, leaving major potential gaps in EPA and state regulations. EPA is developing new regulations to address the court's concerns and proposed regulations addressing SO 2 and NOx, July 6,2010, but legislation might provide a more straightforward solution, resolving ambiguities in current law and reducing the likelihood of further delays from litigation. S. 2995 , a bipartisan bill addressing these issues, was introduced in the Senate and hearings were held, but no further action was taken. The Obama Administration's EPA has also moved to reconsider or modify several Bush Administration decisions regarding national ambient air quality standards (NAAQS). NAAQS represent EPA's formal judgment regarding how clean the air must be to protect public health and welfare; the standards set in motion monitoring and planning requirements, which in turn lead to emission controls. On January 19, 2010, the agency proposed a more stringent NAAQS for ozone, having concluded that a 2008 revision to the standard did not satisfy the requirements of the Clean Air Act. The revision could affect as many as 650 counties—virtually every county that currently has an ozone monitor. Final action on this proposal is expected by the end of December. On June 22, 2010, the agency promulgated revisions to the NAAQS for SO 2 ; 59 counties would violate the new SO 2 standard, based on the most recent monitoring data. None violated the old standard. The agency is also reviewing or has recently completed reviews of the NAAQS for four other pollutants, notably particulates, which are emitted by a wide range of mobile and stationary sources. A revised particulate standard is to be proposed by February 2011. Early indications are that the agency may propose substantially more stringent standards. This report provides a brief overview of the climate change, power plant, and air quality standard issues. More detailed information on most of the issues can be found in other CRS reports, which are referenced throughout this report. EPA's Greenhouse Gas Regulations EPA's actions to regulate GHG emissions stem from more than a decade of petitions and litigation. Responding to a 1999 petition that it regulate greenhouse gases from new motor vehicles, the agency in 2003 denied that it had such authority, arguing that GHGs did not fall within the Clean Air Act's definition of "air pollutants." The denial was challenged by Massachusetts, 11 other states, and various other petitioners in a case that ultimately reached the Supreme Court. In an April 2, 2007, decision ( Massachusetts v. EPA ), the Court found by 5-4 that EPA does have authority to regulate greenhouse gas emissions, since the emissions are clearly air pollutants under the Clean Air Act's definition of that term. The Court's majority concluded that EPA must, therefore, decide whether emissions of these pollutants from new motor vehicles contribute to air pollution that may reasonably be anticipated to endanger public health or welfare. When it makes such an "endangerment finding," the act requires the agency to establish standards for emissions of the pollutants. On December 15, 2009, acting in response to the Court's decision, EPA finalized an endangerment finding for greenhouse gas emissions from motor vehicles, under Section 202(a) of the act. Relying on this finding, EPA promulgated GHG emission standards for new cars and light trucks, April 1, 2010. The implementation of these standards will, in turn, trigger permitting requirements and the imposition of Best Available Control Technology for new major stationary sources of GHGs beginning in 2011. (For information on these regulations and permit requirements, see CRS Report R40506, Cars, Trucks, and Climate: EPA Regulation of Greenhouse Gases from Mobile Sources , and CRS Report R41212, EPA Regulation of Greenhouse Gases: Congressional Responses and Options .) The prospect of GHG standards for motor vehicles is not particularly controversial. On May 19, 2009, President Obama announced an agreement involving nine U.S. and foreign auto manufacturers; the federal government; the governors of California, Michigan, and Massachusetts; the United Auto Workers; and environmental groups under which EPA and the National Highway Traffic Safety Administration (NHTSA) would proceed with a joint rulemaking in which GHG emissions from new motor vehicles would be reduced under the Clean Air Act, while NHTSA would set corresponding fuel economy standards under the Corporate Average Fuel Economy (CAFE) program. The objective of the new greenhouse gas standards is to reach reduction levels similar to those adopted by the state of California and 13 other states, who will harmonize their standards with those of EPA as part of the agreement. The California standards required about a 30% reduction in GHG emissions from new vehicles by 2016. The auto industry supported the national agreement, in part, to avoid having to meet standards on a state-by-state basis; thus, it is not interested in seeing EPA's motor vehicle GHG standards blocked. In addition to the motor vehicle GHG standards, EPA has received petitions asking the agency to regulate GHGs from a variety of other sources, including coal mines, concentrated animal feeding operations (CAFOs), aircraft, ocean-going ships, nonroad engines and equipment (e.g., construction equipment, farm equipment, recreational equipment, forklifts, harbor craft, and lawn and garden equipment), and fuels. Another petition asks the agency to set National Ambient Air Quality Standards for seven specific greenhouse gases. The agency also faces lawsuits seeking to force it to regulate GHGs from stationary sources, including power plants, petroleum refineries, nonroad vehicles and engines, and the Portland cement industry. The decision to move forward on GHG standards for new motor vehicles is seen by many as a precedent for regulation of these other sources. Even without EPA decisions on these petitions or the conclusion of lawsuits, the adoption of GHG standards for motor vehicles will trigger GHG permit requirements for new stationary sources, as a result of language in Section 165 of the act that requires such permits to require best available control technology for all pollutants "subject to regulation" under the act. It is this triggering of standards for stationary sources (power plants, manufacturing facilities, and others) that appears to have raised the most concern in Congress: legislation has been introduced in both the House and Senate aimed at preventing EPA from implementing these requirements. The legislation has taken several forms, including the introduction of resolutions of disapproval for the endangerment finding itself under the Congressional Review Act ( S.J.Res. 26 , H.J.Res. 66 , H.J.Res. 76 , and H.J.Res. 77 ), and five other bills that would either require EPA to reevaluate its endangerment finding ( H.Res. 974 ), amend the Clean Air Act to provide that greenhouse gases are not subject to the act ( H.R. 4396 ), limit EPA's GHG authority to motor vehicle emissions ( S. 1622 ), or suspend EPA actions regulating stationary source emissions of GHGs for two years ( S. 3072 , H.R. 4753 ). S.J.Res. 26 , Senator Murkowski's resolution of disapproval for the endangerment finding, was defeated 53-47, on June 10, 2010. Meanwhile, EPA has itself promulgated regulations and guidance that would delay the applicability of requirements for stationary sources of GHGs until 2011 and focus its initial regulatory efforts on the largest emitters, granting smaller sources at least a six-year reprieve. Although both the resolutions of disapproval and the stand-alone legislation to restrict EPA's authority have received a great deal of attention, the path to enactment of either of these forms of legislation would be a steep one. The Obama Administration has made the reduction of GHG emissions one of its major goals; as a result, many conclude that legislation restricting EPA's authority to act, if passed by Congress, would encounter a presidential veto. Addressing the issue through an amendment to the EPA appropriation, by cutting EPA's appropriation or by restricting its authority to use funds to take specific GHG regulatory actions, might have more chance of enactment. The overall appropriation bill to which it would be attached would presumably contain other elements that would make it more difficult to veto. This approach was discussed at some length in the fall of 2009, when Senator Murkowski introduced (but ultimately did not offer) S.Amdt. 2530 to the Interior, Environment, and Related Agencies Appropriation Act ( H.R. 2996 ). In short, there are numerous ways that Congress can address EPA's greenhouse gas authority, and opponents of EPA action may continue to exert pressure to delay or limit the agency's actions, as the agency continues on its planned course. (For a more detailed discussion of EPA's regulatory actions and potential congressional responses, see CRS Report R41212, EPA Regulation of Greenhouse Gases: Congressional Responses and Options , by [author name scrubbed] and [author name scrubbed].) Legislation on Climate Change On June 26, 2009, by a vote of 219-212, the House passed H.R. 2454 , the American Clean Energy and Security Act of 2009. The bill, also referred to by its acronym (ACES) or as the Waxman-Markey bill, addresses a number of interrelated energy and climate change issues. The Senate Energy and Natural Resources Committee and the Senate Environment and Public Works Committee reported Senate counterparts: S. 1462 (Bingaman), equivalent to the energy titles, and S. 1733 , the Kerry-Boxer bill, establishing a cap-and-trade system and other measures to address climate change. The Kerry-Boxer bill faced strong opposition, however. The Republican members of the Environment and Public Works Committee boycotted the markup. The bill was reported with no Republican support and less than unanimous support among Democrats: it was clear that the bill would lack the 60 votes necessary to overcome a filibuster and secure passage on the floor. As a result, negotiations took place among a trio of Senators (Kerry, Graham, and Lieberman) for a bipartisan (or, more accurately, tripartisan) alternative. This legislation, without Senator Graham's sponsorship, circulated extensively in draft form in 2010, but was not introduced. Controlling greenhouse gas emissions was among the highest priorities of the congressional leadership and the Obama Administration in the 111 th Congress. It would have been addressed in the ACES legislation in a number of ways, many of which would have amended the Clean Air Act. The remainder of the climate portion of this report discusses the House bill and the issues that arose in the course of its consideration, with occasional references to developments in the Senate. The House bill would have amended the Clean Air Act to establish a cap-and-trade program (similar to the act's current program for addressing acid rain) to limit greenhouse gas (GHG) emissions beginning in 2012. The emissions cap on covered sources would have gradually declined—from 3% below the 2005 emissions level in 2012 to 83% below in 2050. In addition to the cap-and-trade program, the bill would have established renewable energy and energy efficiency requirements, mandated carbon capture and sequestration by new coal-fired electric generating units, and required EPA to set GHG emission standards for various sources. The bill distributed the cap-and-trade program's emission allowances to a wide array of sectors in an effort to address potential impacts on low income households and protect industries that might be subject to import competition from countries with less stringent GHG requirements, and it encouraged the use of "offsets" (emission reductions in sectors not directly covered by the cap-and-trade program). The cap-and-trade program in S. 1733 was similar. Legislative and Regulatory Issues In an earlier version of this report, we discussed five broad issues that climate legislation would need to address: (1) how a new program regulating greenhouse gas emissions would relate to the Clean Air Act, which gives EPA broad authority to set standards for air pollutants—potentially including GHGs; (2) whether legislation would focus on individual sectors of the economy, the economy as a whole, or both; (3) whether a cap-and-trade system would be the best approach, and, if it were chosen, the specifics of such a system: the comprehensiveness of the program, how allowances (which are essentially permits to emit GHGs) would be distributed or sold, how allowance price volatility might be addressed, what measures would be taken to address potential effects on U.S. industries vis-a-vis foreign competitors, and what role there might be for offsets (i.e., credit for emission reductions by sources outside the cap-and-trade program); (4) what role there would be for carbon taxes; and (5) what role there would be for state programs—in particular, the degree to which a federal program might preempt state measures affecting similar sources. The Waxman-Markey bill, as passed by the House, addressed most of these issues. It would have both established an economy-wide cap-and-trade system and addressed individual sectors of the economy and categories of emitters. In addition to capping GHG emissions, it set forth energy efficiency and renewable energy requirements aimed at reducing the emissions of individual sectors, notably electric utilities, cars and trucks, electrical appliances, and commercial or government buildings. Together, these sectors account for the lion's share of energy use and GHG emissions. The bill would have amended the Clean Air Act to remove potential authority that EPA has to regulate GHGs under several broadly worded sections of the existing statute, while establishing new requirements that EPA set standards for specific emission sources. It would not have established a carbon tax. In general, it would not have preempted state authority to set standards for GHG emission sources, but it would have preempted state and regional cap-and-trade systems for the period 2012-2017. S. 1733 , reported by the Environment and Public Works Committee on February 2, 2010, had similar provisions. The following sections discuss these provisions in more detail, as well as issues that arose during floor debate on the House bill. Cap-and-Trade The House bill would have added a new Title VII to the act, in which an economy-wide cap-and-trade program for GHGs would have been established. The cap for GHG emissions from major sources of emissions decreased 3% by 2012, 17% by 2020, 42% by 2030, and 83% by 2050, compared to 2005 levels. As the cap (and hence, the number of allowances) was gradually ratcheted down, markets would have determined who would reduce emissions: companies that could do so at low cost would have incentives to take action; companies with fewer or more costly options could buy allowances or offsets to cover excess emissions. GHG Emission Standards In addition to the cap-and-trade system, the bill also would have added a new Title VIII to the act, in which standards for specific sources of GHG emissions were addressed. Under Title VIII, EPA would have been required to set performance standards for CO 2 removal from new coal-fired power plants—50% removal for units initially permitted after January 1, 2009, and 65% for units initially permitted after January 1, 2020. These standards would not have taken effect until 2025, or four years after EPA determined that carbon capture and sequestration technology had met criteria for commercialization specified in the bill, whichever is earlier; promulgate regulations within two years of enactment to minimize the risk of atmospheric release of CO 2 from geologic sequestration sites, and develop a certification and permitting process for such sites; promulgate GHG emission standards that reflect the greatest degree of emissions reduction achievable for new heavy duty motor vehicles and engines, by December 31, 2010; promulgate GHG emission standards that reflect the greatest degree of emissions reduction achievable for nonroad vehicles or engines, by December 31, 2012; set New Source Performance Standards and corresponding regulations for existing uncapped major sources of GHGs, generally within three years of the date of enactment; and report on black carbon emissions, including an inventory of sources and identification of cost-effective control technologies, and, within two years of enactment, either promulgate regulations to reduce emissions or find that existing Clean Air Act regulations provide adequate control. HFC Cap-and-Trade The bill would also have amended Title VI of the Clean Air Act to establish a separate cap-and-trade program for hydrofluorocarbons, refrigerants used in air conditioning systems, which, with one exception, have a global warming potential 1,000-15,000 times as great as CO 2 . HFC production and imports would have been capped at 90% of baseline levels in 2012, and the cap would have declined each year until it reached 15% of the baseline in 2033. The baseline amount would have been the amount that EPA determined was the annual average consumed in the period 2004-2006, but not higher than 370 million tons of CO 2 equivalent, nor less than 280 million tons. Removal of Existing EPA Authorities Among the more controversial aspects of H.R. 2454 was its removal of numerous potential authorities under current law that the agency could use to control emissions of GHGs. Under the Obama Administration, the authority EPA already possesses has taken on new significance. The President is committed to addressing GHG emissions, and he can use existing Clean Air Act authority in a number of ways to do so. For starters, the agency proposed on April 17, 2009, and finalized December 15 an "endangerment finding" under Section 202(a) of the Clean Air Act. This finding permits EPA to establish GHG emission standards for motor vehicles. On May 19, 2009, before finalizing the endangerment finding, the President announced that EPA would move forward with the motor vehicle standards. EPA promulgated the standards April 1, 2010. Implementation of the first limits is scheduled for the 2012 model year. EPA also proposed GHG emission standards for medium- and heavy-duty trucks and engines, November 30, 2010. In addition to the pending controls on cars and trucks, EPA has received nine additional petitions to regulate GHG emissions from coal mines, concentrated animal feeding operations (CAFOs), ships, non-road engines, aircraft, and fuels. Any of these petitions could prompt further agency action. Another petition asks the agency to set National Ambient Air Quality Standards for seven specific greenhouse gases. The agency also faces lawsuits seeking to force it to regulate GHGs from stationary sources, including power plants, petroleum refineries, and the Portland cement industry. The decisions on motor vehicle standards are likely to serve as precedents for some of the other decisions, and may have implications for the agency's position in the pending litigation. During the Bush Administration, some groups, including EPA, four Cabinet departments, and the Office of Management and Budget, expressed concern that proceeding with GHG standards for motor vehicles would activate numerous other Clean Air Act provisions. Addressing these concerns, H.R. 2454 would have prevented EPA from setting National Ambient Air Quality Standards for GHGs solely on the basis of their effect on global climate change. It would have prohibited the agency from regulating GHGs under Section 115's provisions for international air pollution. It would have prohibited regulation of GHGs as hazardous air pollutants under Section 112. It would have prohibited the use of New Source Review to regulate GHG emissions under the Prevention of Significant Deterioration (PSD) program. And no stationary source of GHGs would have been required to obtain a permit under Title V of the act solely because of its GHG emissions. Of these, only the two permit provisions (PSD-NSR, and Title V) have been invoked by EPA, thus far, and the agency has taken steps to limit their applicability. The other authorities seem, for the most part, ill-designed to address GHG emissions. Nevertheless, advocates of retaining the authorities questioned the necessity of their removal. (For a further discussion of these authorities, see CRS Report R40585, Climate Change: Potential Regulation of Stationary Greenhouse Gas Sources Under the Clean Air Act , and CRS Report R41212, EPA Regulation of Greenhouse Gases: Congressional Responses and Options .) Agricultural Sources of Emissions Another major controversy concerned the treatment of agricultural sources of emissions in the Waxman-Markey bill. The bill would have excluded the "agricultural and forestry sectors" (undefined in the bill) from its emissions cap. It would also have excluded sources of methane from enteric fermentation (livestock) from the standards that EPA must promulgate for uncapped emission sources. Instead, it would have treated agriculture and forestry activities as a source of offsets (reductions from sources outside the cap-and-trade system) that could be purchased by capped sources and used in place of allowances. The bill would have allowed the use of up to 1 billion offset credits from domestic sources annually. Industrial and electric utility emitters subject to the GHG cap would presumably have purchased offsets if the cost of doing so were less than the cost of controlling their own emissions or of purchasing allowances. As a result, agriculture and forestry could have earned substantial sums for activities undertaken to reduce their GHG emissions—from $3.7 billion to $7.8 billion annually in gross revenues using an initial set of CBO assumptions. USDA's Economic Research Service was less sanguine about the near-term revenues; nevertheless, its analysis "strongly suggests that revenue from agricultural offsets ... rise faster than costs to agriculture from cap and trade legislation." The agriculture provisions helped insure some support for the bill from the agricultural community, but raised concerns among those who favored a more stringent bill. Of particular concern to the latter group was the bill's delegation of authority over the offset program to the Department of Agriculture rather than to EPA. International Offsets The bill would also have allowed up to 1 billion offset credits to be generated annually by international sequestration or emission reduction activities. If fewer than 1 billion domestic offsets were used, up to 500 million additional international offsets could have been substituted, raising the total permissible international offsets to as many as 1.5 billion in any given year. The objective of this provision was to provide emission reductions at a lower cost than domestic GHG controls and reduce emissions from developing countries. Opponents of the provision, however, viewed it as a give-away to countries that choose not to participate in internationally agreed reduction requirements. Tariff Provisions For more than a decade, a primary concern in the climate debate has been how a GHG emissions cap or other GHG controls would affect the competitiveness of U.S. industry: whether, for example, it might lead manufacturers of carbon-intensive goods to relocate production to countries with weaker GHG regulations or no cap at all. A number of options have been proposed to address this "carbon leakage" concern, including directly supporting domestic carbon-intensive industries, imposing countervailing duties or allowance requirements on imports from countries with weaker GHG requirements, and/or developing sectoral approaches that address the emissions of specific industries worldwide. H.R. 2454 would have established an allowance rebate program for energy-intensive, trade-exposed industries. The net effect of the program would have been that these industries (likely to include iron and steel, aluminum, and other energy-intensive heavy industry) would have been given free allowances until 2025. Starting then, the rebates would have been phased out over a 10-year period. EPA, with the concurrence of U.S. Customs, would also have been required to establish international reserve allowance requirements (tariff provisions) for imports of energy-intensive trade-exposed goods from countries that have not entered into international agreements for GHG emission reductions at least as stringent as those of the United States. This provision, which would have begun in 2020, was singled out by the President after the bill's passage as an area of concern. Earlier versions of the bill would have given the President tariff authority, but would have allowed him greater discretion not to impose the tariffs. State Preemption A number of states, notably California and the Northeastern states, have already begun programs to reduce GHG emissions. (For a discussion, see CRS Report RL33812, Climate Change: Action by States to Address Greenhouse Gas Emissions .) Although the federal government under the Bush Administration challenged some of these programs, particularly those affecting mobile sources, states do have clear authority to regulate emissions from power plants, landfills, residential and commercial buildings, and other stationary sources of GHGs. The extent to which such state programs might serve as national models (or that a patchwork of state programs might serve as a catalyst to a stronger federal regime) has been one set of issues; another is the degree to which a federal program might preempt state measures affecting similar sources. The Waxman-Markey bill would generally have left the states' authority to set standards for stationary sources of GHGs intact. One exception would have been that state and regional cap-and-trade programs for GHGs would have been preempted from 2012 through 2017. The bill also would have preserved EPA's authority to grant waivers to California for mobile source GHG standards. Cost of the Bill Among the most important issues in the House debate was the prospective cost of the bill. In an earlier CRS report, CRS noted that long-term cost projections, particularly for a bill that would reduce GHG emissions over the course of four decades, are at best speculative. Over such a long period of time, uncertainty about the future direction of the basic drivers of greenhouse gas emissions and the economy's responsiveness (economically, technologically, and behaviorally) make economic models unable to predict the ultimate macroeconomic costs of a GHG reduction program. Despite this and similar caveats offered by other analysts, estimates of the bill's impact were widely cited both by opponents and proponents in the House debate. Opponents of the bill claimed that it would impose costs of as much as $3,100 annually per family, one source of which was a 2007 assessment of U.S. cap-and-trade proposals prepared by MIT's Joint Program on the Science and Policy of Global Change. The author of that study, in letters to the House minority leader and the Select Committee on Energy Independence and Global Warming, stated that the study's conclusions had been misstated. At the other end of the spectrum, EPA estimated that the costs of the reported bill (prior to some of the final changes) would be $80 to $111 per family, annually, or as proponents have sometimes expressed it, less than the cost of a postage stamp a day. EPA's lower cost was, in part, the result of assuming cost-saving energy technologies and including the availability of low-cost emission offsets from both domestic and international sources. As noted above, the House bill would have allowed the use of as many as 2 billion offsets annually (out of a total allowance pool of 5-6 billion in the initial years). Questions have been raised whether so many offsets would actually be available, especially in the short term. A related issue was the impact of the bill on the federal deficit. In a letter dated June 26, 2009, the Congressional Budget Office and the Joint Committee on Taxation (JCT) estimated that enacting the legislation would increase revenues by $873 billion over the 2010-2019 period and would increase direct spending by $864 billion over that 10-year period. In total, CBO and JCT estimate that enacting the legislation would reduce future budget deficits by about $4 billion over the 2010-2014 period and by about $9 billion over the 2010-2019 period. Whatever the true cost, a bill of this size, affecting numerous sectors of the economy, would be bound to create winners and losers, even if its net impact on the economy or on federal revenues were small. The result was intense lobbying, as affected industries/states/regions/labor unions/etc. attempted to shape the bill to their advantage. Experience with Other Cap-and-Trade Systems Although now disparaged by opponents of climate legislation, cap-and-trade programs have had an enviable reputation over most of the last two decades, largely based on the success of the Clean Air Act's acid rain program. That program imposed a cap on sulfur dioxide emissions for a limited number of electric power plants in 1995, and in 2000 lowered the cap and expanded coverage to more plants. It met its emission reduction goals at low cost, with virtually 100% compliance, and with minimal administrative oversight. The success of the program was at least partly the result of the favorable circumstances in which it was implemented: the reduction targets were easily met because of an abundant supply of cheap low-sulfur coal; there were only about 1,000 entities (power plants) covered by the trading program, making it simple and inexpensive to monitor and administer; and most of the regulated entities were allowed 10 years to achieve compliance, by which time early reductions had generated an enormous number of extra allowances that helped lubricate the trading system. Some other trading programs have not been as successful. Southern California's Regional Clean Air Incentives Market (RECLAIM), for example, which was implemented in 1994 to reduce emissions of NOx and SO 2 in the Los Angeles area, saw a 50-fold increase in NOx allowance prices during the 2000-2001 California energy crisis. To permit its continued functioning and allow utilities to use backup power generators, electric utilities were removed from the RECLAIM system, charged a flat fee of $15,000 per ton for excess emissions, and subjected to new command and control requirements (i.e., the type of regulation the trading system was designed to avoid). The European GHG trading system (EU-ETS), established to help European Union countries meet their Kyoto Protocol targets, saw wild swings in short-term allowance prices during its start-up years, making planning and decision-making difficult for participating entities. Both supporters and opponents have cited previous experience with cap-and-trade systems to buttress their arguments, and the House bill's GHG cap-and-trade system was designed to deal with several of the problems experienced by previous systems. Among the most notable of the design features were mechanisms to address potential volatility of allowance prices. The bill addressed cost control through five main mechanisms: (1) unlimited banking and limited borrowing of allowances, (2) a two-year compliance period, (3) a strategic auction with a reserve price to increase the availability of allowances in the early years of the program, (4) periodic auctions with a reserve price, and (5) generous limits on the use of offsets. Emissions from Power Plants In addition to climate change, other clean air issues with a shorter time horizon are being addressed by EPA. Many of these have to do with emissions from electric power plants. Coal-fired power plants are among the largest sources of air pollution in the United States. Under the Clean Air Act, however, they are not necessarily subject to stringent requirements: emissions and the required control equipment can vary depending on the location of the plant, when it was constructed, whether it has undergone major modifications, the specific type of fuel it burns, and, to some extent, the vagaries of EPA enforcement policies. More than half a dozen separate Clean Air Act programs could potentially be used to control emissions, which makes compliance strategy complicated for utilities and difficult for regulators. Because the cost of the most stringent available controls, for the entire industry, could range into the tens of billions of dollars, utilities have fought hard and rather successfully to limit or delay regulations affecting them, particularly with respect to plants constructed before the Clean Air Act of 1970 was passed. As a result, emissions from power plants have not been reduced as much as those from some other sources. Many plants built in the 1950s and 1960s (generally referred to as "grandfathered" plants) have little emission control equipment. Collectively, power plants are large sources of pollution. In 2005, they accounted for 10.2 million tons of sulfur dioxide (SO 2 ) emissions (70% of the U.S. total), 52 tons of mercury emissions (46% of the U.S. total), and 3.6 million tons of nitrogen oxides (19% of the U.S. total). Power plants are also considered major sources of fine particles (PM 2.5 ), many of which form in the atmosphere from emissions from a wide range of stationary and mobile sources. In addition, power plants account for about 40% of U.S. anthropogenic emissions of the greenhouse gas carbon dioxide. With new ambient air quality standards for ozone, fine particles, and SO 2 taking effect, emissions of NOx and SO 2 will necessarily have to be reduced to meet standards. (These standards are discussed below under " Air Quality Standards .") For more than a decade, mercury emissions have also been a focus of concern: 48 states have issued fish consumption advisories due to mercury pollution, covering 14 million acres of lakes, 882,000 river miles, and the coastal waters of 13 entire states. The continuing controversy over the interpretation of New Source Review requirements for existing power plants (also discussed below) has exerted pressure for a more predictable regulatory structure, as well. Thus, some in industry, environmental groups, Congress, and the last two Administrations have said that legislation addressing power plant pollution in a comprehensive (multi-pollutant) fashion would be desirable. Such legislation would address the major pollutants on a coordinated schedule and would rely, to a large extent, on a system such as the one used in the acid rain program, where national or regional caps on emissions are implemented through a system of tradable allowances. The key questions have been how stringent the caps should be and whether carbon dioxide (CO 2 ), the major gas of concern with regard to climate change, would be among the emissions subject to a cap. Clean Air Interstate Rule (CAIR) The Senate Environment and Public Works Committee has voted twice on a multi-pollutant bill (in 2002 and 2005), but neither of the bills progressed to the Senate floor. In the House, similar bills have been introduced, but none has progressed to markup. On March 10, 2005, therefore, EPA announced that it would use existing Clean Air Act authority to promulgate final regulations similar to the Bush Administration's multi-pollutant bill (the "Clear Skies" bill ) for utility emissions of SO 2 and NOx in 28 eastern states and the District of Columbia. The Clean Air Interstate Rule (CAIR) established cap-and-trade provisions for SO 2 and NOx. CAIR covered only the eastern half of the country, but since most of the grandfathered generation capacity is located in the East and South, EPA projected that nationwide emissions of SO 2 would decline 53% by 2015 and NOx emissions 56%. The agency also projected that the rule would result in $85-$100 billion in health benefits annually by 2015, including the annual prevention of 17,000 premature deaths. CAIR's health and environmental benefits would be more than 25 times greater than its costs, according to EPA. North Carolina v. EPA CAIR was one of the few Bush Administration environmental initiatives that was generally supported by environmentalists. It also had broad support among the regulated community. But a variety of petitioners, including the state of North Carolina, which argued that the rule was not strong enough to address pollution from upwind sources, and some individual utilities that felt they were unfairly treated by the rule's emission budgets, challenged the rule in the D.C. Circuit, and the court vacated it July 11, 2008. A unanimous court found that EPA had established a significant contribution made by power plants to nonattainment of standards and failure to maintain standards in downwind states, as required by Section 110 of the Clean Air Act, but the court concluded that the agency's methodology for establishing emission budgets for each state was unrelated to that link. The court also found that the choice of 2015 for a second phase compliance deadline, based on technological and economic feasibility, ignored EPA's statutory mandate. It found the fuel adjustment factors in the rule (which set more stringent requirements for natural gas- and oil-fired plants than for coal-fired ones) to be arbitrary and capricious. It concluded: "CAIR's flaws are deep. No amount of tinkering ... will transform CAIR, as written, into an acceptable rule." Despite the seemingly high hurdle set by the language the court used, EPA, environmental groups, and the utility and mining industries asked the court to review its decision. On December 23, 2008, the court modified its decision, allowing CAIR to remain in effect until a new rule is promulgated by EPA. The court was not specific about how long this process would be allowed to take, but stated: Though we do not impose a particular schedule by which EPA must alter CAIR, we remind EPA that we do not intend to grant an indefinite stay of the effectiveness of this court's decision. Our opinion revealed CAIR's fundamental flaws, which EPA must still remedy. Effects of the Decision From a policy standpoint, the court's vacatur of CAIR would remove the lynchpin of the Bush Administration's approach to clean air. CAIR was a principal means by which EPA projected that nonattainment areas in the eastern half of the country would attain the ozone and fine particulate National Ambient Air Quality Standards (NAAQS); in the agency's analysis, it would also have been responsible for achieving the lion's share of reductions in mercury emissions from coal-fired power plants (as discussed further below); it would have addressed regional haze impacts from power plants; and it would have addressed state petitions to control upwind sources of ozone and fine particulate pollution, making controls on individual power plants under Section 126 of the Clean Air Act unnecessary, according to EPA. Thus, EPA asked the court to reconsider its decision, which led the court to announce that it would delay issuing its mandate. There is general agreement among the states, electric utilities, and environmental groups that something like CAIR should be salvaged. Without CAIR, most eastern states would have huge gaps in their emission control programs, which would have to be filled by other regulatory measures if the states are to attain the NAAQS by the statutory deadlines. The states could be subject to sanctions, including a suspension of federal highway funding for new projects, if they fail to adopt such measures. For the utilities, CAIR was designed to build on the existing regulatory framework of cap-and-trade programs under the acid rain program and the "NOx SIP Call." Anticipating the ability to bank and trade emission allowances under CAIR, numerous utilities have already invested in equipment to meet or exceed CAIR's requirements, the first phase of which are now being implemented. For environmental groups, which found little to their liking in the Bush Administration, CAIR was the major exception. They argued for a stronger version of CAIR—particularly its second phase, to be implemented in 2015—but they generally supported the basic approach. EPA's CAIR Replacement: The Clean Air Transport Rule On July 6, 2010, EPA proposed a replacement for CAIR, the Clean Air Transport Rule. The transport rule would leave the CAIR Phase 1 limits in place and would set new limits replacing CAIR's second phase in 2012 and 2014, up to three years earlier than CAIR would have. The CAIR Phase 1 rules already appear to be having substantial effects. On August 11, 2010, EPA reported that emissions of SO 2 had declined sharply in both 2008 and 2009: in the latter year, emissions from fossil-fueled power plants in the lower 48 states (at 5.7 million tons) were 44% below 2005 levels. NOx emissions from the same sources declined to 1.8 million tons in 2009, a decline of 45% compared to 2005. Further reductions of both SO 2 and NOx can be expected as Phase 1 takes effect. The proposed transport rule would build on these reductions. It would establish a second and third phase of reductions in 2012 and 2014, with particular emphasis on SO 2 —emissions of which would decline to 3.8 million tons (62% below 2005 levels) in 2014. The proposed rule would cover 31 Eastern, Midwestern, and Southern states and the District of Columbia, adding three new states (Oklahoma, Kansas, and Nebraska) to the 28 covered by CAIR. The rule would allow unlimited trading of allowances within individual states, but it would limit interstate trading in order to comply with the D.C. Circuit's ruling. In order to insure that the rule is implemented quickly, EPA proposed a Federal Implementation Plan (FIP) for each of the states: the FIP specifies budgets for each state based on controlling emissions from electric power plants. States may develop their own State Implementation Plans and choose to control other types of sources if they wish, but the federal plan will take effect unless the state acts. EPA estimates that the rule will cost the power sector $2.8 billion annually in 2014, but it expects the benefits to be 40 to 100 times as great—an estimated $120 billion to $290 billion annually. The most important benefit would be 14,000 to 36,000 fewer premature deaths annually. Avoided deaths and other benefits occur throughout the East, Midwest, and South, according to EPA, with Ohio, Pennsylvania, and New York benefitting the most. Because the agency is near finalizing more stringent ambient air quality standards for ozone, it stated its intention to propose another transport rule in 2011 to address any additional emission reductions needed to meet those new standards. It also stated an "ongoing commitment" to consider upwind contributions of pollution to nonattainment when implementing any future NAAQS revisions. With revisions of the fine particulate (PM 2.5 ) standard expected in 2011, additional transport rules might be expected. State air pollution control agencies, through the National Association of Clean Air Agencies (NACAA), have argued that substantial further reductions will be necessary if the states are to attain the new ozone standards. Ozone forms through chemical reactions in the atmosphere between volatile organic compounds and NOx; thus, NOx reductions are key to attaining a more stringent ozone standard. For NOx, the Phase 1 cap is 45% below baseline, with Phase 2 providing an additional 7%. The technology is clearly available to do more: EPA modeling projects 34% of coal-fired electric generating units in the transport region to be without the best available NOx control in 2014. Assuming that modeling shows that more reductions are needed for the states to attain the new ozone NAAQS, the pressure will be on EPA to strengthen the regulations further. Judicial and Legislative Options The courts might be the venue for further consideration of the issues if any of the parties find themselves unhappy with the pace or substance of EPA's regulatory decisions. Congress might also act: in order to shorten the regulatory process and avoid further litigation, some have argued that Congress needs to resolve the issues posed by the D.C. Circuit's 2008 CAIR decision. Over the past decade, several dozen multi-pollutant bills would have addressed SO 2 and NOx emissions from power plants through a cap-and-trade system, most of them in conjunction with controls on mercury and CO 2 . If legislation is to be considered now, the issues might, therefore, include not only the stringency and timing of SO 2 and NOx controls, but also whether to include mercury and CO 2 controls in the bill. On February 4, 2010, Senators Carper and Alexander, with a bipartisan group of cosponsors, introduced S. 2995 to address the issues posed by the CAIR decision and to set standards for power plant mercury emissions. The bill would establish cap-and-trade systems for SO 2 and NOx with more stringent caps than those of the CAIR rule or EPA's proposed replacement. The SO 2 cap would be 78% below the 2001 baseline in 2015, and 83% below in 2018. The EPA Administrator would be authorized to reduce the cap further for 2021 and later years. The NOx cap would also be more stringent than provided by CAIR or the proposed transport rule and it would cover 32 states (seven more than CAIR, four more than the proposed EPA rule). In 2012, its cap would be 24% below CAIR's emissions level (in addition to covering more states within that cap). In 2015, its cap would be identical to CAIR's, but because it would cover seven more states, would still be substantially more stringent. The bill would also establish a NOx cap in the rest of the lower 48 states for the first time, which would decline 37% by 2020. At a Senate hearing, March 4, 2010, there was general support for S. 2995 , although some concern was expressed that the reductions would still not be sufficient to bring Eastern states into attainment of the ozone NAAQS. Clean Air Mercury Rule (CAMR) Background Regulation of mercury emissions from coal-fired power plants has a complicated legislative and regulatory history, dating back to the 1990 Clean Air Act Amendments. EPA was required by that legislation and a 1998 consent agreement to determine whether regulation of mercury from power plants under Section 112 of the Clean Air Act was appropriate and necessary. Section 112 is the section that regulates emissions of hazardous air pollutants. In general, it requires EPA to set standards based on the Maximum Achievable Control Technology (a term defined with great precision in the act), and to impose the MACT standards at each individual emissions source. In a December 2000 regulatory finding, EPA concluded that regulation of mercury from power plants under Section 112 was appropriate and necessary. The finding added coal- and oil-fired electric generating units to the list of sources of hazardous air pollutants, and triggered other provisions of the 1998 consent agreement: that the agency propose MACT standards for them by December 15, 2003, and finalize the standards by March 15, 2005. Rather than promulgate MACT standards, however, EPA reversed its December 2000 finding in March 2005, and established through regulations a national cap-and-trade system for power plant emissions of mercury, the Clean Air Mercury Rule (CAMR). Under CAMR, the final cap would have been 15 tons of emissions nationwide in 2018 (about a 70% reduction from 1999 levels, when achieved). There would also have been an intermediate cap of 38 tons in 2010, well above EPA's projection of emissions in that year. Under the cap-and-trade system, utilities could either control the pollutant directly or purchase excess allowances from other plants that instituted controls more stringently or sooner than required. As with the acid rain and CAIR cap-and-trade programs, early reductions under CAMR could have been banked for later use, which the agency itself said would result in utilities delaying compliance with the full 70% reduction until well beyond 2018, as they used up banked allowances rather than installing further controls. The agency's analysis projected actual emissions to be 24.3 tons (less than a 50% reduction) as late as 2020. Full compliance with the 70% reduction would have been delayed until after 2025. (For additional information on the mercury rule, see CRS Report RL32868, Mercury Emissions from Electric Power Plants: An Analysis of EPA ' s Cap-and-Trade Regulations , by [author name scrubbed].) New Jersey v. EPA The CAMR rule was immediately challenged in petitions for review filed by New Jersey and 16 other states as well as other petitioners. The D.C. Circuit, in a 3-0 decision handed down February 8, 2008, vacated the rule. The court found that once the agency had listed electric generating units (EGUs) as a source of hazardous air pollutants, it had to proceed with MACT regulations under Section 112 of the act unless it "delisted" the source category, under procedures the act sets forth in Section 112(c)(9). Delisting would have required the agency to find that no EGU's emissions exceeded a level adequate to protect public health with an ample margin of safety, and that no adverse environmental effect would result from any source—a difficult test to meet, given the agency's estimate that EGUs are responsible for 46% of mercury emissions from all U.S. sources. Rather than delist the EGU source category, the agency had maintained that it could simply reverse its December 2000 "appropriate and necessary" finding, a decision that was much simpler because there were no statutory criteria to meet. The court found this approach unlawful. "This explanation deploys the logic of the Queen of Hearts, substituting EPA's desires for the plain text of Section 112(c)(9)," the court said in its opinion. Other Mercury Issues Besides the question of whether EPA complied with the law's requirements, critics found other reasons to oppose EPA's cap-and-trade approach to controlling mercury. One of the main criticisms has been that it would not address "hot spots," areas where mercury emissions and/or concentrations in water bodies are greater than elsewhere. In fact, under a cap-and-trade system, nothing would prevent emissions from increasing at hot spots. Many also argued that the mercury regulations should have been more stringent or implemented more quickly than the cap-and-trade regulations would have required. These arguments found a receptive audience in the states: about 20 states have promulgated requirements stricter than the federal program, with several requiring 80% to 90% mercury reductions before 2010. (For additional information, see archived CRS Report RL33535, Mercury Emissions from Electric Power Plants: States Are Setting Stricter Limits , by [author name scrubbed].) Next Steps Under the D.C. Circuit's ruling, unless EPA delists the power plant category, it does not have the legislative authority to establish a cap-and-trade program for their mercury emissions: it must impose MACT standards on each individual plant once it has listed the category. The agency could have appealed the court's ruling: under the Bush Administration, on October 17, 2008, it petitioned for certiorari to the Supreme Court. But the Obama Administration withdrew the petition in early February 2009 and announced that it will proceed with the development of MACT standards. Proposed standards are expected, under a consent agreement, by March 2011, with final standards to be promulgated in November of that year. While the agency develops new regulations in response to the court's remand, new coal-fired electric generating units and modifications of existing units will be required to obtain permits under a provision of the law known as the "MACT hammer" (Section 112(g)(2)). Under this provision, if no applicable emission limits have been established, no person may construct a new major source or modify an existing major source in the category unless the Administrator or the state determine on a case-by-case basis that they meet MACT emission limits. On February 28, 2008, the Natural Resources Defense Council (NRDC) released a list of 32 new coal-fired power plants in 13 states that it believed must adopt MACT mercury controls under this provision. New Source Review A related issue that has driven some of the debate over the regulation of power plant emissions is whether EPA has adequately enforced existing regulations, using a process called New Source Review (NSR). The New Source Review debate has occurred largely in the courts. EPA took a more aggressive stance on NSR late in the Clinton Administration, filing lawsuits against 13 utilities for violations at 51 plants in 13 states. The Bush and Obama Administrations have taken action against an additional dozen or so utilities and, after years of negotiation, settled many of the original suits. In the interim, however, the Bush Administration proposed major changes in the NSR regulations that critics argued would have weakened or eliminated New Source Review as it pertained to modifications of existing plants. Under the Obama Administration, some additional NSR cases have been filed against electric utilities, and six cases have been settled. The controversy over the NSR process stems from EPA's use of it to require the installation of best available pollution controls on existing stationary sources of air pollution that have been modified. The Clean Air Act requires that plants undergoing modifications meet these NSR requirements, but industry has often avoided the NSR process by claiming that changes to existing sources were "routine maintenance" rather than modifications. In the 1990s, EPA began reviewing records of electric utilities, petroleum refineries, and other industries to determine whether the changes were, in fact, routine. As a result of these reviews, since late 1999, EPA and the Department of Justice have filed suit or administrative actions against numerous large sources of pollution, alleging that they made major modifications to their plants, extending plant life and increasing output, without undergoing required New Source Reviews and without installing best available pollution controls. Of the utilities charged with NSR violations, 21 have settled with the EPA, generally without going to trial. Under the settlements, they have agreed to spend about $10 billion on pollution controls or fuel switching to reduce emissions at their affected units. Combined, these companies will reduce pollution by at least 1.65 million tons annually. Since March 2000, the agency has also reached 24 agreements with petroleum refiners representing 88% of industry capacity. The refiners agreed to settle potential charges of NSR violations by paying fines and installing equipment to eliminate 337,000 tons of pollution. The courts have generally sided with the Clinton Administration's interpretation of NSR.In the first case to go to trial, the U.S. District Court for the Southern District of Ohio found that Ohio Edison had violated the Clean Air Act 11 times in modifying its W. H. Sammis power plant. The company subsequently settled the case, agreeing to spend $1.1 billion to install controls that are expected to reduce pollution by 212,000 tons annually. A second case, involving Duke Energy, was initially decided in the utility's favor, but on appeal to the Supreme Court, the utility lost. The issue in that case involved whether EPA should consider the hourly emissions rate or the annual total of emissions in deciding whether to apply NSR. The U.S. District Court for the Middle District of North Carolina, in a decision upheld by the Fourth Circuit Court of Appeals, held that the company was not required to undergo NSR and install more stringent pollution controls since the maximum hourly emissions rate did not increase as a result of the modifications, even if annual emissions did increase. On April 2, 2007, the Supreme Court overturned the lower court rulings in a unanimous decision, finding that EPA's regulations, promulgated in 1980, clearly specified an increase in actual annual emissions as the measure of whether a permit for a modification was required. The Bush Administration promulgated a number of changes to the NSR regulations that would have made future enforcement of NSR less likely. In December 2002 and October 2003, the agency promulgated five sets of changes to the NSR rules. The most controversial were new regulations defining what constitutes routine maintenance. The new regulations would have exempted industrial facilities from undergoing NSR (and thus from installing new emission controls) if the cost of the replacement components was less than 20% of the replacement value of the process unit. Using this benchmark, few, if any, plant modifications would trigger new pollution controls. Fifteen states, three municipalities, and several environmental groups filed suit to block this "equipment replacement / routine maintenance" rule. The rule was stayed by the U.S. Court of Appeals for the D.C. Circuit on December 24, 2003, and on March 17, 2006, a three-judge panel of the court unanimously struck the rule down. In its decision, the court held that EPA's attempt to change the NSR regulations was "contrary to the plain language" of the Clean Air Act. EPA proposed further changes to the NSR regulations on October 20, 2005, and September 14, 2006. For the most part, these regulations have not been promulgated. Under the October 2005 proposal, power plants could have modified existing facilities without triggering NSR, provided that the facility's "maximum hourly emissions achievable" after the changes were no greater than the same measure at any point during the past five years. The new rule would have effectively allowed increases in annual emissions without an NSR permit, if a modification led to an increase in the hours of operation of a facility. The agency's proposal stated that this change would establish a uniform national emissions test, in conformance with the Fourth Circuit's decision in the Duke Energy case, and it downplayed the significance of the change in light of "substantial emissions reductions from other CAA [Clean Air Act] requirements that are more efficient," an allusion to CAIR. Since that time, both of these justifications have disappeared—the Fourth Circuit decision being overturned by the Supreme Court, and the "more efficient" reduction requirements (CAIR) having been vacated by the D.C. Circuit. Thus, the rule has not been promulgated. At Congress's direction, the National Academy of Sciences began a review of the NSR program in May 2004. An interim report, released in January 2005, said the committee had not reached final conclusions, but it also said, "In general, NSR provides more stringent emission limits for new and modified major sources than EPA provides in other existing programs" and "It is ... unlikely that Clear Skies [the Bush Administration's proposed multi-pollutant legislation] would result in emission limits at individual sources that are tighter than those achieved when NSR is triggered at the same sources." The final report, issued July 21, 2006, was ambivalent in many of its conclusions, but it found that [m]ore than 60% of all coal-fired electricity-generation capacity in the United States currently lacks the kinds of controls for SO 2 and NOx emissions that have been required under NSR. Also, the older facilities are more likely than newer facilities to undergo maintenance, repair, and replacement of key components, so a substantial portion of emissions from the electricity-generating sector is potentially affected by the NSR rule changes. Besides the NAS study, on April 21, 2003, the National Academy of Public Administration (NAPA) released a report commissioned by Congress that made sweeping recommendations to modify NSR. The study panel recommended that Congress end the "grandfathering" of major air emission sources by requiring all major sources that have not obtained an NSR permit since 1977 to install Best Available Control Technology or Lowest Achievable Emissions Rate control equipment. In the interim, the NAPA panel concluded, the EPA and the Department of Justice should continue to enforce NSR vigorously, especially for changes at existing facilities. The continuing controversy over NSR, the court decisions involving CAIR and CAMR, and the prominence of the electric power industry's CO 2 emissions might all be addressed through multi-pollutant legislation. On the other hand, legislation addressing emissions from utilities found itself competing with economy-wide climate change cap-and-trade legislation which had priority both in the 111 th Congress and the Administration. Air Quality Standards Background Air quality has improved substantially since the passage of the Clean Air Act in 1970: annual emissions of the six most widespread ("criteria") air pollutants have declined nearly 180 million tons (59%), despite major increases in population, motor vehicle miles traveled, and economic activity. Nevertheless, the goal of clean air continues to elude many areas, in part because scientific understanding of the health effects of air pollution has caused EPA to tighten standards for most of the criteria pollutants. The most widespread problems involve ozone and fine particles. As of September 2010, 119 million people lived in areas classified "nonattainment" for the ozone National Ambient Air Quality Standard (NAAQS); 70 million lived in areas that were nonattainment for the fine particle (PM 2.5 ) NAAQS. EPA attributes at least 33,000 premature deaths and millions of lost work days annually to exceedances of the PM 2.5 standard. Recent research has tied ozone pollution to premature mortality as well. Violations of the ambient air quality standards for the other four criteria pollutants are not as widespread, but EPA is engaged in (or has recently completed) reviews indicating that health effects of most of these pollutants are more serious than previously thought. At present, for example, no areas exceed the NAAQS for sulfur dioxide (SO 2 ), but in a recent review, EPA determined that between 2,300 and 5,900 premature deaths can be avoided annually by strengthening that standard. Thus, the agency has promulgated a new SO 2 standard under which as many as 59 counties could be designated nonattainment, based on the most recent monitoring data. Table 1 summarizes EPA's recent efforts to review the NAAQS and implement revisions, including the next steps for each of the six criteria pollutants. Revisions for five of the six pollutants (ozone, PM, lead, NO 2 , and SO 2 ) have been completed since 2006, with the standards being made more stringent in each case (three of the five were subsequently challenged in court and two of these three were remanded to the agency for further revisions). Reviews of the NAAQS for carbon monoxide and the two remanded standards (ozone and PM) are to be completed in 2010 or 2011. Judicial Reviews As the table indicates, court challenges have played a key role in bringing about the NAAQS reviews, and in causing further review after the NAAQS have been promulgated. Reviews of most of the standards were stimulated at least in part by court cases: EPA is statutorily required to review the NAAQS every five years, and its failure to do so can be addressed by citizen suits. At the other end of the process, once the agency's review of a NAAQS is completed, the standards are almost invariably challenged in court. In the case of both particulate matter and ozone, judicial review has led to a remand of the standards that EPA promulgated in 2006 and 2008 respectively. The agency has now agreed to promulgate further revisions to these standards in 2010 and 2011. CASAC's Role As the table indicates, in at least two cases, EPA's revised standards have been remanded at least in part because the agency did not follow the advice of its independent science advisors, the Clean Air Scientific Advisory Committee (CASAC). EPA is not required by statute to follow CASAC's recommendations; the act requires only that the Administrator set forth (in the Federal Register notice in which she proposes a NAAQS) any pertinent findings, recommendations, and comments made by CASAC and, if her proposal differs in an important respect from any of the recommendations, provide an explanation of the reasons for such differences. But the failure to follow CASAC recommendations almost inevitably raises the question of whether the Administrator's decision will be judged arbitrary and capricious in a judicial review. In the recent revisions of both the ozone and PM standards, CASAC made detailed objections to the Administrator's final decisions. The committee's description of the process as having failed to meet statutory and procedural requirements played an important role during judicial review. This raises the question of whether Congress might opt to strengthen CASAC's statutory role in the review process, or limit the Administrator's authority to reject CASAC's advice. Adequacy of Monitoring A feature common to many of the recent NAAQS reviews has been EPA's finding that the current monitoring network is inadequate to determine whether or not many areas of the country are in attainment of the standards. In several cases, such as for lead and sulfur dioxide, more extensive monitoring networks had been partly dismantled by the time the standards were reviewed, after years of indicating compliance with older, less stringent standards. In other cases, such as PM and NO 2 , the monitoring network was not designed to measure the kinds of exposure that current research identifies as a cause of concern (e.g., exposure to fine particles near highways). As a result, EPA and the states will need to devote resources in the next few years to expanding and refocusing the monitoring networks in order to identify areas where air quality does not meet new standards. NAAQS Implementation Although most of the NAAQS standards are likely to have been revised by the end of 2011—ultimately stimulating billions of dollars in expenditures on pollution control—the impact of the new standards will be gradual. A NAAQS does not directly limit emissions; rather, a primary NAAQS represents the Administrator's formal judgment regarding the level of ambient pollution below which public health will be protected with an adequate margin of safety; a secondary standard reflects her judgment as to the level of ambient pollution necessary to protect public welfare, including protection of the environment, water quality, building materials, etc. Promulgation of a NAAQS sets in motion a lengthy process under which states and the EPA first identify nonattainment areas. Those areas then undertake a complicated implementation process. The first step, designation of nonattainment areas, generally takes at least two years after a standard is promulgated, and in many cases longer, if a new monitoring network needs to be established. After nonattainment areas are formally designated, the states generally have three years to submit State Implementation Plans (SIPs) that identify the specific regulations and emission control requirements that will bring the area into attainment. Whether more stringent NAAQS will lead to stronger federal emission controls for the sources of pollution—in addition to the controls contemplated by individual states or metropolitan areas—is likely to be an important issue. Several of the criteria pollutants have impacts across state lines, far from the source of emissions; others (notably ozone) form in the atmosphere as the result of chemical reactions involving precursors that may have been emitted many miles upwind. Thus, measures taken by individual states and nonattainment areas to control emissions within their borders may be inadequate for the areas to attain a NAAQS. Federal standards for cars, trucks, power plants, and other major pollution sources could need strengthening for many areas to be able to attain the NAAQS. Congress has given EPA the authority to strengthen such emission standards; but Congress may still act to review the implementation of that authority.

EPA regulatory actions on greenhouse gas (GHG) emissions using existing Clean Air Act authority have been the main focus of congressional interest in clean air issues in recent months. Although the agency and the Obama Administration have consistently said that they would prefer that Congress pass legislation to address climate change, EPA has begun to develop regulations using its existing authority. On December 15, 2009, the agency finalized an "endangerment finding" under Section 202 of the Clean Air Act, which permits it (in fact, requires it) to regulate pollutants for their effect as greenhouse gases for the first time. Relying on this finding, EPA finalized GHG emission standards for cars and light trucks, April 1, 2010. The implementation of these standards will, in turn, trigger permitting requirements and the imposition of Best Available Control Technology for new major stationary sources of GHGs in January 2011. It is the triggering of standards for stationary sources (power plants, manufacturing facilities, etc.) that has raised the most concern in Congress: legislation has been introduced in both the House and Senate aimed at preventing EPA from implementing these requirements. The legislation has taken several forms, including the introduction of resolutions of disapproval for the endangerment finding itself under the Congressional Review Act, and stand-alone legislation that would forestall specific EPA regulatory actions. Meanwhile, EPA has itself promulgated regulations and guidance that will limit the applicability of Clean Air Act GHG requirements, delaying the applicability of requirements for all stationary sources until 2011 through guidance published April 2, 2010, and focusing its regulatory efforts on the largest emitters while granting smaller sources at least a six-year reprieve through what it calls the Greenhouse Gas "Tailoring Rule." The endangerment finding and EPA's other actions, which were triggered by a 2007 Supreme Court decision, came as Congress struggled with climate change and energy legislation. On June 26, 2009, the House narrowly passed H.R. 2454, a 1,428-page bill addressing a number of interrelated energy and climate change issues. The bill would have established a cap-and-trade program for greenhouse gas (GHG) emissions, beginning in 2012. In the Senate, both the Environment and Public Works Committee and the Energy and Natural Resources Committee reported bills (S. 1733 and S. 1462), but action subsequently bogged down, while a trio of Senators began negotiating a climate bill from scratch. As the clock wound down on the 111th Congress, it became less likely that climate legislation would be enacted, and more likely that EPA's actions would be the principal U.S. response to climate issues for now. Besides addressing climate change, EPA has taken action on a number of conventional air pollutants, generally in response to the courts. Several Bush Administration regulatory decisions were vacated or remanded to the agency: among them, the Clean Air Interstate Rule (CAIR)—a rule designed to control the long-range transport of sulfur dioxide and nitrogen oxides from power plants, by establishing a cap-and-trade program—and the Clean Air Mercury Rule, which would have established a cap-and-trade program for power plant mercury emissions. EPA will address these court decisions through new regulations—the agency proposed a replacement for CAIR July 6. Some in Congress have wanted to address these issues through legislation, an approach that might reduce the likelihood of further court challenges. The agency is also in the midst of reviewing ambient air quality standards for the six most widespread air pollutants. These standards serve as EPA's definition of clean air, and drive a wide range of regulatory controls. This report provides an overview of clean air legislative and regulatory issues. More detailed information on most of the issues can be found in other CRS reports, which are referenced throughout this report.

Introduction In 1978, Congress enacted the Foreign Intelligence Surveillance Act (FISA) after conducting sweeping investigations into perceived electronic surveillance abuses by the executive branch. Among other things, FISA established the Foreign Intelligence Surveillance Court (FISC), which reviews government applications to conduct electronic surveillance for foreign intelligence purposes. In the wake of revelations from June 2013 concerning the scope of orders issued by the FISC, many have questioned the current mechanism for reviewing the executive branch's intelligence gathering practices. Members of Congress have introduced various proposals that would amend FISA or amend the practices and procedures of the FISC. This report focuses on the proposals that would alter the process for selecting judges to serve on the FISA courts. Overview of FISA Courts and Selection of FISA Judges Article III of the U.S. Constitution vests the "judicial power" of the United States in the Supreme Court and any inferior courts established by Congress. Judicial power entails a power to render final, "dispositive judgments" in particular cases and controversies. Federal judges, who preside over Article III courts, enjoy life tenure so long as they are in "good behaviour." Moreover, their salaries cannot be diminished during their terms in office. The purpose of these provisions is to ensure that federal courts operate free from interference from the political branches in order to, in the words of Alexander Hamilton, "secure a steady, upright, and impartial administration of the laws." In FISA, Congress established the FISC, an Article III court. Overall, the FISC is authorized to issue orders related to foreign intelligence investigations. Upon a proper showing made in an application by a federal officer, the FISC may issue an order approving electronic surveillance, certain physical searches, the use of a pen register or a trap and trace device, or access to certain business records. FISA also established the FISA Court of Review, which has jurisdiction to review the denial of any application by the FISC. FISA authorizes the Chief Justice of the U.S. Supreme Court to "designate" the federal judges to serve on the FISC and FISA Court of Review. Judges of both courts serve seven-year terms and are not eligible for a second term. The FISC is currently composed of 11 district court judges who must be selected from at least seven of the regional judicial circuits, with one of the eleven serving as the presiding judge. The FISA Court of Review is composed of three judges who may be selected from either the district courts or circuit courts of appeal, with one serving as the presiding judge. Some have argued that the authority to select judges should not reside solely with one unelected official, that is, the Chief Justice of the Supreme Court, and others have commented that the process is too partisan. With these criticisms in mind, several bills have been introduced in the 113 th Congress to alter the process for selecting FISA judges. Proposals to alter the selection method include one that would effectively transfer selection authority to the chief judges of the circuit courts, as the bill would require the Chief Justice to designate judges who are recommended by the chief judges. Another bill would authorize the President to choose FISA judges with Senate advice and consent, while another proposal would place this authority with congressional leadership. The principal issue that may be raised by these proposals is whether designation by a certain branch of government would be constitutionally permissible. Notably, the judicial branch issued comments in January 2014 and expressed concern with proposals to shift selection of FISA judges away from the Chief Justice. This report first briefly reviews the constitutional method for appointing Article III judges. It then surveys the process of "designation," an alternative method used by Congress that allows current federal judges to serve temporarily on another federal court without undergoing a separate constitutional appointment. Lastly, the report explores how a reviewing court might assess the constitutionality of some of these proposals that shift designation authority away from the Chief Justice alone and vest it in other officials within the judicial, executive, and legislative branches. Constitutional Appointment or Designation of Article III Judges The Appointments Clause of the U.S. Constitution prescribes the manner in which certain government officials must be appointed. Principal officers, such as "Judges of the supreme Court," must be appointed by the President with the advice and consent of the Senate. The Supreme Court has also indicated that all other "Article III circuit and district judges ... are principal officers." Accordingly, the initial appointment of an Article III judge generally must adhere to the strictures of the Appointments Clause because he is a principal officer exercising "significant authority pursuant to the laws of the United States." However, if Congress subsequently expands the duties of an office for which one must be constitutionally appointed, the Court has concluded that it may not be necessary for an incumbent to receive a second appointment, if the additional duties are germane to the official's original government post. For instance, in Weiss v. United States , the Supreme Court held that military officers, who must be appointed by the President with the advice and consent of the Senate, could be designated to serve on a military court without a second constitutional appointment. Guided by the principle of "germaneness" established in Shoemaker v. United States , the Weiss Court reiterated "[i]t cannot be doubted ... that Congress may increase the power and duties of an existing office without thereby rendering it necessary that the incumbent should again be nominated and appointed." Based on this precedent, it appears there is generally no violation of the Appointments Clause when Congress permits the designation of an existing federal judge to serve in a separate position in a related Article III capacity. The Supreme Court also has had occasion to specifically address the constitutionality of the designation process within the judicial branch. Notably, Congress has long employed designations for Article III courts and has vested the Chief Justice with authority to temporarily assign federal judges to serve on other federal courts, including specialized tribunals. The creation of the now-defunct Commerce Court is one of the earliest instances where Congress vested the Chief Justice with authority to designate federal judges to a special tribunal. The first set of judges to this court was appointed by the President with the advice and consent of the Senate, and subsequent judges were "designated" by the Chief Justice from among the judges of the circuit courts. The Commerce Court's Chief Justice-based designation process became a model for future specialized courts, many of which operated for numerous years, or are still in existence, such as the FISA courts. Congress has also vested lower federal court judges with designation authority as well. Where the Supreme Court has reviewed designations within the judicial branch, it has upheld them. In McDowell v. United States , for example, the Court stated that the resolution of whether a circuit court judge validly designated a district court judge "presents a mere matter of statutory construction, for the power of Congress to provide that one District Judge may temporarily discharge the duties of that office in another district cannot be doubted." No constitutional questions were addressed in McDowell because the designation process "involves no trespass upon the executive power of appointment. … District Courts are solely the creation of statute, and the place in which a judge thereof may exercise jurisdiction is absolutely to the control of Congress." The Court in Lamar v. United States similarly dismissed a constitutional challenge to the Chief Justice's designation authority with respect to district court judges. In a one-sentence analysis, the Court rejected the defendant's argument that the designation violated the Appointments Clause and declared "merely to state [such argument] suffices to demonstrate its absolute unsoundness." The few courts that have addressed the designation of FISA judges also have upheld the constitutionality of this process. In United States v. Cavanagh , the U.S. Court of Appeals for the Ninth Circuit (Ninth Circuit) rejected an argument that the FISC violates the Appointments Clause because judges are designated by the Chief Justice rather than appointed by the President with Senate confirmation. The Ninth Circuit believed this argument was foreclosed by Lamar v. United States , which had upheld the temporary assignment of district court judges by the Chief Justice. The court stated that there was "substantial precedent for the temporary assignment of lower federal judges by the Chief Justice to serve on specialized courts." Similarly, district courts, in upholding the FISA designation process, have noted that FISA judges, though term limited, are not distinguishable from other federal judges who are designated to temporarily serve on other courts. Proposals to Alter the Selecting Authority of FISA Judges As mentioned above, the central issue that may be raised by the various proposals that seek to alter who selects FISA judges is whether designation by certain individuals within the different branches of government would be constitutionally permissible. The FISA Judge Selection Reform Act ( S. 1460 ), for example, would maintain designation authority within the judicial branch, but it would disperse the selection process for the FISC between the 13 chief judges of the circuit courts and the Chief Justice. Under the proposal, the number of FISC judges would increase from 11 to 13, with one designated from each judicial circuit. The Chief Justice would be directed to designate to the FISC the district court judge proposed by the chief judge of the circuit from which a vacancy arises. If the Chief Justice does not designate the first proposed district court judge, the chief judge of the circuit court would propose two other district court judges, one of whom the Chief Justice must designate. For the FISA Court of Review, S. 1460 would require that at least five associate justices of the Supreme Court concur in the Chief Justice's designation. Although chief judges of the circuit courts and associates justices of the Supreme Court would have a role in the designation process, the Chief Justice would still be charged with the final act of designating a judge to the FISA courts under this proposal. With respect to authorizing others within the judicial branch to designate the FISA judges, the limited judicial precedent available would appear to indicate that such an arrangement could pass constitutional muster. Turning to the decision in McDowell , discussed above, the Court suggested that it is "absolutely to the control of Congress" how and where a judge may exercise jurisdiction. The McDowell Court further declared: "the power of Congress to provide that one District Judge may temporarily discharge the duties of that office in another district cannot be doubted." This principle seems premised upon Congress's power to establish the courts and the absence of a constitutional provision that restricts the authority of a "District Judge to any particular territorial limit." Based on these declarations, a reviewing court may conclude that nothing expressly precludes Congress from vesting chief judges with broad authority to designate a judge from within their circuits to serve on the FISA courts. However, the McDowell holding was based on an 1871 statute that seems to be a precursor to the modern-day statutes that limit a chief judge's designation authority. Given that Congress has consistently chosen to regulate chief judges in this manner, it is conceivable that a reviewing court could view McDowell under a narrow lens and find insufficient support for providing chief judges with broader designation authority. Other proposals would shift authority to designate FISA court judges to the President. For example, the Presidential Appointment of FISA Court Judges Act ( H.R. 2761 ) would authorize the President, by and with the advice and consent of the Senate, to "designate" judges for both the FISC and FISA Court of Review. This type of proposal could be viewed as the equivalent of requiring, and constituting, a second constitutional appointment, notwithstanding the use of the term "designate" rather than "appoint." Such an arrangement would abide by the strictures of the Appointments Clause. However, a separate constitutional appointment could call into question the FISA courts' status as Article III courts. Whereas judges appointed to Article III courts must have life tenure, FISA judges are appointed to seven-year terms. Based on available precedent, however, it would appear that a reviewing court could reasonably construe that life tenure protects a judge's overall position on the federal judiciary and not the particular court to which he is appointed. Just as courts have found that judges designated to serve on other special judicial panels for a finite period do not "lose their Article III status," so too a reviewing court may determine that a federal judge, first appointed to a district or circuit court, does not lose his overall Article III status or its accompanying protections if separately appointed to serve on the FISA courts for a fixed term. In contrast, a proposal that would vest authority in the President alone to select an existing federal judge to serve on the FISA courts, could arguably raise separation-of-powers concerns on grounds that the exercise of such authority would constitute executive encroachment upon the province of the judiciary that could undermine judicial independence. However, the Court in Mistretta v. United States concluded that the separation-of-powers doctrine does not preclude the President from appointing judges to serve on the U.S. Sentencing Commission, an independent agency within the judicial branch performing nonadjudicatory functions. Even though the President has limited power to remove a judge from the commission, the Court concluded that the President "has no power to affect the tenure or compensation of Article III judges ... [nor does he have] power to coerce the judges in the exercise of their judicial duties." Similarly, assuming the President may remove a federal judge from serving on the FISA courts before the end of a seven-year term, the judge would continue to be an Article III judge serving on the district or circuit court to which she was initially appointed. On the other hand, the judges in Mistretta were acting in an extrajudicial capacity and not exercising judicial power, whereas FISA judges are exercising judicial powers on an Article III court. It is therefore conceivable that a court may conclude that selection of FISA judges by the President alone raises separation-of-powers concerns, if it determines that the President's power to remove judges from the FISA courts could have a coercive influence and compromise the impartiality of judges as they serve on the FISA courts. Lastly, there are proposals that would vest designation authority with congressional leadership. The FISA Court Accountability Act ( H.R. 2586 ), for example, would allow both the Chief Justice and congressional leadership to make designations to the FISC and FISA Court of Review. Generally, these types of proposals would appear to be potentially problematic under the Appointments Clause and general separation-of-powers principles. While Congress has authority to select individuals to serve on entities that aid Congress in its legislative function, Congress has no authority under the Appointments Clause to directly select appointees that exercise significant authority pursuant to the laws of the United States. Secondly, congressional designations may raise legal concerns under the principles announced in I.N.S. v. Chadha . The Court in Chadha declared that that legislative acts, which have the "purpose and effect of altering the legal rights, duties, and relations of persons" outside the Legislative Branch, must satisfy the bicameralism and presentment requirements of the Constitution. Accordingly, congressional designation made to the judiciary by the leadership of each house without the approval of the other, or the President, would seem to implicate the principles established in Chadha .

In the past year, the decisions and functions of the courts established under the Foreign Intelligence Surveillance Act (FISA) have received much public attention. FISA established two courts—the Foreign Intelligence Surveillance Court (FISC) and the FISA Court of Review—which have jurisdiction to review government applications to conduct electronic surveillance for foreign intelligence purposes. Various proposals have been introduced in Congress to amend the law that authorizes such surveillance and to change the internal practices and procedures of the courts. This report focuses on those proposals that would amend the process for selecting the judges who serve on the FISC and FISA Court of Review. Under the existing framework, the Chief Justice of the U.S. Supreme Court "designates" existing federal judges to serve on the FISA courts. While critics have argued that the current process is partisan and lacks political accountability, transparency, and oversight, the Director of the Administrative Office of the U.S. Courts, acting on behalf of the Chief Justice of the Supreme Court, has expressed concern regarding proposals that would change the existing framework. Proposals that would alter the process for selecting FISA judges include S. 1460, the FISA Judge Selection Reform Act, which would effectively shift authority to the chief judges of the circuit courts; H.R. 2761, the Presidential Appointment of FISA Court Judges Act, which would authorize the President to choose FISA judges with the advice and consent of the Senate; and H.R. 2586, the FISA Court Accountability Act, which would permit Members of Congress to select FISA judges. To understand the potential legal issues implicated by these proposals, this report first briefly reviews the constitutional method for appointing federal judges. The report also surveys the process of "designation," an alternative method used by Congress that allows current federal judges to serve temporarily on another federal court without undergoing a separate constitutional appointment. Lastly, the report explores how a reviewing court might evaluate the constitutionality of these proposals that would shift the authority to select FISA judges away from the Chief Justice alone, and vest it in other officials within the judicial, executive, and legislative branches.

Introduction This report, State E-Government Strategies: Identifying Best Practices and Applications, is based on research conducted in 2005-2006 under contract by the Lyndon B. Johnson School of Public Affairs as a Policy Research Project (PRP). PRPs are designed to give students a realistic policy research experience, culminating in a final research product for a client. This PRP involved nine students from the Masters of Public Affairs Program. Professor Sherri Greenberg served as the faculty director. Electronic government ("e-government") is currently one of the leading approaches to government reform, with initiatives being carried out at the local, tribal, state, national, and international levels. However, frequently there is little meaningful coordination or communication between various e-government initiatives. As a result of independently maturing technologies, there is a risk of creating more so-called "islands of automation" and "stovepipes" within and between levels of government. These problems are further exacerbated by human and financial resource constraints. To address these issues, Congress is actively overseeing e-government initiatives and is attempting to work with OMB and state governments to identify best practices, common standards, and successful strategies. Due to their variation in geography, demographics, and infrastructure, states serve as laboratories of experimentation for e-government. Federal policymakers may find aspects of state e-government planning and implementation useful examples for future decisions regarding the integration of federal information and services. To that end, graduate students from the LBJ School of Public Affairs at the University of Texas at Austin undertook a two semester research program to identify some of the best practices in e-government strategies and management being carried out by state governments. For the purposes of this report, electronic government is defined as the use of information technology (IT) to integrate government information and services for citizen, business, government, and other institutional uses. Many consider e-government as part of the evolution and extension of traditional governance. Just as in earlier times when the telephone and fax machine were innovations for government transactions, so is e-government today. Overview Increasingly, e-government is an important component in the study of governance. Its role in providing services in a quick, efficient manner to people who may not have had a direct connection to governing institutions in the past makes it a ripe subject for study. In addition, federal and state e-government programs have evolved considerably since their inception in the early 1990s, and are now much more prevalent. These changes parallel the ever-changing technological environment and shifts in attitudes regarding the relationships between government, and citizens and business. In this report, the students identified several critical factors that influence state e-government programs. They are summarized below: Strategies are essential to e-government formulation because they provide objectives for state agencies and governments. The report identifies and analyzes numerous types of strategies. Outsourcing is a controversial issue in many states. The students' research revealed that state governments develop a spectrum of outsourcing policies from balancing in-house projects with outsourced projects, to prohibiting outsourcing, to promoting outsourcing. Funding is an important e-government issue because IT projects are costly and their success is uncertain. Legislatures must choose between multiple programs during the budget process and, in many cases, e-government competes with other needs for funding. State politics and culture can impede or support e-government development. Public agencies are often averse to IT changes because they can alter employee and agency functions. However, IT enhancements do not typically cause agencies to be eliminated. Strong leadership can support e-government programs and drive IT improvements by encouraging and promoting new projects among civil servants and citizens. The degree of centralization or decentralization is a key component in e-government management because it determines the level of interaction between administrative agencies involved in IT projects. Web portal centralization is a common trend among many states, and it is often separate from agency organization and decision making. E-government performance measures are essential in evaluating the success of programs, identifying challenges, and addressing specific formulation and implementation challenges. Surveys and site visits can provide valuable information regarding e-government management and strategies. The students at the LBJ School of Public Affairs created the survey by researching similar surveys, contacting e-government experts, and consulting with CRS specialists. They sent 51 surveys to all 50 states and the District of Columbia and received back 38 completed surveys. They conducted site visits in six case study states: California, Kentucky, Massachusetts, Texas, Utah, and Washington. A set of core questions was used for each case study interview, along with state-specific questions. The survey results also provide general understanding of e-government differences among the states. The survey trends indicate that most e-government leaders have access to the state governor as needed. Questions about outsourcing show that most states either outsource the majority of their projects (75—100%) or outsource very little (0—25%). The most frequent leader in state e-government initiatives is the state Chief Information Officer (CIO). However, there are multiple departments involved in e-government, including Finance and Accounting Offices, IT Departments, and Information Resources Departments. States finance e-government from a variety of sources, including operating budgets, federal funds and grants, user fees, and capital funds. The majority of states use at least these four funding mechanisms in addition to secondary sources. Some states voice e-government security concerns for citizens and agency employees. Survey results show that many states are aware of legal restrictions on certain e-services, whereas other states are unaware. States use multiple performance measures to track programs; the most popular methods are customer satisfaction surveys and web tracking using specified metrics for evaluating site and service use online. The types of strategy documents used by states vary widely. Documents named in the survey include IT Plans, information management plans, and IT business plans, among others. The case study site visits elicited insightful information about interagency management strategies and decision-making processes. States vary in how they conduct e-government initiatives. Some governments, such as Texas, prefer to outsource software and applications development to consulting firms, while other states, such as Massachusetts, emphasize in-house development. Some states, such as Kentucky, encourage public-private partnerships and work closely with community leaders, while others use only intra-agency methods to create e-government programs. Each case study in the report includes state specific information on leadership, strategy documents, implementation, outsourcing, funding, centralization, and state politics and culture. In addition, this report contains a best practices section for each state case study that discusses successful program attributes such as effective communication on all levels, pilot projects for specific applications, and diversified methods of funding. The findings section of the report discusses the importance of strong leadership in furthering e-government initiatives. Devising a strategy is important, but not all states follow the same process. State e-government strategies vary significantly. Through the survey results and site visits, it was found that multiple entities are involved in the e-government implementation process, ranging from educational institutions to government agencies. In addition, survey respondents contend that there is a trend towards creating centralized systems and procedures for citizens to obtain information through state web portals and other forms of enterprise architecture. Survey evidence also found that funding sources in many states are diverse. While e-government is often implemented as a measure to provide efficiencies and to save costs (e.g., reducing the need for employees to perform some routine tasks such as customer service), actual dollar savings are not always realized by the states. However, e-government presents management challenges, and cost savings typically do not occur until the later phases of e-government implementation when at least a 30% adoption rate is realized. Identifying e-government planning and management concepts can facilitate a comparative analysis of state programs. In addition, strategies and management at the state level may provide important "lessons learned" for potential federal e-government initiatives. President George W. Bush has described new goals and policies for government reform that include citizen-centric online governance and the establishment of the E-Government Fund. This federal mandate proposes to "shift power from a handful of leaders in Washington to individual citizens" by increasing interagency cooperation and reducing redundant applications and procedures. Chief among the federal government changes is the establishment of USA.gov (formerly Firstgov.gov). This portal acts as the official gateway to federal government information and services, and facilitates citizen interaction with the federal government. Furthermore, e-government is one of the primary oversight jurisdictions of both the U.S. House Committee on Government Reform and the U.S. Senate Committee on Homeland Security and Governmental Affairs. Members of Congress will continue to propose and contemplate legislation regarding e-government. Future legislation could address a number of e-government issues, such as: citizen privacy and safety, national security, intergovernmental coordination, funding and management innovation. In addition to federal transformation, states also have implemented changes in governance. Many state governments started instituting e-government programs nearly a decade ago to improve interactions with citizens and customers. This report examines the e-government policies and strategies of state governments to provide effective practices and processes. While the public face of e-government tends to be a web page, the larger focus of this report is on management and strategies. Although service provision and site design are critical for effective e-government implementation, management structures and government culture define the direction of the e-government development process. Methodology This report includes an examination of existing e-government research to determine critical factors for state e-government evaluation. The students at the LBJ School of Public Policy devised a survey to obtain information on e-government practices which was sent to state Chief Information Officers (CIOs) or equivalent positions. In addition, the report provides a detailed review of the six case study states that were selected for site visits: California, Kentucky, Massachusetts, Texas, Utah, and Washington. The students reviewed other surveys related to e-government management, service provision, and policy implementation. The research team communicated with university professors and CRS policy specialists to develop and refine survey questions that met the objectives of this study. The students discussed among themselves and with CRS specialists different methods for determining case study states, and researched which criteria would be the most helpful in identifying potential "e-government best practices and applications." They used the following factors, based on agreed upon categories for evaluation: e-services, integration, centralized versus decentralized systems, e-democracy, and online help. They assigned a number from 1—5 (1 being "poor," 5 being "excellent") for each criterion and calculated the sums of each state. The states in different regions were chosen based on evaluation results and CRS guidance. In addition, they considered geographic dispersion, population and demographics in selecting the case study states. They conducted interviews with public officials and contractors using a core set of questions, with additional questions particular to each case study state. Finally, they devised a case study outline format for the final report, which was presented to CRS in July 2006. Critical Factors for State E-Government Evaluation A number of factors contributed to the functioning of state e-government programs. Identifying the factors and using them to evaluate programs helped to draw distinctions and make comparisons. Although state e-government programs are markedly different from one another, the factors below are essential in understanding the e-government formulation and implementation process. Strategies States utilize different techniques in designing strategies to accomplish their e-government goals. Case studies and research in this report convey a broad spectrum of formal and informal strategies. The documents collected from states include intra-agency communication documents, IT plans, and other documents which do not appear to be "e-government" specific plans, but have e-government goals and strategies embedded in them. Some states may adopt formal published documents, while others may use fluid guidelines or flexible plans which may be augmented as needed. Still other states do not distinguish between "e-government" and "government." The diverse set of strategies among states indicates that there is no single successful formula. While vision is critical to any program, defined processes, strategies, and performance measures also are necessary to achieve e-government goals. Outsourcing The process of outsourcing, or contracting with an outside firm to develop IT projects, is often contentious. The decision to outsource may depend on the complexity of a new program. Programs that are simple to develop can be administered in-house, or within the public agency. However, "If the system is complex ... governments generally have to rely on expertise from the private and nonprofit sectors. This involves some loss of control and decline in autonomy on the part of the bureaucratic agency." Some public officials may choose outsourcing over in-house development because they believe outsourcing reduces the government payroll and improves accountability in the public sector. For some public officials the incentive to outsource is financial: since many technology tasks are now routinely administered, they are 'commoditized' and inexpensive. At times, outsourcing is necessary because governments may lack sufficient funding or expertise to complete projects in-house. Technology companies that have already developed software applications may be less expensive to use because they do not incur the initial research and development costs that an in-house IT department would incur. Also, agencies may lack jurisdiction to provide particular services that are deemed outside of their legal bounds. Additionally, there are no guarantees that outsourcing projects will lead to successful applications and programs. Although many observers believe e-government will yield high savings, "the upfront investment costs of new technology are substantial and costs savings do not emerge until enough users start taking advantage of electronic delivery systems that government can save money through traditional bricks-and-mortar delivery systems [e.g., traditional office functions associated with service provision]." Moreover, due to the immense costs of many e-government projects, the competitive bidding process, and competition among private vendors in the awarding of contracts, outsourcing has become highly politicized. Contracting problems associated with certain governors and public agencies, often revealed through critical media sources, can undermine the original goals of e-government programs and change the public's perception about the government's ability to administer and provide e-services. Thus, outsourcing and the publicity associated with failed e-government programs can create controversy within administrations and among citizens. Funding Governments fund their e-government programs in a variety of ways. These include user fees, financing through a general fund, and public-private partnerships. The financing options may rely on a single funding stream or a combination of multiple funding streams. According to Darrell M. West, a leading expert on digital government, "When economic times are good and governments have abundant resources, tax revenues are a popular way to pay for e-government." However, when resources are limited, "spending on e-government must compete with expenditures for education, health care, and welfare." As a result, proponents of e-government may find it difficult to prioritize e-government over basic social services and other public goods that may be considered more important. State Culture and Politics Public officials can enable or hinder the development of state e-government programs. The organizational culture of a public agency often can resist dramatic change within a short amount of time. In addition to organizational factors, the technology field changes very quickly creating a challenges for the public sector to keep pace with innovations. Hence, "public agencies are sometimes reluctant to change course and alter their way of doing things." While state legislatures may mandate specific missions, and technology sometimes can facilitate these objectives, it often is difficult to use new programs and retrain staff in the alternative techniques of a new system. Even with a comprehensive strategy document, lack of agency approval and enthusiasm for new IT programs presents a challenge for executing e-government objectives. Leadership Execution of e-government objectives requires strong leadership that champions e-government and works to increase buy-in among stakeholders. Adoption of IT reforms is possible when a leader in the management chain has the power, in terms of political will and capacity, to impose change on the current system. Public officials must operate with long-term vision, overcome implementation challenges, and reinforce the agency's mission. They must mitigate the immediate challenges of agency buy-in and potential resistance. Leaders must identify, articulate, and advocate the benefits of e-government and its programs. The difficulty for leaders lies in changing the status quo within the office and encouraging employees to "think outside the box" in how they provide services to the public and businesses. Centralized/Decentralized Technology Management The degree of centralization in e-government refers to the administrative structure that manages e-government as well as to the specific infrastructure and presentation of information. The concept of centralization of e-government programs is best understood as a continuum where a system may have both centralized and decentralized processes for implementing and executing agency e-government goals, but may lean more toward one end of the spectrum. The pendulum may swing back and forth, and programs may be more centralized or decentralized depending on state culture, politics, and agency cultures. Neither system guarantees "success" of e-government programs; rather, both systems have advantages and disadvantages. Usually, centralized administrative systems can allow IT requests to be filtered through one agency or private firm, reducing the variation and duplication in e-government systems. In terms of presentation of e-services and information, states with centralized systems often use a web portal, or a "one-stop-shop," as a way to promote a fully integrated, user-friendly system. Arguably, states with decentralized e-government systems allow individual agencies more control over e-government administration and content. Agencies can choose which firms to use when they outsource e-services. Some agencies also share the view that decentralized information is considered more accurate because it is provided as close to the source as possible. Decentralized systems arguably can provide agencies with a sense of ownership that can encourage better site management and design. The decision to develop a centralized or decentralized e-government system depends on the economic and political circumstances within a state and the objectives stated in e-government strategies. Performance Measures Applying performance measures is essential to evaluate whether e-government is cost efficient, is serving stakeholders, and is being used effectively by government agencies, staff, citizens, and businesses. Depending on the mode of e-government service delivery, agencies can use various quantitative and qualitative output measures to evaluate their e-government programs, including the number of hits on a site, user contact sessions, number of downloads, amount of time spent on site, information accessed most frequently, and number of times forms are completed. In terms of cost measures, agencies can evaluate cost savings related to overhead and operating costs, such as paper use, postage, and transportation costs that are incurred through traditional modes of communication. They can also evaluate how employees manage caseloads through face-to-face interaction in contrast to e-government interaction. Performance measures need to be implemented on a regular basis to allow for comprehensive evaluation. Agencies may develop detailed performance measures or they may choose to develop broad measures that can be transferred within the agency among multiple departments. These critical factors are fundamental to e-government program development and implementation. The survey analysis and case study sections describe differences in them on a state level, and elaborate on their specific affect in managing e-government. Future e-government programs must take these factors into account while considering economic and political constraints that inevitably shape e-government programs. Phases of E-Government Development The evolution of e-government programs can be conceptualized in a number of ways. Given a state's political and economic circumstances, programs can develop and change quickly, sometimes "skipping" a developmental phase. In contrast, programs may remain in a particular phase for a longer period due to funding constraints or political pressure to maintain the status quo. A Gartner Group Report from 2000 identified four phases of e-government development that considered the level of information technology used by the government to relay information online (see Table 1 ). The Gartner Group report identified key development stages for e-government programs describing the level of technological advancement, information and communication abilities, and the kinds of services offered in each phase. The report also noted that there are few countries in the final stages ("transformation") for a number of economic and political reasons. Contrasting and comparing different programs on this level may help researchers and policymakers understand what the next step is for their particular program. It may also enable them to guide the development process toward a more integrative e-government program that allows for more communication and interaction between agencies and citizens and businesses. Analysis of Strategy Documents and Survey Results In this section, the report addresses a number of issues related to identifying recurring themes in e-government implementation. These issues include leadership, outsourcing, influence of federal e-government initiatives, strategy development and management, funding, legal and security issues, usage and performance measures, and written strategy documents. Information about these issues was collected by the LBJ students from a review of state government documents and surveys that were mailed and e-mailed to each state's Office of the Chief Information Officer (CIO) or equivalent. Roughly 75% (37 states and the District of Columbia) completed and returned the survey. Leadership Leadership is defined as the will of political leaders, management, and line staff to support e-government implementation as a strategy to provide electronically government services to states' clients. These leaders may include the governor, lieutenant governor, house and senate leaders, CIO, agency secretaries (governor's cabinet), agency managers, and IT staff. Leadership may take different forms, such as: governor's IT council, IT boards, IT agencies, or information systems departments, among others. As a leadership factor, the survey asked, "Does your state have an e-government strategy?" Sixty-three percent of respondents indicated that their states have written e-government strategy documents. Thirty-four percent reported not having a document. While leadership may come from different government positions, the following questions focused on the state CIOs' interactions with their governors. The survey asked, "Do you have direct access to your governor," and "If yes, how often do you have access to the governor?" Nearly 60% of the responses affirmed direct access to the governor, while 38% indicated they did not have direct access. Regarding contact frequency with the governor, 21% reported meeting weekly with the governor, 13% reported meeting monthly, and 21% reported "other," meaning that these states have a different meeting schedule. Approximately 80% of the respondents reported meeting with the governor regularly. Outsourcing IT outsourcing is defined as the use by state governments of contracts with private sector companies to provide a host of IT-related services. These services may include website maintenance, database maintenance, state portal website design where visual representation of information is consistent, purchasing, or help desk functions. The survey asked, "What percentage of your e-government services are outsourced?" Thirty percent of the responding states reported that none of their e-government services were outsourced. Thirty-four percent of the responding states reported outsourcing up to 25% of e-government services. Over 20% reported outsourcing from 75 to 100% of e-government services. Another 5% reported outsourcing levels somewhere between 25 and 75% (see Figure 1 ). It appears that most states either engage to a large extent in outsourcing or use little to no outsourcing. Additional research could provide greater understanding of outsourcing issues. Specifically, it may be useful for congressional policymakers to know which e-government services states outsource, and the reasons that these services are outsourced, when considering federal initiatives. Influence of Federal E-Government Initiatives In 2001, President Bush initiated the President's Management Agenda (PMA), a collection of five government reform efforts with the goal of making the federal government more results-oriented, efficient, and citizen-centered. One of the five PMA key elements deals with expanding e-government in an effort to use IT investments for improving government response time to citizens and businesses. In light of these developments, the survey explored the potential effect of federal e-government initiatives on state e-government formulation and implementation. A look at the relationship between the two could show what kind of influence, if any, the federal government has on state e-government programs. Question 4 asked whether the survey respondent was familiar with the federal government's e-government strategy. Thirty of the 38 survey respondents answered this question (respondents were given the option to skip to Question 8 if they did not have a written e-government strategic document). Even though not all respondents were state CIOs, many were still senior-level authorities in IT offices (e.g., Deputy Secretary of Information Technology, State Portal Manager, IT Manager, etc.). Out of 30 respondents to this question, ten of them (30%) were not familiar with the federal government's strategy. Of the 29 states that responded to question #5, the 15 states (52%) responded that the federal government was only "Somewhat Important," and 4 states said "Not Important." Of those 19 states that responded either "Somewhat Important" or "Not Important," 10 states did not know what the federal government's e-government initiatives entailed (from Question 4). Thus, even though a response of "Somewhat Important" is open to interpretation and could vary from state to state, the survey results strongly suggested that the role of the federal government is not significant for many states (see Figure 2 ). Based on these two questions, the results suggest that federal e-government formulation and implementation has been important to relatively few states' e-government planning and execution. Strategy Development and Management There are many different players involved in the establishment of e-government strategy, which is represented by Question 7 of the survey. Some states have one person draft the strategy; some states form IT councils; other states have multiple departments working together. The most common model is shared by only 5 states; thus, most states have their own unique model. Six out of the 38 respondents had one actor establishing e-government strategy. In five states that actor is the CIO, and in the sixth state the governor established the strategy. It is interesting to note that this particular state is also the only state that reported the role of the federal government to be "Extremely Important," and has the most daily unique site visits to its state portal. Other entities involved in e-government strategy include the Department of Finance, the State Legislature or Executive branch, the Council on Electronic Commerce, and the State Treasurer's Office. Similarly, Question 8 asked about the players involved in the day-to-day management of state e-government, with a wide range of actors being reported. Again, the most frequent manager is the state CIO, but for many, the management of e-government is carried out by someone other than the CIO. The range of responses included private contracted businesses, the Comptroller, the Department of Accounting and General Services, the Department of Administration, and the Department of Budget and Management. Despite the presence of many unique models, there was still a clear representation of two heavily involved departments in e-government strategy and activities: information technology and finance/accounting. The two departments or offices nearly rival each other in their roles in e-government. Such a close relationship to financial departments indicates that perhaps e-government is generally still in the stage of providing online services and transactions such as renewing drivers' licenses or filing taxes. Funding Transforming and streamlining e-government services and applications for citizens, businesses, and public agencies can be an expensive enterprise. As cited earlier, IT projects often are overlooked when more pressing social concerns, such as health care and social welfare, are at hand. Question 11 of the survey asked how e-government initiatives are funded. The survey focused only on methods of funding and did not ask for the dollar amounts spent on each service or application. A limitation of this survey question is the inseparable nature of IT programs. For example, e-government necessitates acquiring equipment such as computers for departments to carry out projects. This report is not concerned with how much funding is secured for computer hardware supplies such as replacement keyboards or new LCD monitors, but instead is directed toward e-government initiatives and implementation. However, the nature of IT requires a large expenditure of time and resources in maintaining and upgrading computer-related supplies, so IT equipment acquisitions and e-government initiatives are most likely combined in many governments' financial statements. An examination of the results shows that the state general fund/operating budget is the most common source of funding (32 out of 38 respondents), and that numerous states use two or more types of funding. Out of the six states that do not draw resources from the general fund, four of them have completely different funding models. One is categorized as a business-type activity, since it is a self-funding model that generates revenue through convenience, transaction, and subscription fees. Another state's financing structure is completely decentralized, since it does not have a state IT agency. Hence, individual agency IT departments are forced to fund their own initiatives (see Figure 3 ). An unconventional funding model reported by one state, relies on data sales such as licensing data to private industries (Texas). The second most common funding source is the federal government (26 out of 38 respondents). Federal e-government initiatives may not substantially influence state e-government programs, but federal funding certainly has a large impact on state resources, as evidenced by the survey results. Another significant funding model relies on user fees, employed by 22 out of 38 respondents. User fees are the simplest way of generating revenue, and, with an increasing trend of citizen and business adoption rates, a user fee only model arguably could support most e-government transactions. However, only a little over half of the respondents utilize user fees to finance their e-government initiatives, and in some cases instigating user fees may cause a short-term decrease in adoption rates. Legal Issues and Security Security concerns regarding personal information have increased as people rely increasingly upon the Internet for transporting sensitive and personal data. For state governments, this is an important issue because many e-government services require the entry of personal information to complete the transaction. Almost one-fourth of the respondents stated that 50-100% of their portal management is outsourced. Thus, there is a potential need to know who is storing the personal information and where it is stored. Some states require legislative action to address this concern, while others have left the decision to state CIOs or their equivalents. The survey included a question regarding the actions states have taken to ensure the privacy and security of citizen information. Almost every state reported employee training and encryption among their top security measures. Furthermore, although there is no recognized universal standard for digital signatures, 50% of respondents say they currently use digital signatures. Over 40% of the respondents did not have, or were unaware of, legal restrictions on online e-government activities. However, there are certain states that do have statutes specifically limiting what they are able to offer online. For example, the state of Iowa describes the hurdles to providing certain services online: The ramifications of signature requirements provide a legal hurdle for the adoption of more online services. The practices of the credit card industry and their requirements in relation to general financial practices of state government also provide impairments. Privacy, security, and identity issues are always addressed by state governments in online services and can provide obstacles for government to implement certain services online. In stark contrast, Idaho states: Currently, none of our planned services are restricted due to legal barriers. There are, however, a number of documents and applications that are not made available online due to privacy or security considerations. Additionally, statute currently requests handwritten or notarized signature for certain filings. Connecticut said that, in the past, its primary barrier to online services had been financial; fees for services are set by statute. Therefore, agencies would be required to assume the costs of credit card transactions and may not have the funds available to do so. Although many states do not require legislative authority, the key legal barrier reported in the survey results was providing e-services through secure channels, especially for documents that require signatures. Legislation has typically dealt with the financial structures of e-government, with some limiting what an agency is allowed to charge for online services because of costs associated with credit card transactions. Usage and Performance Measures This section of the survey focused on how states market their web presence and how they measure performance. Measuring the value of the return on investment in e-government is difficult without knowing the usage and adoption rates for online services and applications. States attempt to promote their online existence and measure their performance in a number of ways. Promoting an online presence is essential for state governments to accomplish goals of increased usage by citizens, businesses, and public agencies. According to survey results, the majority of respondent states use print advertising and e-mail announcements. Over half of the survey respondents still use radio, television, and direct mail to increase awareness of state web portals. Alternative methods include printing the portal web address on license plates and using billboard advertisements to promote the state portals. Marketing specific applications towards target groups appears to be an effective marketing strategy. For example, Kentucky Interactive educates lawyer associations, doctors, and other groups about renewing their licenses online. States used multiple performance measures. Eighty-six percent of the respondents used customer satisfaction surveys and feedback as a performance measure. Almost 74% reported using e-government specific web traffic metrics, which are defined as tools used by those who manage and implement web portals to gather data on the amount or type of traffic on a website or web portal (see Figure 4 ). Such tracking may include most visited sites and the frequency and duration of visits. About half of the respondents reported using cost benefit analyses and looking at return on investments. It appears that tracking which pages are visited the most, and actually listening to customer feedback using exit surveys and citizen requests are the most beneficial means for continuous improvement because they allow government to address citizen needs more effectively. Oregon is a state that publicly monitors its online presence. It has a specific web page for web traffic metrics, showing the number of visitors by week, number of visits, the amount of time spent per visit, top five entry and exit pages, and the top five downloads. Knowing this information allows Oregon to adjust its web portal to citizens' needs and measure citizen response to different forms of advertising and marketing. Another important performance measure is adoption rates. Adoption rates measure the usage of online services by comparing the number of transactions processed via the online service with the total number of transactions processed through the phone, web, mail, and at the counter during the same time period. The percentage completed online is the adoption rate for the service. Tracking adoption rates is important to ensure that the e-government service is meeting customer expectations. A marketing plan can drive up adoption rates. However, states must ensure feedback on the service and functionality of online applications. Written Strategy Documents A key question in this study is how states use strategy documents to plan and implement e-government initiatives. After researching all 50 states' websites and conducting interviews with high-level state officials in the case study states, it was determined that there is a wide range of beliefs regarding the importance and usefulness of strategy documents. Over 60% of the responding states have comprehensive IT strategic plans and policy documents. Some of these plans provide insight to specific e-government goals and strategies, but the majority of the plans are general IT strategies. A wide variety of plan authors exist, including technology councils, offices of CTO/CIO, governors' offices, and even private businesses. Information technology strategic plans, enterprise IT plans, e-government strategic plans, statewide IT policies, information management plans, and IT business plans are among the types of documents received from states or found on state websites. These documents are used to track progress by defining the IT plan and continually monitoring government agencies to ensure the plan is on track. This report reviews documents available from state websites and the documents received with our survey responses. Most states have annual or biennial update periods, but some states have strategy documents that are currently more than two years old (see Figure 5 ). A few of the individuals interviewed during the case study site visits said that the strategy documents were not able to keep up with the speed of technology development. One Kentucky official said that it is not worth the time and effort required to write and maintain "glossy" strategy documents when considering the quickness of new program innovation and implementation in real-time. Utah officials said it is not a guiding principle, but the documents do help to keep the agencies better coordinated. Other states clearly put a great deal of effort into their strategy documents because they believe that it helps to measure progress and meet goals. Based on survey responses and case study interviews, there is no universal strategy document or planning process for e-government programs. While strategy documents may be a variable in planning, success also depends on effective implementation, state culture, and state e-government stakeholders. State Case Studies California Our goal is a simple one: We want to do IT right. Leadership Despite recent IT procurement problems in California, the state has never stopped planning and implementing e-government initiatives. On May 31, 2001, the California Department of Technology Services (DOIT) contracted with Oracle to provide costly software for all state employee computers. However, the $95 million Oracle contract was awarded as a no-bid contract without conducting a departmental needs assessment, and problems ensued. As a result, the governor suspended the state CIO on May 2, 2002; the California Legislature eliminated the DOIT on June 30, 2002; and the State of California canceled the Oracle contract. The following news report relays the gravity of the offense and the demise of the DOIT: The Oracle computer software scandal claimed another casualty Friday when the Department of Information Technology bowed out of state government, closing its doors for the last time.... The demise of the technology oversight body represents a rare—if not unique—case of the sun actually setting on a state department.... 'This is unprecedented, definitely,' said Assemblyman Dean Florez, D-Shafter.... As a result of the Oracle situation and the California Legislature's termination of the DOIT, the governor of California drafted an executive order on July 1, 2002, reassigning duties from the DOIT to other state agencies. In 2003, the state legislature and the Office of the Governor began reconfiguring IT in California. Support from the Office of the Governor, legislature, and cabinet secretaries is important for the successful implementation of e-government services. The Office of the Governor, following the Oracle problems, appointed a CIO on September 20, 2002. Currently, the state CIO does not head an agency and does not have budgetary authority or formal policy authority. There was a consensus among those interviewed that the state CIO should have IT budget and policy authority. Otherwise, the CIO has limited control over implementation of the state's e-government plan. Strategy Document Planning for IT programs in California resumed in 2003. At that time, most IT-related documents were reports created by the state CIO. The first strategic plan was released in 2004 and included six goals: Make services more accessible to citizens and state clients. Implement common business applications and systems to improve efficiency and cost-effectiveness. Ensure state technology systems are secure and privacy is protected. Lower costs and improve the security, reliability and performance of the state's IT infrastructure. Develop and rebuild our technology workforce. Establish a technology governance structure. The 2006 strategic plan maintains the same goals as the 2004 plan and its 2005 update, and is a five-year strategic plan with the ultimate goal of "doing IT right." The plan reflects the "collective research and judgment of literally hundreds of the State's IT and program leaders." As part of the effort to accomplish the six strategic goals, a number of other objectives are also outlined. Some of these objectives include promoting interagency and intergovernmental data sharing; leveraging the state's geospatial information assets; promoting the development of a health information exchange; expanding broadband access; developing an integrated financial management system; instituting processes to preserve digital materials; adopting statewide information security and privacy standards; adopting a statewide enterprise architecture; providing for succession planning; investing in personnel; and implementing performance measures. The 2006 strategic plan provides specific dates by which action items are to be initiated or completed, and claims to demonstrate that California has "transitioned from planning to execution." Implementation The IT Council makes recommendations for implementation of statewide IT initiatives. Membership on this council consists of information officers and other representatives from a number of state agencies. After projects are reviewed by the IT Council, each representative returns to his or her respective agency to commence implementation. However, uniformity of implementation is difficult to assess because of California government's high level of decentralization. California offers a variety of online services, such as filing of income tax returns, payment of income taxes, filing of sales and use tax returns, setting of Department of Motor Vehicles (DMV) appointments, and settling of traffic citations. Before the DMV offered online appointment-setting, Californians stood in long lines to complete DMV transactions. In general, Californians responded to these improved online government services favorably. The following article captures this sentiment: ... Sacramentans have found it to be a timesaver. Tom Rankin, who lives in the Bay area but works in Sacramento, said he tried calling the El Cerrito office many times, but could not get through.... "When I called here (Sacramento), I got through right away, on the first call," Rankin said at the 24 th Street headquarters office Tuesday. One of the goals of the state CIO is to reduce the amount of time constituents spend completing government transactions. At the time that the interviews were conducted, 100% of vital records were provided online, while rough estimates of the percentage of transactions customers can complete online range from a low of about 25% to a high of about 60% to 70%. Most of these services are transactional. For example, a customer may apply and pay for a driver's license online while also checking the status of the applications. The Department of Education provides another example explaining why state agencies implement electronic systems. The department has special reporting and performance requirements. For example, the federal No Child Left Behind law requires tracking of academic achievement for individual students. Therefore, the department developed a system to track this data. Enacted in September 2002, Senate Bill 1453 established the California Longitudinal Pupil Achievement Data System (CALPADS), which calls for unique student identification numbers for all students. The longitudinal data collected via this program is linked to achievement standards. Reports are provided to public schools, districts, elected officials, and the general public, as well as to comply with federal reporting requirements. Outsourcing Laws and collective bargaining contracts limit the state's ability to outsource. The California State Employees Union (CSEU) is a significant force. The CSEU successfully negotiated with the state to ensure that outsourcing is utilized minimally. Interviewees indicated that collective bargaining unit contracts are obstacles to outsourcing IT projects. Policy and process modifications are suggested to give the state more outsourcing flexibility. The current process for outsourcing involves the Department of Finance, Department of Personnel, the CSEU, and the department recommending outsourcing. The collective bargaining unit contracts delineate specific timelines, and require consensus before final action may be taken. This process can take up to two years to complete, and advocates for changing the approval process indicate that newer technologies, which are better suited for the project, may become available before approval occurs. Funding Financing IT projects in California is similar to other states. Projects are funded by a state agency through the state's budget process and finance department. Prior to its elimination, the DOIT reviewed most statewide information technology initiatives. However, since the department's demise, this responsibility is now delegated to each state agency. Thus, funding is very decentralized. To continue implementing IT plans and raising support for IT, ongoing collaborative research is conducted by subgroups of department CIOs. These subgroups forward their recommendations to the full IT Council. If approved by the IT Council, each department is responsible for implementation of the subgroup's recommendations. An important note here is that the IT Council's decisions are advisory in nature. However, the lead person for each agency serves on this council and has decision authority in their agency. Once the IT Council agrees that a project should move forward, the Department of Finance (DOF), the state legislature, and governor approve funding through the budget process. The Department of General Services (DGS) does the procurement for state IT services. However, technology changes at a rapid pace and the DOF must screen new programs through a lengthy benefit/cost analysis process. This process may take up to two to three years before technology can be purchased. By this time, prices may increase or newer and better technology may become available. E-government initiatives also are financed by means other than state funding. In the case of the Department of Education, some programs are funded with federal formula assistance or through competitive grant programs. For example, the California Longitudinal Pupil Achievement Data System is funded with Title VI federal formula assistance. Additional funding was received through competitive grant programs. Centralized/Decentralized Technology Management In its current configuration, California's IT system is highly decentralized. One interviewee indicated that centralization may be an appropriate IT governance structure in smaller states, but not for California. However, to develop a similar website look and feel, each agency has a CIO who is a member of the IT Council. The IT Council's mission is to provide guidance to the State CIO, make IT recommendations for implementation by executive agency departments, and consider issues initiated by the state CIO. IT issues are presented to the IT Council for its consideration. All agency CIOs then work on completion of the approved IT initiatives. This is one manner in which the state CIO is able to effect change without formal budgetary or policy authority. Best Practices Planning: California state leaders identify planning as the first step of e-government development. After consensus is built around a plan, implementation is focused on accomplishing the goals set out in the plan. Buy-in Strategies: In promoting the plan within the state legislature, e-government leaders in California argue that it is important that IT remain a non-partisan issue. Collaboration: Due to the decentralized nature of e-governance in California, there is strong intra-agency collaboration that successfully implements e-government strategies by acknowledging different agency goals and circumstances. IT Council: Collaboration is exemplified in the IT Council that includes high-ranking agency officials and agency CIOs from a variety of different areas in the public sector. The IT Council allows California agencies to develop a common language for conveying expectations and goals in online service provision and intra-agency communication. High-Level Leadership: The governor supports e-government leaders, enabling the state to advocate and promote initiatives within different levels of government with strong backing from the top. Garnering the governor's support bolsters IT and e-government-friendly legislation and prioritizes IT initiatives. Consolidation: Consolidation of California's two largest data centers has been one of the top issues for the governor and state CIO in recent years. Despite the historical independence of the two data centers, consolidation is underway with the support of the current governor and state CIO. Kentucky Though Kentucky's recent progress has been swift, there remains much to be accomplished. If we do not act on our dreams, we are destined to remain at the bottom of most technology rankings. Leadership Enterprise portal projects benefit from strong enterprise support, particularly when this support comes from all three branches of government. Strong support at all levels of government, or at minimum from one leader such as the governor, can initiate broader acceptance, support, and faster growth. In Kentucky, Governor Ernie Fletcher has emphasized the potential economic benefits of Internet broadband availability through his Prescription for Innovation plan. The plan is used to help channel the activities of vested parties, from the local level to the Commonwealth Office of Technology (COT), to develop services and encourage citizen use of computers. Strategy Document Kentucky does not have a single statewide e-government-specific strategy document. However, the governor's Prescription for Innovation , in conjunction with the individual county strategic plans facilitated by ConnectKentucky, appears to many to be an appropriate overall strategy for the Commonwealth. Kentucky Interactive, ConnectKentucky, and the COT may have different responsibilities and internal strategies, but they are interconnected through the governor's Prescription for Innovation . Mike Inman, the COT Commissioner until August 2006, explained that his overarching strategy for better government was guided by four IT factors: improving security, improving services to citizens and government, reducing the cost of IT while enhancing value to business and government, and the governor's Prescription for Innovation . ConnectKentucky also refers to the governor's plan to develop e-government strategy. Prior to drafting the Prescription for Innovation , the governor met with Brian Mefford, CEO/President of ConnectKentucky, to discuss ConnectKentucky's role in facilitating the plan. From the grassroots level to the Commissioner of Technology, groups work together to implement the Prescription for Innovation . The governor's plan stands as a framework, or living document, that is used as a guide by all planning groups. It establishes aggressive goals for broadband deployment and technology adoption, including: Making broadband available to all citizens, businesses, and local governments by 2007; Dramatically improving adoption of computers and the Internet; Developing meaningful online applications for local government, businesses, educators, and other sectors; Establishing local "eCommunity Leadership Teams" in every county to promote technology growth for local government, business, education, healthcare, agriculture, libraries, tourism, and city-based organizations. As a largely rural state, an important challenge for the governor and other e-government leaders has been to increase the availability of broadband and develop a stronger government presence online. The governor's plan has proven to be successful. According to a recently released report from the FCC, Kentucky leads the nation in its rate of broadband adoption growth over the past two years. In 2003, approximately 60% of Kentucky households had the ability to subscribe to broadband. At the end of 2005, an estimated 77% of households could access broadband. This is an increase of more than 240,000 households over a two-year time period. During this same time actual home broadband usage increased from 22% to 32%. Governor Fletcher's Prescription for Innovation is being implemented through ConnectKentucky in partnership with local community leaders. The individual county strategic plans, developed by the local technology leadership teams, complement the recent surge in broadband adoption. These documents serve as roadmaps for technology-based growth and economic development. ConnectKentucky assists community leaders with the development of county plans by engaging in many strategic activities, including benchmarking current uses of technology, recommending a strategic approach to adopting appropriate applications, researching applications that will enhance the economic vitality of the community, providing project management to ensure successful implementation, and encouraging investment from providers such as cable or telecommunications companies and municipalities. Implementation Kentucky's approach is based on the collaborative efforts of government, citizens, businesses, educational institutions, and the private sector. However, the core of this relationship is three-tiered. It is comprised of the COT; Kentucky Interactive, LLC; and ConnectKentucky. The COT is Kentucky's primary technology organization for providing leadership and governance of all aspects of information technology. The commissioner's priorities are for an efficient, effective, and economical administration of IT and related sources. In a more practical sense, the COT oversees all IT projects and focuses on back-end system management, including IT security, redundancy, data storage, server hosting, and voice communication networks. With more than 500 employees and three main offices, the commissioner of the COT organizes and manages the infrastructure of e-government while granting a large amount of autonomy in the area of portal management to the state's private partner, Kentucky Interactive. For example, if a state agency wants to develop a particular service online it has two channels. It can file a request through the COT or it can go to Kentucky Interactive/Kentucky.gov directly. If it goes directly to Kentucky Interactive, the portal manager must share that information with COT. However, the portal manager will prioritize the project under the oversight of the Commissioner's office and begin to develop it with a lot of independence from the COT. When it is a project that will require back-end modifications or mainframe integration, there is a collaborative approach between the COT and Kentucky Interactive. Kentucky Interactive is a wholly-owned subsidiary of NIC, Inc., a publicly held company that builds and manages official government websites and e-government services. Kentucky Interactive is responsible for the development, management, hosting and marketing of the state portal on behalf of the Commonwealth of Kentucky. Awarded the contract in February 2003, Kentucky Interactive's goals are to expand the base of users who can access public information, increase the amount of public information available, and provide more opportunities for online transactions with the Commonwealth of Kentucky. The third player is ConnectKentucky, a not-for-profit "alliance of leaders in private industry, government, and universities," formed in 2000 by then-Governor Paul Patton. ConnectKentucky and Governor Patton met once a quarter to work on behalf of the legislative and executive branches as a consulting-type resource. Both parties tracked the progress of technology use in Kentucky, investigated upcoming innovations, and benchmarked Kentucky with other states. When Governor Fletcher came into office, ConnectKentucky was asked to lead his Prescription for Innovation , one of his main policy initiatives. Today, ConnectKentucky serves as a unified effort to drive technology policy and e-government initiatives. A notable feature of ConnectKentucky's methodology is the grassroots nature of its approach. Whereas many states develop top down approaches to e-government strategy, Kentucky starts at the bottom to generate vision and support for the larger state plan. The governor's state IT plan becomes increasingly effective as more citizens on the county and local levels develop a sense of ownership. At the local level, the process of building an online presence for local government normally begins with a kick-off event in each county. ConnectKentucky lays out what is happening in macro terms, transfers ownership of the state initiative to local leaders, and generates excitement about projects. Teams are comprised of local and county leaders, educators, hospital CEOs, local businesses, county judges, and mayors, among others. The team monitors county plans through self-evaluation and development of a business plan tailored to the needs of the specific county. Through this innovative strategy, citizens at the local level are empowered to explore how e-government can improve their lives and communities through decisions that delineate services most appropriate for their county. Outsourcing Brian Mefford, the President and CEO of ConnectKentucky, believes that independence and the public/private partnership model are critical to the success of e-government in Kentucky. The main state portal, Kentucky.gov, is a government service administered for the good of the public that also benefits from the entrepreneurial spirit and efficiencies found in private business. It exemplifies a true public-private partnership between the Commonwealth and Kentucky Interactive, LLC. A benefit of this particular private partnership derives from the fact that Kentucky Interactive is a subsidiary of a larger company, NIC, which works in 17 other states across the United States. Thus, Kentucky Interactive can share knowledge about application development and execution. This works to the advantage of the state because Kentucky.gov is able to integrate proven applications in a shorter time frame than those states that must finance their own research and development of new applications. Funding During the bidding process, one of the most important factors was the no-cost, self-funding financial component. Primary funding for the portal comes from the assessment of enhanced access fees for a select set of commercially valuable services without the use of any tax dollar appropriations. Leveraging enhanced access fees for a small number of services that are traditionally coupled with fees (primarily high-volume business applications) allows Kentucky Interactive to develop a tremendous range of free services that provide a public good. According to Kentucky Interactive, the self-funding model encourages the private partner and the Commonwealth to build online services that the constituents want, works efficiently to identify and create new online services, and invests in marketing activities to drive e-government adoption. Increased online service adoption is essential to the private partner because fees drive the return on investment. However, "99% of all information and services available on Kentucky.gov are free to the public." In February 2005, the Commonwealth renewed its e-government services contract with Kentucky Interactive for two more years. Under the procurement and budget process of the Commonwealth, the contract may be renewed for three additional two-year periods. It is important to note that, if the contract is not renewed and either awarded to another private party or managed in-house, Kentucky Interactive can grant the Commonwealth a perpetual use license so that the software-based applications can still be used. However, Kentucky Interactive will own the intellectual property rights to the software and would have to transition the applicable assets per the contract to the Commonwealth while continuing to receive revenue from the applications it developed during the term of the contract. Centralized/Decentralized Technology Management The "All State Agency Contract" with Kentucky Interactive allows a wide range of public agencies and offices to use the contract without going through a request for proposal (RFP) process every time they want to provide a new service to their constituency. In many cases, an RFP can take as long as six months or more to process. The all agency contract allows state agencies and local government to work directly with Kentucky Interactive to develop their services. Kentucky Interactive provides a template of the agency's main business elements, and works with the agency to develop and personalize its webpage and services. All state websites are encouraged to exhibit a "common look and feel." The end result is an aesthetically fluid state portal with the new state brand incorporated on nearly every page. Furthermore, intention-based navigation, combined with topical and organizational navigation, provides a view of Kentucky government as a single entity, not as a series of independent agencies and support processes. The portal provides a consistent, intention-driven way to access government information and services. Kentucky Interactive creates the websites for state or local government agencies. It also manages the content on the larger sites, including the portal, or it provides enterprise content management tools and training to individual agencies so they can manage their own content and site. Kentucky Interactive trains agencies to use the tools so they can quickly and efficiently maintain the content on their state or local government site. Following a free training session on the content management tool, a public employee may manage the site's content in various ways. Employees can make graphic image changes, generate press releases, and update photo galleries, speeches, or event calendars on their websites without filing an RFP or contacting Kentucky Interactive. Best Practices Public/Private/Non-profit Partnership: The partnership with NIC provides access to many shared resources at no cost to the state. This partnership allows Kentucky's e-government programs to keep up with technology through an efficient and effective private business model while avoiding traditionally slow bureaucratic decision models. Existing Infrastructure: Kentucky has the basic technology infrastructure in place for expanding e-government. Secure Systems and Widespread Access: Kentucky is committed to maintaining a high-level of security, redundancy systems, and high-speed Internet access for most citizens. All-inclusive Strategy: The state has a far-reaching strategy with strong support from the governor that includes a wide range of interested parties: local and state government, universities, private businesses, and citizens. Regional Approach: Kentucky's approach is regional as opposed to top-down. Target Marketing: Kentucky Interactive markets and promotes applications for agencies to help them drive the adoption of their online services and specifically targets the users benefitting most from the services to drive adoption rates. ConnectKentucky's style of marketing frames the issue with the five 'As': availability, affordability, awareness, applications, and adoption at the tip of the pyramid. Massachusetts The continued effectiveness of state government depends on the health and strength of the state's information technology foundation. Leadership In Massachusetts, the executive branch consists of four independently elected constitutional officers (Attorney General, Auditor, Secretary of State and Treasurer) and the executive department (the governor, lieutenant governor, and the executive offices and agencies reporting to the governor). Under the Executive Office of Administration and Finance, the CIO has the "responsibility to set IT standards; review and approve secretariat and department IT strategic plans; be involved in the planning, design, and operation of IT systems; and manage central IT systems, as well as the Commonwealth's mailing operations" for Executive Department agencies. The subdivisions within the Information Technology Division (ITD) that report to the CIO and/or Deputy CIO are Operational Services, Portal and Customer Outreach, Applications Services, Human Resources, Project Management, Enterprise Security, and Technology Finance. Each of these functional groups has a group manager. Each group also has its own management structure. The ITD coordinates e-government initiatives within the executive department via the Mass.Gov portal and other means. However, executive department e-government planning decisions do not influence IT planning in other branches and constitutional offices due to the constitutional separation of powers. Still, the ITD and the other branches and constitutional offices have worked together to produce uniformity, and the ITD has "sponsored or supported several successful multibranch efforts to reach across branches to address IT issues." Although the ITD and the CIO exist within the Executive Department, the CIO is not, in itself, a cabinet-level position. Nevertheless, the CIO reports directly to the Secretary of Administration and Finance, and in such a manner can influence key policy initiatives. Although the ITD has a CIO as the head of the division, IT leadership is far from a single-person effort. All those with a vested interest in the enterprise have a say in IT governance initiatives. For instance, the IT Commission—a joint public-private effort—advises the CIO on matters concerning future direction and management. Additionally, former CIO Peter Quinn created an informal "kitchen cabinet" with the goal of involving the large Executive Department agencies that had a major stake in the success of e-government. He gathered major players from the Department of Revenue, Massachusetts Highway Department, and Health and Human Services, to name a few. Since clients would now have access to e-government services, the CIO realized the need to incorporate unique agency needs. Strategic Documents In March 2001, a 75-member cross-branch, public-private E-Government Task Force, led by the governor, Administration and Finance, and the ITD, published the "E-Gov Strategic Plan." This document, the result of several months of work, provided the long-term vision, strategic intent, and conceptual direction for the Commonwealth's e-government future. The "E-Gov Strategic Plan" noted the benefits of e-government, the then current environment of e-government, new investment opportunities, and a roadmap for future project development. The Commonwealth is still working to implement components of this comprehensive plan. Additional direction on e-government is prescribed by the Enterprise Technical Reference Model (ETRM). The ETRM "[provides] an architectural framework used to identify the standards, specifications and technologies that support the Commonwealth's computing environment." This document notes issues pertaining to domain management, technical advancement, and other disciplines essential to the administration of the e-government portal and services. Additionally, the IT Commission's "Enterprise IT Strategy" provides direction for the Commonwealth's IT initiatives. For example, the document notes that improvements and additions to IT face certain challenges: mainly, (1) expectations by constituents for e-government services; (2) the emphasis on homeland security; (3) the current economic environment; and (4) transitions in leadership. Implementation Recently, Massachusetts has made efforts to better coordinate the numerous governmental agencies both within branches (vertical coordination) and cross-jurisdiction (horizontal coordination). Most notable in this endeavor is the establishment of open standards. In its Open Standards Policy, the "[government] must ensure that its investments in IT result in systems that are sufficiently interoperable to meet business requirements of its agencies and to effectively serve its constituents." By establishing this standard, the ITD maintains a degree of uniformity in technology and decision-making across agencies. In the IT Acquisition Policy, the Commonwealth notes a responsibility to provide IT solutions based on "best value after careful consideration of all possible alternatives including proprietary, public sector code sharing and open source solutions." Thus, the Commonwealth recognizes that certain solutions may not be available or cost-effective from private vendors. At such a point, the Commonwealth may explore open source solutions. Open source refers to software "built upon the principle that end users should be given source code and should be free to use, share, modify and enhance software products, with the goal of widespread interoperability and permissive incorporation into new technology." In terms of benchmarks and performance measures, Massachusetts has no defined targets. Nevertheless, a few subjects interest the government and have a bearing on how agencies manage Mass.Gov and e-government. The simplest mark to determine usage is a traffic count. However, this measure fails to explain project successes, as it does not quantify user satisfaction and ease of operation. In the past, the web portal had a user survey link, but Mass.Gov no longer uses the questionnaire. Mass.Gov serves as an aggregator of services and information. Individual agencies may have their own performance measures. In addition to measuring within the site, Massachusetts also realizes the importance of searching beyond its borders. It acknowledges other state e-government projects, with Utah, Texas, and Virginia serving as peer examples. Maine and Rhode Island offer expertise in New England. Individuals interviewed in the Mass.Gov offices particularly favored the manner in which Fairfax County, Virginia, has established its framework for e-government. Outsourcing The Commonwealth of Massachusetts employs a combination of in-house and outsourced approaches to IT project implementation and management, depending on the size and scope of the project. For instance, the Commonwealth recently established an office within the Application Services group, which can take on small to mid-sized development efforts using a team of individuals with various open-source and proprietary skill sets. However, there are many other instances where the Commonwealth does not possess the necessary resources or skill sets to implement a particular IT solution. In those situations, the Commonwealth engages the services of IT vendors, who are chosen through pre-established competitive procurement guidelines. However, the Commonwealth does not outsource jobs that can be done by state employees, pursuant to the 1993 Privatization Law (sometimes referred to as the Pacheco Law, in reference to State Senator Marc Pacheco, who introduced the legislation). Funding Another concern for e-government is adequate funding. The chief concern of government and IT agencies is demographic change. Massachusetts has an aging population with approximately 1.85 million citizens 62 years or older. This population comprises roughly 30% of the Commonwealth's estimated 6.3 million citizens. Given this demographic sector, more money from the annual budget will be earmarked for Health and Human Services to meet growing medical costs in future years. As a result, the ITD must search for creative methods to adequately provide services to citizens with the possibility of receiving smaller budget allotments. Currently, ITD finances its projects through a combination of direct legislative appropriations, IT bonds, and charge-back fees. The ITD is constantly researching and implementing strategies to more efficiently meet the IT needs of its agencies. One recent initiative is the development of a framework of guidelines and open standards aimed at long-term interoperability. Centralized/Decentralized Technology Management In Massachusetts, the branches of government have little cross-agency interaction and conformity. This type of government leads to an entrenched agency or branch identity, and makes it difficult to integrate e-government services under a uniform standard. In order to obtain the desired interoperability, agencies need to understand the mission of e-government and, in particular, the concept of open standards. The implementation of e-government is decentralized. However, it is moving toward greater integration. Similarly, e-government management also is decentralized. While the CIO and the ITD strive to coordinate agencies, they have yet to convince all agencies to get on board. According to interviewees, agencies will be more convinced when they begin to see the effectiveness of the open standards initiative. Best Practices Mass.Gov: For Massachusetts, the idea of electronic governance is based on efficiency and facilitation. ITD sees Mass.Gov as a way to "enable a citizen, or business, to work with several different government organizations at the same time from within a single web page." Open Standards: The ITD believes an open standards policy prevents having to "re-architect" as new problems arise. Open standards allow for an interchangeability of solutions and promote coordination across the entire enterprise. Streamlining Government and Cost Effectiveness: Massachusetts searches for efficient solutions to IT problems. The solutions may involve the use of private vendors or the possibility of open source software providing flexibility to meet changing circumstances. In-house Decision Making: The ITD does not outsource any of its management workload, and only the processing of transactions involving money transfers is outsourced. By retaining the management of its electronic government, the ITD believes that it maintains the core-competency of government. Easy Access to Services: Mass.Gov attempts to ease access to services most frequently requested through a short-list on the portal's home page with an end goal that all state government services be included within the portal. These services are the "low-hanging fruit" that attract most transactions. Cross-Agency Coordination: The ITD and its portal management at Mass.Gov have a goal to create a highly mobile exchange across jurisdictions, so its vision of open standards and cooperation can take hold. The ITD seeks to overcome the healthy mistrust amongst the different governmental agencies and branches. Texas Effective planning and management are key to judicious use of taxpayer funds by state government for IT initiatives. Leadership The Texas Department of Information Resources (DIR) directs and implements IT initiatives that assist the state government in reaching constituencies and efficiently performing governmental operations. The primary mission of the DIR is to develop and manage a clear vision of IT-enabled government. In a more practical sense, the department supports agency needs through IT procurement and service development, coordination of enterprise-wide projects, and active communication with the state legislature. Primary leadership for state IT initiatives is vested in both the Chief Technology Officer (CTO), Larry Olson, and a group of gubernatorial appointees from the private sector, non-profit environment, and academia. They constitute the DIR Board of Directors. Board members meet on a quarterly basis to review strategy and monitor performance. Together, the CTO and the Board provide the leadership and vision required to successfully implement such a large enterprise portal project. The governor acts as an interested participant, often sharing ideas and vision with the DIR, but does not take an active public role in leading the charge. Unlike other states that have a centralized cabinet under the executive branch, DIR Director Larry Olson (who is also the CTO for the state) and other state agency directors are semi-independent agencies in the executive branch. In spite of this decentralized system, the DIR and other agency directors maintain an open working relationship with the governor's office. Ideas about IT and e-government are shared for mutual benefit. In other words, "[the director] has the Governor's offices' ear." Strategic Documents The DIR has authored the State Strategic Plan FY2005-FY2009, an internal document with basic targets, directions, and goals for fiscal years 2005-2009. The document sets a mission, vision, and philosophy, and also reveals statewide goals and benchmarks. The Strategic Plan FY2005-FY2009 also discusses organizational structure, financial aspects, economic variables, and legal issues and statutes. In addition to addressing issues specific to the department, the State Strategic Plan also sets statewide direction with respect to information and communications technologies. Texas Technology, a magazine produced by eRepublic, is a quarterly publication offering regional news and best practices germane to state and local government. Implementation For any large decentralized state, a clear and effective division of labor is key to successful implementation of public initiatives. The DIR executes the Board of Director's initiatives through five specialized divisions: Strategic Initiatives, IT security, Telecommunications, Service Delivery, and Statewide Technology Operations. Service improvement and design is very important to both the DIR and BearingPoint, the consulting company that the state primarily contracts with for e-government application research and development. The DIR utilizes a wide variety of user input mechanisms to refine its applications, including a general design and function road map that is heavily constituent-based. Moreover, a customer service team works with agencies to develop satisfactory practices and applications while the Executive Director of the agency works with each DIR division. Five Divisions of DIR Strategic Initiatives Division: This division of the DIR is primarily responsible for the research and development of IT throughout the state. One of its primary responsibilities involves the development of the state strategic plan for information resources management. This plan is heavily influenced by research on IT trends, periodic policy and standards reviews, and best practices noticed within the state. IT Security Division: IT Security currently is a top priority for the DIR, and this division is responsible for working with state agencies on the security of their data, portals, and information systems. It also is responsible for assessing and implementing statewide online security, communicating emergency alerts, and periodic threat assessments. Telecommunications Division: This division maintains the 211 networks for information for the state and is vital in providing communication services to citizens. Among other tasks, the division maintains the Capital Complex Telephone System and the statewide telecommunications network, TEX-AN 200. This division of the DIR was integral in enabling the routing of 211 calls around the state during Hurricanes Katrina and Rita. Service Delivery Division: This division is responsible for overseeing the implementation of statewide initiatives. As the supply-chain implementer, this division does the contracting and procurement for IT for education, state government agencies, and local government agencies. It also maintains customer service with the agencies and other public-sector customers. The Service Delivery Division is the primary group responsible for administering the TexasOnline contract. Statewide Technology Operations Division: This division is responsible for the consolidation of statewide data to increase security, improve disaster recovery speed, and enable agencies to share data. It is also responsible for statewide email and messaging services. The DIR allows each state agency to operate at its own pace, while attempting to bring all agencies under a shared web portal. Individual agencies maintain control of their portal and are the hosts and managers of their own content and applications. When necessary, an agency will inform BearingPoint of particular online needs, and work with the company to develop online services and applications to execute state services more efficiently. The CTO strongly believes that the mission of a state agency is not to concern itself with IT infrastructure functions and needs. Instead, the core missions of the agencies should be to execute their mission strategy, while sharing common IT services. The DIR equips state agencies with the proper tools for successful execution of their strategies, including, but not limited to, the provision of data management systems, security, networking, performance measurement, shared applications, interoperability, and commodity procurements. The DIR is accountable for the procurement and management of technical services to facilitate the execution of individual agency missions, thereby reducing overall costs of daily operations. Outsourcing Texas maintains an interesting relationship with the private sector in terms of the management of its online content. To keep the costs of developing and maintaining IT infrastructure and applications low and to avoid any up-front investment, the DIR has contracted with BearingPoint, a private consulting company. Speaking on behalf of the DIR, the CTO maintained that the partnership is an efficient relationship in which BearingPoint maintains financial incentive to improve e-government services for Texas and the state maintains ownership of those services. The public-private contract exit strategy is unique to Texas. This exit strategy, engineered with the winning bidder and designed to expire in 2009, gives Texas ownership, while still generating significant revenue for the state. By offering incentives, this fundamental business concept provides Texas with a win-win partnership designed to improve its services. Funding TexasOnline assesses user fees for online service transactions (approximately 800 online applications). Through May 2004, users conducted more than 25.6 million payment transactions online. The DIR anticipates that cumulative revenue collected via the portal will top $3.4 billion by September 2006, and the site currently receives more than two million unique visitors each month. The DIR will have collected over $35 million dollars for the state of Texas in unappropriated general revenue by 2009. More importantly, non-revenue generating services, like veteran's affairs, governmental business, and voter registration projects, are supported through the revenue generated by other fee-for-service transactions. Texas House Bill (HB) 1516, passed by the 79 th Legislature in 2005 and signed into law by Governor Rick Perry on June 18, 2005 (effective 9/1/2005), mandates that the DIR negotiate statewide contracts for commercially available items like hardware, software, and technology services with outside vendors. By centralizing procurement statewide, the DIR can "leverage the purchasing power of all state agencies when negotiating contracts with the vendor community." Aggregating the state's commodity purchases through common contract vehicles is intended to (1) reduce IT costs, (2) decrease administrative costs, (3) maximize value, (4) develop common IT procurement processes, and (5) create an advocate on an enterprise level. The legislation is a cost-effective measure because it also requires all state agencies to procure necessary and related items only through DIR centrally-negotiated contracts. In fact, the Texas Legislative Budget Board estimates that HB1516 will have a two-year net positive impact of $15,436,963 towards the state's general revenue. Centralized/Decentralized Technology Management The public face of Texas state government is the state's online portal. However, the portal is a collaborative effort stemming from the partnership of public and private enterprise. Based on the State Constitution, the State of Texas has a highly decentralized governance system, since the governor does not have a cabinet. Unlike other governments where agencies are integrated within branches and are accountable to cabinet authorities, Texas agencies have great autonomy and personal accountability. This governance style has created roadblocks in coordinating state technological initiatives. For the last year and a half, the DIR has been able to gather different bodies under shared applications, while maintaining individual agency self-determination. Prior to that point, overcoming strong bureaucratic identities made integration of technology very difficult. Management within the DIR is centralized, but the relationship between the DIR and BearingPoint creates a more decentralized overall structure. As explained previously, the internal hierarchy consists of a head, the CTO, and five main divisions. The private vendor houses data, manages the day-to-day portal activities, and is responsible for marketing the site. While BearingPoint appears to function with a great deal of autonomy, the DIR and its Board of Directors have the final say on budgets and all new portal projects. Best Practices DIR Board of Directors: This appointed body provides leadership through input from the public and private sector, non-profits, and academia. Division of Labor: The DIR delegates responsibility to smaller internal bodies in order to create a more precise focus on the Board of Directors' initiatives. Public-Private Partnership: The relationship with BearingPoint allows the DIR to focus on management and decision-making without the concern of data maintenance. Also, the DIR achieves cost minimization and "profit" maximization through its partnership with BearingPoint. Securing Property Rights: Although the DIR outsources some of the labor, the department maintains control over intellectual property rights. Limited Control of Other Agencies: The DIR allows state agencies to pursue their core mission objectives by providing adequate technical support for those mission objectives. Understanding of Cost Savings in E-Government: Texas has completed a number of studies of online services that identify how much the state could save if citizen adoption rates were to reach different levels. For example, for online tax services, the state could save up to $1.9 million if "they achieved a 30 percent take-up rate, but fully $6.3 million if the adoption rate was 100 percent." Additionally, the Texas Department of Agriculture has studied adoption rates in relation to cost savings. Thus, Texas state agencies are aware of the potential cost savings that occur when adoption rates pass a certain threshold. Utah We document the State of Utah's IT strategic direction based on the articulated strategies and business plans of State officials, Agencies, and other key stakeholders, coupled with ongoing understanding of IT industry and technology trends.... Our goal is to maintain an IT Strategic Plan that optimizes both State-wide needs and the priority local needs of State Agencies. Leadership Former Utah Governor Mike Leavitt championed the incorporation of e-government in state governance as early as 1993. Under his direction, the Utah Information Technology Commission (ITC) was created to include the three branches of government, as well as citizens and businesses. The commission was established to review and propose legislation enabling transparent, efficient, and accessible government. Over time, this group has been adjusted to form the Utah Technology Commission (UTC), with a similar agenda. An Executive Branch committee, referred to as the Product Management Council, is a collection of product managers from state agencies. These managers are dedicated to facilitating cross-agency collaboration, offering input to the CIO regarding agency e-government initiatives, and providing recommendations to the CIO and business on e-government directions. Some of the most relevant actors in the e-government strategy development process are the Product Management Council, business leaders, and the CIO. Currently, the CIO coordinates with the Product Management Council in developing the state's overall e-government strategic process. Together, they take recommendations from agencies and make suggestions to agencies on implementation. The CIO and Product Management Council monitor state services from the centralized Department of Technology Services (DTS) and agency perspectives. In 2005, House Bill 109 established the DTS as a centralized IT agency. State agencies are responsible for developing their own e-government strategies and using those strategies to drive product delivery in their business models. Strategy and execution of the e-government process is managed by experienced individuals with a history of government work. Information technology is critical in executing the e-government process; technological infrastructure is necessary to offer services. Utah adheres to management and planning processes with the goal of improving governance to drive its e-government strategy. Actors within the DTS, the governor's office, and an integration partner, Utah Interactive, are committed to managing "Utah.gov" and its domains to the best of their abilities, making the site user-friendly and relevant to constituents. Strategy Document Utah has several e-government strategic documents that define its operating parameters and guide the progress of e-government initiatives, including IT strategy and enterprise architecture documents, which will continue to evolve throughout the DTS transition process. The IT plans are created within the executive branch agencies and summarize each of the agencies' unique IT and e-government plans. The document "Foundational Requirements and Guiding Objectives for DTS" provides guidance for development of e-government goals and objectives. During the research period in January 2006, Utah was modifying its formal information technology strategy. Before July 1, 2005, agencies maintained authority to execute their business services electronically using in-house IT personnel and resources. Since January 2006, Utah has been transitioning away from this system and creating an optimized IT department, the DTS, to consolidate all of the state agencies' IT functions into a single department. The goal of the optimization is to increase the number and quality of services offered without increasing the costs of providing them. Implementation Utah's successful e-government program is largely the result of sound leadership and decentralized agency strategy execution. Former Governor Mike Leavitt sponsored the GRAMA (Government Records Access and Management Act). This legislation mandated requirements for the digitization of records and the use of online communication; both tools were essential for transforming government into a more transparent entity. By 1995, Utah pioneered an early web presence and soon after began winning awards recognizing its homepage. In 1999, the state contracted with Utah Interactive, a subsidiary of NIC, Inc., to privately manage the web portal and centralize Utah's major online operations and applications. Agencies, which are responsible for executing their services, negotiate with Utah Interactive in developing their services. Since 1999, over 400 services have been brought online to the "one-stop shopping" portal. The state's e-government actors emphasize customer service in the e-government strategy development process. Utah uses performance measures, including returns-on-investment; increasing services, but not budgets; e-government web trafficking matrices; and customer satisfaction and feedback. Each agency utilizes additional agency-specific performance measures to evaluate its business models. These measures include tracking repeat usage, adoption, and efficiency (compared to private markets). Utah's overall e-government strategy is framed with agencies' business goals in mind. Each agency has input into what applications and services are offered to best serve its customers. New agency portals accessed through Utah.gov undergo extensive testing by new and old users to measure ease of navigation and relevance of information. Extensive marketing to promote brand familiarity is also conducted. Expanding suites of services and service improvement remain top priorities for Utah's DTS. Outsourcing Utah Interactive develops user-friendly, self-funding applications and services at no cost to the state. As a subsidiary of NIC, Inc., the entity focuses on e-government portal management, successful initiatives, and has an advantage of institutional knowledge and replicable models. If Utah Interactive is unable to provide cost-effective services, an agency is permitted to outsource projects with the permission of the CIO, who is also the Executive Director of the DTS. Funding Since agencies are responsible for their own e-government initiatives, agency budgets cover expenses for new online projects supported by the DTS. An internal service fund finances the central IT department, eliminating the need to increase taxes or request more funding from the legislature. Since the creation of the DTS involves the re-organization and streamlining of existing positions, the state should not incur new costs. Centralized/Decentralized Technology Management As of January 2006, the state was undergoing a transition whereby roughly 1,000 ITS employees would be converted into DTS employees and given the option to convert from merit career civil-service status to at-will status. Relocating IT staff from individual agencies to a centralized structure while simultaneously altering individuals' employment status caused early concern for some employees, which was offset by incentives for those wishing to convert. The difficulty of altering 1,000 job descriptions, re-training employees, and eliminating positions was compounded by the lack of additional funding. House Bill 109 outlined the structure for IT in the state, but did not allocate new dollars to the process. The financial burden rests on agencies to develop contracts with the new state agency, the DTS. Many state actors anticipate this strategy will be cost effective because IT services are provided by employees from one department rather than individual agencies. The Product Management Council encourages collaboration between agency product managers on e-government initiatives. For example, a product manager at the DMV can execute the department's mission statement by collaborating with sister agencies and Utah Interactive to develop online applications with the technical assistance of the DTS. Cooperation between the CIO's office, DTS, and agencies is summarized by the DTS Mission: bringing value and innovation to Utah through service and technology. Best Practices Streamlined and Uniform Agency Platforms: Coordinating the IT functions of numerous state agencies is facilitated by the Product Management Council. While the CIO and E-government Director play vital leadership roles in approving initiatives, various councils comprised of agency heads, citizens, businesses and lawmakers collaborate to share information and pool resources. Improvement-focused Agencies: Agencies' individual mission statements are dedicated to efficiency in delivering services and information, often incorporating the use of technologies for service expansion. E-government initiatives utilized by each agency are summarized into "Plan IT" and shared throughout the enterprise. Strong Leadership: Support for e-government adoption comes from government leadership in both the legislative and executive branches. Agency heads are able to effectively communicate strategies and provide resources to their own agencies. Efficiency and Cost-effectiveness: Utah focuses on efficiency by providing more services at the same or reduced costs. House Bill 109's consolidation of government employees is expected to result in a more flexible agency able to support other agencies' IT needs with fewer employees and more resources. Enabling Legislation: Utah enacted legislation mandating digitized, open, and transparent government utilizing electronic technology to accomplish such goals. The GRAMA Act paves the way for e-government adoption by authorizing the exploration of revolutionary initiatives. Uniting Agencies and Technology: Utah aligns the business model of the state agency with IT capabilities to enhance or create e-government solutions. This forms a unique partnership across state government that transforms the method in which business is conducted. Washington Effective Government - The Pacific Northwest is one of the most technology savvy areas in the country. To ensure that we meet the expectations of our citizens and deliver the most effective government possible, we must maximize our investment in technology, share infrastructure across government jurisdictions and evaluate and challenge business assumptions continually. Leadership The current governor, Christine Gregoire, and her predecessor, Gary Locke, made technology a high priority in their administrations. Their actions gave the necessary resources and power to the CIO and Department of Information Services (DIS) to make huge advances in technology, trailblazing the way for e-government. The CIO also serves as the Director of the DIS. The dual role allows for strategy and policy formation as well as for implementation and service delivery. Washington has instituted a program called GMAP (Government Management, Accountability & Performance) that establishes a management panel chaired by the governor, with participation by agency directors from the Finance Department, Personnel Department, and the CIO, among other agencies. The panel considers the management of state programs, and how well state programs are meeting performance objectives. Information technology is a key component of GMAP program management and service delivery. Information technology strategy is based on the priorities of government (POG) established by the state so that all investments of public resources go to projects and services that are considered the highest priorities. The model is designed to bring together agencies with complementary services, and establishes interagency groups to determine the most efficient use of resources. The governor then uses that information in establishing budget priorities. Strategy Document The DIS produces a Strategic Plan that is updated biennially. The former CIO released the 2005-2007 plan on May 1, 2004. The guiding concepts of the plan are "Reliability" and "Effective Government." Washington, in its Strategic Plan, recognizes that technology is vital to the provision of government services in the most "responsive and accountable" manner. Some core values include "ethics and integrity, innovation, valued employees and customer service." The strategic objectives and future direction include: Ensure business continuity for major IT systems; Continue digital government leadership through innovation; Balance stewardship and innovation with effective oversight practices; Encourage and enable collaboration; Seek additional cost advantages for DIS customers; Continue sound, strategic business practices to improve efficiency and effectiveness; and Attract, develop and retain human resources for continuity. The goals and strategies enumerated in the Strategic Plan are consistent with the information gathered from the interviews and from Washington's e-government success. The plan includes an assessment of performance and accomplishments from the previous iteration, and lays out goals for the next two years in the form of "Objectives, Strategies and Direction." Implementation Washington treats its e-government initiative like a business, and employs continuous improvement strategies to ensure that customers are receiving the service that they need in a convenient manner. The Digital Properties and Interactive Technologies staff conducts focus groups and surveys of users to constantly collect and use feedback to improve service delivery. Rather than assuming or guessing how customers are using services or what improvements they need, they use data to strategize and make changes as needed. Customer service provides FAQs, self-guided online help, and live chat assistance, which is outsourced. Through this process, the state has determined that it has a 64% satisfaction rate among citizens, but lower scores (in the 50s) among business users. This disparity has led to a renewed focus on improving provision of services to businesses. A business portal initiative is underway to address this deficit and better serve the business community in Washington. Washington uses benchmarking extensively, against FirstGov, the American Cancer Society, and certain government websites. Washington strives for a customer satisfaction rate of 68% or above. To improve citizen and business usage of online-provided services, Washington conducted a large media campaign in 2005. The media campaign lasted two months and included bus ads, radio spots, web ads, and local TV commercial spots. Digital Properties staff attends trade shows and cross-advertises with agency websites. Cross-advertising serves agencies and the state as visitors to an agency site are directed to the state site, and visitors to the state site are reminded of individual agency sites. A usage increase was evident during the peak of the media buy. While the success and impact of the campaign is unknown, the state has a largely tech-savvy population, and Department statistics indicate that adoption rates of e-government services are fairly high for both citizens and businesses. All branches of government appear to work well together in Washington. The legislature, judiciary, governor, and CIO cooperate to strategize and provide e-government services. For the most part, when legislative solutions are needed, the legislature is responsive and willing to accommodate. Washington maintains a data warehouse offsite recovery center in the eastern part of the state. If the center has an outage, the state can get back up and run at the offsite location. Critical state services are a top priority for backup capability, and the state employs a common standard for emergency communication interoperability. The DIS offers consolidated enterprise disaster recovery management. The department works with agencies to identify needs and the governor approves the plans. The Data Center is "one of the largest in the Northwest, processing 92.1 million online mainframe transactions each month." Financial processing is one of the critical operations performed at the center, so reliability of the center is essential. Outsourcing All portal and web services are provided by in-house technical staff, with some targeted outsourcing for search, help center, and translation services. Eighty percent of all DIS expenditures are to purchase services from the private sector, including telecommunications services and large application development. Only small to medium-sized applications are developed "in-house." The Digital Government Web Properties division at the DIS maintains primary responsibility for the web portal, and, with a relatively small budget, a small number of staff manages the operations of the portal and web services applications. Funding Most DIS activity is supported by revolving accounts that fund the utilization of department services and are allocated to agencies in the budget. The agencies then "purchase" needed services from DIS at a price that includes the actual cost of the provision of services, depreciation calculations, and a margin. The excess above cost is used by the DIS to finance investments in new technology and infrastructure. The DIS strives to provide enterprise solutions that can be used by numerous agencies. Typically, infrastructure is provided by DIS, and funds to develop specific applications are obtained through the budget process. Some projects are financed traditionally through the budget process. In those cases, the legislature must decide directly if a project is worth the investment of the state. At times, transaction fees cover the costs of applications, as with hunting licenses. Centralized/Decentralized Technology Management Washington is centralized to a great degree, and is focused on centralizing even more through enterprise strategies. The DIS has dual responsibility for providing services and strategy, standards, and project oversight. Therefore, DIS shares responsibility with any given agency for the success or failure of any technological undertaking. Through its enterprise approach, DIS has been working with agencies to consolidate services and information, not just for the efficiency and convenience of the government, but also for the citizens and businesses that utilize government services. The consolidation of services and data, as well as the provision of services in new ways, has allowed agencies to better serve citizens. Improvements for e-government users and traditional users occur because employee time is freed up. Thus, employees can offer better service to all customers. An interesting process used by Washington is the Digital Academy, wherein representatives from numerous agencies are brought together to solve an agency-specific problem. The problems are chosen so that the solution may be used by other agencies in similar situations. The representatives then work together over a period of days or weeks to develop a solution that can be packaged and shared among other agencies. The cooperation between agencies allows for greater buy-in to cooperative solutions and for more creative problem solving. Agencies feel a sense of ownership and participation that can potentially increase utilization of enterprise-wide solutions. This level of cooperation and sharing of solutions is a hallmark of Washington's e-government strategy. Best Practices Leadership: Washington has strong leadership at the executive and agency level that places a priority on furthering e-government on all levels. Washington shows a proven and consistent commitment to e-government and the use of technology on all levels of government. Cooperation and Collaboration: Washington employs a cooperative/collaborative model that encourages both interagency and top-down activities. Continuous Improvement: Similar to modern businesses working to improve their business model, Washington employs a continuous improvement strategy to improve its offerings and methods. Washington actively seeks to benchmark its performance by employing performance measurements at all levels and consistent reevaluation of performance. Risk-Taking: E-government leaders in Washington are willing to take risks, to fail in order to do better in the future, and insist on using the most cutting edge technology available. Bold and Innovative Programs: Programs like Digital Academies and packaged enterprise solutions help keep Washington at the forefront of technology and interagency cooperation. Centralization & Enterprise Solutions: Infrastructure and services are centralized to the greatest extent possible and enterprise solutions are widely employed throughout the state. Findings: Nationwide Trends and Best Practices The survey and case studies elicited a number of concluding observations regarding nationwide trends and best practices. Findings in several noteworthy areas are detailed below. Leadership States that are leaders in e-government show strong support at all levels of government or, at minimum, from one publicly popular leader such as the governor. Strong leadership with an evident priority for the advancement of e-government can provide for broader acceptance, support, and faster growth of e-government programs. Those states that exhibit steadfast leadership and solid working relationships between those responsible for decision making and those responsible for e-government implementation tend to be leaders in e-government strategy and implementation. Therefore, it appears that leadership is a critical element to the advancement of e-government in a state. Strong and competent leadership by CIOs or their equivalents can also influence the success or failure of e-government. State CIO positions should be filled by professionals with relevant credentials. They should have similar authority in comparison to other cabinet-level positions. It should be noted that many states experience frequent turnover in the CIO position, which may make consistent strategizing and implementation difficult throughout numerous transitions. Strategy Documents Based on survey results and interviews, there are many innovative ways to accomplish a strategic vision for e-government that do not involve the distribution of one key strategic plan. For example, Kentucky's Prescription for Innovation, in conjunction with the individual county strategic plans facilitated by ConnectKentucky, could arguably be a better overall strategy for the Commonwealth and other similar states. In addition, the type of strategic document relied upon by different states varies widely from IT plans to enterprise architecture plans and express e-government strategies. Although e-government program strategy and planning is essential for performance measurement and benchmarking, the type of strategy or planning process varies and does not appear to affect the success, failure, or advancement of state e-government strategy and implementation. Thus, as evidenced in this study, states can develop a range of documents that span from traditional formal documents to a variety of other strategies and still plan e-government effectively and efficiently. Implementation Cooperation, communication, and collaboration are vital to the e-government program implementation process. Performance measures and constant evaluation of e-government programs and services are essential to the planning and implementation process. Regardless of state leadership, there needs to be a constant focus on the implementation of the state's e-government plan. The collaborative efforts of government leadership, citizens, businesses, educational institutions, and the private sector are ideal, but not always feasible. Some states find that the sheer size of their constituencies and decentralization of agencies impede collaboration in e-government initiatives. Depending on state-specific situations, risk-taking can be very beneficial. States such as Washington that are willing to take risks and start trends tend to be at the forefront of technology and in the transformational e-government phase. Other states that are more risk-averse are more likely to wait until e-government technologies are proven and, thereby, safer to implement. Many states agree that marketing specific services to a targeted constituency is the most efficient and effective form of increasing the adoption rate of online services. In terms of e-government development, most states are in the transactional phase of e-government as mentioned in the research and methodology section of the report. However, states are moving toward the transformative phase, as evidenced in the increased desire to have "one-stop-shopping" operations on primary state portals and enterprise architecture development strategies. Outsourcing The trend in outsourcing tends to be toward all or nothing, with states either contracting out the majority of their services to a private vendor or providing all e-government and web portal services in-house. Outsourcing and contracting out e-government and portal services are becoming more commonplace, along with the attendant benefits and risks. Some states could find themselves tied to contractors who retain ownership of the systems they produce. Other states, such as Texas, maintain more flexibility in their contracting arrangements and ensure that the state has ownership of all web properties. The contracting field is narrow, with a few major players establishing a presence in many states and in some ways centralizing (or standardizing) portal development. With only a few providers of e-government contracting services, state e-government services could approach greater uniformity, as additional states contract with the same providers. Outsourcing can be controversial due to the high costs of IT projects related to e-government programs and contracting issues. Problems with contracting and purchasing processes can influence the public's perception of IT investment and strip power from responsible parties such as state CIOs and IT directors who initiate e-government programs. Costly, unsuccessful programs can influence a CIO's ability to maintain consistent funding because state legislatures may be more skeptical in supporting future e-government projects. Funding Financing is of primary concern to most states and the issue is dealt with in a number of ways, including revolving accounts, transaction fees, general operating funds, capital funds and federal funds. Many states rely on a combination of general funds, capital funds, and user fees. Contracting agreements for e-government services can provide alternative methods for financing by reducing implementation costs and start-up costs. Some of these methods allow for revenue sharing in the implementation phase of the e-government process. Many respondents report that state budget or finance divisions have direct control over e-government day-to-day management. E-government oversight and management involves multiple entities, including budget and finance offices. While e-government is considered a cost-saving measure, reducing the need for employees to perform some customer service tasks, actual dollar savings or cuts are often not realized. However, e-government may allow a state to do more with the same amount of resources. Customers who do not take advantage of e-government services need the services of employees for their in-person or mail utilization of services. These customers still realize gains from e-government, as employees are better able to serve their needs. Some states find that e-government allows them to slow employment growth because workloads are shifted and reduced. Other states realize savings from reductions in staffing. As evidenced in various agencies in Texas, adoption rates that cross the 30% threshold often indicate cost savings from online service provision. As adoption rates increase, savings can occur in many areas such as more staff time for new projects, a decrease in transportation and postage costs, and a greater capacity to manage high caseloads. E-government web portals may not increase revenues, but they are increasingly viewed as a necessary mechanism of information delivery to respond to public and private sectors that demand information and services. Centralized/Decentralized Technology Management The institutionalization of enterprise architecture planning seems to be the goal of many states, often leading to some form of centralization in terms of management of e-government programs and web portals that offer many services through one site. Centralization may be in the form of data sharing, application sharing, or even data consolidation. Moving toward a centralized structure works to benefit many states by avoiding overlap, allowing for cooperation and data sharing, and streamlining processes. In some large states, centralization is not always possible or desirable. In these states, enterprise orientation can still be part of the thinking and planning process. The "silo mentality" of agencies, a desire to be independent and to resist change, is a major obstacle for many states that desire greater centralization. Enterprise architecture planning is becoming more widespread and can be beneficial to e-government efforts. Bibliography Introduction Val Oveson, CGI-AMS Consultant and Former CIO of the State of Utah, Presentation at the Government Technology Conference, Austin, TX. February 2, 2006. A Blueprint For New Beginnings—IX. Government Reform, http://www.whitehouse.gov/news/usbudget/blueprint/budix.html . About USA.gov, http://www.USA.gov/About.shtml . Critical Factors for State E-Government Evaluation Barrett, Katherine and Richard Greene. Powering Up: How Public Managers Can Take Control of Information Technology . Congressional Quarterly Press, 2001. Bhatnagar, Subhash. E-Government: From Vision to Implementation: A Practical Guide with Case Studies . New Delhi: Sage Publications, 2004. Blackstone, Erwin A., Michael L. Bognanno, and Simon Hakim. Innovations in E-Government: The Thoughts of Governors and Mayors . Lanham, Rowman & Littlefield Publishers, Inc., 2005. Curtin, Gregory G., Michael H. Sommer, and Veronika Vis-Sommer. The World of E-Government . New York: The Haworth Press, Inc., 2003. Fountain, Jane. Building the Virtual State: Information Technology and Institutional Change . Washington D.C.: Brookings Institution Press, 2001. Garson, David G. and Alexei Pavlichev. Digital Government: Principles and Best Practices . Hershey, PA: Idea Group Publishing, 2004. O'Looney, John A. Wiring Governments: Challenges and Possibilities for Public Managers . Westport, CT: Quorum Books, 2002. Schedler, Kuno, Lukas Summermatter, and Bernhard Schmidt, Managing the Electronic Government: From Vision to Practice . Information Age Publishing Inc., 2004. West, Darrell M. Digital Government: Technology and Public Sector Performance . Princeton, NJ: Princeton University Press, 2005. California Case Study Interviews: Agarwal, P.K. Interview by Eve Richter and Bill Moreno. Director of Department of Technology Services, January 12, 2006. Armani, Andrew. Interview by Eve Richter and Bill Moreno. Deputy Secretary, State and Consumer Services Agency, Office of Information Technology, January 9, 2006. Ashley, Keric. Interview by Eve Richter and Bill Moreno. Director of Data Management, Department of Education, January 11, 2006. Kelso, Clark. Interview by Eve Richter and Bill Moreno. California State Chief Information Officer, January 9, 2006. Marchand, Vince. Interview by Eve Richter and Bill Moreno. Senior Consultant, Office of Senator Liz Figueroa, January 12, 2006. Tansey, Kate M. Interview by Eve Richter and Bill Moreno. Executive Policy Assistant to the Secretary, California Labor and Workforce Development Agency, January 13, 2006. Documents: Bazar, Emily. "Oracle Scandal Shuts the Doors at Agency." The Sacramento Bee , 29 June 2002. http://www.sacbee.com/content/politics/story/3387929p-4418355c.html . California State Employees Union. SEIU Local 1000. 2006. http://www.seiu1000.org/onthejob/ourcontracts.cfm . Kelso, Clark and Governor Arnold Schwarzenegger, "California State Information Technology Strategic Plan: Update to the 2004 Plan," November 2005. http://www.cio.ca.gov/PDFs/IT_Strategic_Plan_R2.pdf . Office of the California State Information Officer. California State Information Technology Strategic Plan, November 2004. http://www.cio.ca.gov/PDFs/ITStrategicPlan_111704.pdf . Office of the California State Information Officer. California State Information Technology Strategic Plan, November 2005. Online. http://www.cio.ca.gov/PDFs/IT_Strategic_Plan_R2.pdf . Kentucky Case Study Interviews: Inman, Mike. Interview by Lewis Leff and Raenetta Nance. Former Commissioner of the Commonwealth Office of Technology, January 26, 2006. Mefford, Brian. Interview by Lewis Leff and Raenetta Nance. President and CEO of ConnectKentucky, January 27, 2006. Tompkins, Lee. Interview by Lewis Leff and Raenetta Nance. General Manager, Kentucky Interactive/Kentucky.gov, January 26, 2006. Documents: ConnectKentucky, About ConnectKentucky. 2006. http://www.connectkentucky.org/about/ . ConnectKentucky, "Daviess County Strategic Technology Plan." http://www.connectkentucky.org/NR/rdonlyres/C9FA37EC-F174-4C0F-8F66-EC9FE6CA81FD/0/1_DAVIESSSTRATEGICTECHNOLOGYPLAN.pdf . Kentucky Interactive LLC, February 17, 2006. http://Kentucky.gov Massachusetts Case Study Interviews: Gilmond, Lawrence. Interview by Michael D. MacVay and Jon Lee. Chief Applications Officer, January 24, 2006. Nevins, Robert and Susan Parker. Interview by Michael D. MacVay and Jon Lee. Chief Director of Mass.Gov Portal and Customer Outreach, and Director of Mass.Gov, January 24, 2006. Documents: Enterprise Open Standards Policy, Information Technology Division of the Commonwealth of Massachusetts, 13 January 2004. http://www.mass.gov/?pageID=itdterminal&&L=3&L0=Home&L1=Policies%2c+Standards+%26+Legal&L2=Open+Standards&sid=Aitd&b=terminalcontent&f=_policies_standards_open_standards_policy&csid=Aitd . Enterprise Technical Reference Model—Version 3.5, Information Technology Division of the Commonwealth of Massachusetts, 2006. http://www.mass.gov/?pageID=itdsubtopic&L=4&L0=Home&L1=Open+Initiatives&L2=Policies&L3=Enterprise+Technical+Reference+Model+-+Version+3.5&sid=Aitd . Millard, Elizabeth. "Microsoft Challenges Massachusetts on Open-Format Plan." eWeek.com, September 14, 2005. http://www.eweek.com/article2/0,1895,1859172,00.asp . Office of the CIO, Information Technology Division of the Commonwealth of Massachusetts, 2006. http://www.mass.gov/?pageID=itdmodulechunk&&L=1&L0=Home&sid=Aitd&b=terminalcontent&f=_organization_administration&csid=Aitd . Office of the CIO, Information Technology Division of the Commonwealth of Massachusetts, "A Message from the CIO." 2006. http://www.mass.gov/?pageID=itdutilities&L=1&sid=Aitd&U=cio_gutierrez_message . Open Sources, Information Technology Division of the Commonwealth of Massachusetts, 2006. http://www.mass.gov/?pageID=itdsubtopic&L=3&L0=Home&L1=Open+Initiatives&L2=Open+Source&sid=Aitd . Profile of General Demographic Characteristics: 2000. Census 2000, The Commonwealth of Massachusetts. http://www.nmcog.org/Census/General_Demographic_2000.htm . Task Force Workgroup Reports, Information Technology Division of The Commonwealth of Massachusetts, 2006. http://www.mass.gov/?pageID=itdterminal&&L=4&L0=Home&L1=IT+Planning+%26+Finance&L2=Strategic+Planning&L3=E-Gov+Strategic+Plan&sid=Aitd&b=terminalcontent&f=publications_6_workgroup_reports&csid=Aitd . Texas Case Study Interviews: Olson, Larry. Interview by Mike MacVay, Oladimeji Mosadomi, and Raenetta Nance, Chief Technology Officer, Department of Information Resources, February 23, 2006. Coates, Ryan. Interview by Mike MacVay, Oladimeji Mosadomi, and Raenetta Nance, Managing Director, BearingPoint, Inc., February 23, 2006. Documents and Presentations: Deloitte Research Public Sector Study, "Cutting Fat, Adding Muscle: The Power of Information Technology in Addressing Budget Shortfalls," 2006. Department of Information Resources, "Agency Strategic Plan for Fiscal Years 2005-09." http://www.dir.state.tx.us/dir_overview/stratplan2005-9/index.htm . Department of Information Resources, "Message From the Director," December 8, 2004. http://www.dir.state.tx.us/dir_overview/director.htm . Department of Information Resources, "IT Commodity Purchasing Program-Guidelines and Instructions." Last updated June 13, 2006. http://www.dir.state.tx.us/commodities/program.htm . Department of Information Resources, "Cost-Benefit Study of Online Services," TexasOnline Authority, January 2006. http://www.dir.state.tx.us/TIC/dir_info/dirpubs.htm . Presentation by Victor Gonzalez, Chief Information Officer, Texas Department of Agriculture, Government Technology Conference, Austin, TX. February 2, 2006. Utah Case Study Interviews: Clark, David. Interview by Oladimeji Mosadomi and Sumaya Saati. Utah State Representative, January 23, 2006. Fletcher, David. Interview by Oladimeji Mosadomi and Sumaya Saati. E-Government Director, January 25, 2006. Hughes, Randy. Interview by Oladimeji Mosadomi and Sumaya Saati. State Technical Architect, Department of Technology Services, January 24, 2006. North, Rich. Interview by Oladimeji Mosadomi and Sumaya Saati. Policy Analyst and Member, Utah Technology Commission, January 24, 2006. Presentations: Fletcher, David. Presentation at 2006 eGov Summit. E-government Director, State of Utah, January 24, 2006. Gott, Carrie. Presentation at 2006 eGov Summit, General Manger, Utah Interactive, January 24, 2006. Washington Case Study Interviews: Kirk, Dave. Interview by Eve Richter and Bill Moreno. Digital Academy Manager, January 4, 2006. Polidori, Rhonda and Laura Parma. Interview by Eve Richter and Bill Moreno. Digital Government Web Properties Manager and Assistant Director, Department of Information Services, January 4, 2006. Robinson, Gary. Interview by Eve Richter and Bill Moreno. Director, Department of Information Services Chief Information Officer, January 4, 2006. Documents: Gregoire, Christine. "Government Accountability," 2005, http://www.governor.wa.gov/gmap/ . Washington State Department of Information Services, 2005-2007 Strategic Plan May 2004. http://dis.wa.gov/news/publications/05-07strategicplan.pdf .

Although electronic government ("e-government") is currently one of the leading approaches to government reform, a lack of coordination or communication between various initiatives increases the risk of creating more so-called "islands of automation" and "stovepipes" within and between levels of government. To address these issues, Congress is actively overseeing e-government initiatives and is attempting to work with the Office of Management and Budget (OMB) and state governments to identify best practices, standards, and strategies. This report is based on research conducted under contract by the Lyndon B. Johnson School of Public Affairs as a Policy Research Project (PRP). For this project, graduate students in the Masters of Public Affairs program at the LBJ School of Public Affairs undertook a two semester research program in 2005-2006 to identify some of the best practices in e-government strategies and management being carried out by state governments. Surveys were sent to all 50 states and the District of Columbia, yielding 38 completed surveys. The study also included site visits to six case study states: California, Kentucky, Massachusetts, Texas, Utah, and Washington. A set of core questions was used for each case study interview along with state-specific questions. Based on the results of the surveys and interviews, the students identified several critical factors that influence state e-government programs. They are summarized below: Strategies are essential to e-government formulation because they provide objectives for state agencies and governments. The report identifies and analyzes numerous types of strategies. Outsourcing is a controversial issue in many states, with a spectrum of policies represented across the country, ranging from prohibiting outsourcing, to near total adoption of outsourcing. Funding is an important issue because IT projects are costly and success is uncertain. Legislatures must choose between programs and, in many cases, e-government competes with other priorities. State politics and culture can impede or support e-government development. While IT can alter employee and agency functions, such enhancements do not typically cause agencies to be eliminated. Strong leadership can support e-government programs and drive IT improvements by encouraging and promoting new projects. The degree of centralization or decentralization is a key component in e-government management because it affects the level of interaction between agencies. Web portal centralization is a common trend among many states, and it is often separate from agency organization and decision making. E-government performance measures are essential in evaluating the success of programs, identifying challenges, and addressing specific formulation and implementation challenges. This report will not be updated.

Introduction The United States and Europe share a long and intertwined history. (1) U.S.-European political,security, and economic relations that today comprise the broad transatlantic relationship have theirmodern origins in post-World War II efforts to deter the Soviet threat and bring security to Europe. NATO, which was created in 1949, and the European Union (EU), the latest stage in a process ofEuropean integration begun officially in 1952, are the two main pillars upon which the transatlanticrelationship still rests. NATO was founded upon a shared commitment to protect common valuesof democracy, individual liberty, and the rule of law; in practice, it sought to do this by providingcollective defense against Soviet expansion through a mutual security guarantee for the United Statesand its European allies. The European integration project was meant to promote peace, politicalstability, and economic prosperity in Europe by entrenching democratic systems and free markets. The U.S. Congress and successive U.S. Administrations have strongly supported both NATOand the EU, believing that both organizations have helped foster democracy, reliable military allies,and strong trading partners. The United States also views the Organization for Security andCooperation in Europe (OSCE) as an important transatlantic forum for promoting democracy andhuman rights both in Europe and in Europe's wider neighborhood, including Russia, Ukraine,Belarus, and the countries of the Caucasus and Central Asia. The United States and Europeannations also share membership in other major international organizations such as the World TradeOrganization (WTO) and the United Nations. Since the end of the Cold War, both NATO and the EU have evolved along with Europe'schanged strategic landscape. While NATO's collective defense guarantee remains at the core of thealliance, members have also sought to redefine its mission as new security challenges have emergedon Europe's periphery and beyond. At the same time, EU members have moved beyond economicintegration and have taken steps toward political integration with decisions to develop a commonforeign policy and a defense arm. Both organizations have also enlarged in recent years toencompass many Central and East European states, bringing the number of NATO and EU membersto 26 and 25 respectively. The United States was a key proponent of NATO expansion and a firmbacker of EU enlargement, viewing these twin efforts as serving U.S. interests by consolidating a"Europe whole and free, at peace with itself and with the world." Meanwhile, the U.S.-European economic relationship has continued to grow. The UnitedStates and the EU share the largest trade and investment relationship in the world. Annual two-wayflows of goods, services, and foreign direct investment exceed $1.1 trillion. The total stock oftwo-way direct investment is estimated to be over $1.6 trillion, making this huge investment positionperhaps the most significant aspect of the relationship. Although some prominent U.S.-EU tradedisputes exist, the vast portion of this bilateral economic relationship is harmonious. Some analystsestimate that trade tensions involve only 1-2% of transatlantic commerce. (2) Despite the shared history and close economic ties, the transatlantic partnership has beenfundamentally challenged in recent years. The September 11 terrorist attacks on the United Statesprompted an initial display of transatlantic solidarity, but much of the goodwill has since dissipatedas numerous trade and foreign policy disputes have emerged. The crisis over Iraq is most notable,but the list of disagreements is wide and varied. Although Europeans are not monolithic in theirviews, most states -- including those such as the United Kingdom, Spain, Italy, and Poland thatsupported the U.S. intervention in Iraq -- object to at least some elements of U.S. policy on a rangeof issues, including the Israeli-Palestinian conflict, the treatment of Al Qaeda prisoners atGuantánamo Bay and the U.S. practice of rendition, missile defense, genetically-modified food, andthe U.N. Kyoto Protocol on climate change. The Bush Administration says it will make mendingtransatlantic relations -- in both NATO and the EU -- a priority in its second term. Nevertheless, a debate is reemerging in policymaking and academic circles on the value andpurpose of the U.S.-European relationship. While many would argue that much still binds the twosides of the Atlantic, others worry that the relationship is in trouble. Some U.S. critics question theextent to which the European allies share U.S. threat perceptions of the challenges posed by Islamistterrorism or the proliferation of weapons of mass destruction (WMD). Even if the allies agree onthe necessity of tackling such problems, U.S. and European tactics are often at odds; Europeangovernments remains firmly wedded to managing international crises through multilateralinstitutions, while the United States views this approach as only one option. The BushAdministration and Members of Congress are also concerned that deficient European militarycapabilities hinder the allies' ability to share the security burden with the United States. Otherssuggest that U.S. actions in the prosecution of the war on terrorism and in Iraq have prompted someto question whether the two sides of the Atlantic still share enough values and interests to make thetransatlantic partnership work. This report assesses the present state of the U.S.-Europeanrelationship and reasons for current frictions, and provides, for the purpose of analysis, a spectrumof options for U.S. policymakers in considering the future shape of the political and strategicdimensions of the transatlantic partnership. The Current State of U.S.-European Relations The Ties that Bind Historically, U.S.-European relations have experienced numerous ups and downs. Duringthe Cold War, even with the unifying pressure of a common military threat, transatlantic tensionsflared from time to time over controversial issues such as Vietnam and the stationing of U.S. ballisticmissiles in Europe. Ineffective and tentative international responses to the Balkan conflicts in theearly 1990s prompted serious questioning of NATO's role in the post-Cold War era, and of Europe'sability to manage crises on the European continent. Proponents of the alliance have always stressed,however, the underlying solidity of the transatlantic relationship given its basis in common valuesand shared interests. Thus, conventional wisdom dictates that frictions merely representdisagreements among friends characteristic of U.S.-European "business as usual." Many Europeansacknowledge that criticism of U.S. policies in Iraq and the Middle East has been fierce recently, butclaim that they have only felt free to express their views because U.S.-European relations are soclose, and honesty is a hallmark of true friendship. Even without the Soviet threat to unite the two sides of the Atlantic, the United States andits European allies face a common set of challenges -- from countering terrorism and WMDproliferation to ensuring the stability of the global financial markets -- and have few othercomparable partners. Supporters of strong transatlantic ties argue that neither the United States norEurope can adequately address such diverse concerns alone and that the track record shows that theycan accomplish much more in the world when they work together rather than at cross purposes. U.S.and European forces are promoting peace and stability in the Balkans and Afghanistan. U.S. andEuropean law enforcement authorities have sought to intensify police and judicial cooperation sinceSeptember 11 to root out terrorist cells in Europe and elsewhere. U.S.-European cooperation hasalso been critical in making the world trading system more open and efficient. In addition, proponents stress that the trust and habits of political and military cooperationthat have developed among the allies, and especially within NATO, over the last 50-plus years areunique in international relations and continue to serve U.S. interests. NATO's organizationalstructure provides a forum in which differences among allies can be discussed and narrowed. Thealliance has also fostered a beneficial "Atlantic loyalty," especially in times of extreme adversity, asevidenced by the invocation of NATO's Article 5 defense guarantee after September 11. (3) As noted above, the United States and the EU share a huge and mutually beneficial economicrelationship that is increasingly interdependent. Reports indicate that the transatlantic economyemploys 12 to 14 million workers, and that most U.S. and European investments flow to each otherrather than to lower-wage developing nations. Europe remains the most important foreign sourceof global profits for U.S. companies, accounting for over half of U.S. firms' total annual foreignprofits. Similarly, the United States is the most important market in terms of earnings for manyEuropean multinationals. Between 1990 and 2000, for example, U.S. affiliate income of Europeancompanies increased from $4.4 billion to nearly $26 billion. Although transatlantic mergers andacquisitions have slowed since the 2001 economic downturn, the boom of the late 1990s has leftEuropean firms more engaged in the U.S. economy than ever before. (4) This economicinterdependency, some argue, is a key reason a transatlantic divorce would be impossible. U.S. and European policymakers are keen to stress that working relations between U.S. andEuropean officials remain close, and have not been impeded by the highly charged politicalconfrontations over issues such as Iraq. Some commentators suggest that without the Soviet threat,European allies feel freer to voice more robustly their own views; European officials suggest thatthis simply represents the transatlantic alliance's evolution into a more mature, frank, and openrelationship. U.S. officials also note that some bumps in the relationship are to be expected as theUnited States and the European allies slowly chart new territory in grappling with how to addresssignificant challenges outside of Europe. In their view, for the first time since World War II, aEurope is rising that is increasingly concerned with events beyond Europe, in part because EUenlargement and the internal stabilization of the continent are nearly complete. The currentdifficulties in the transatlantic partnership are thus just "growing pains" in the relationship that needtime to be worked out. (5) U.S.-European Frictions and a Relationship in Flux Despite the ties that bind, the events of September 11 and the crisis over Iraq have helpedspark significant changes in the U.S.-European political and strategic relationship. Some observersargue that the recent U.S.-European frictions are largely driven by personality differences amongU.S. and European leaders. Many analysts contend, however, that the underlying causes are deeperand structural, and that September 11 merely kicked into high gear changes that had already beenset in motion by the end of the Cold War and the demise of the Soviet Union a decade earlier. Suchstructural changes include different policy preferences, the U.S.-European defense capabilities gap,and Europe's ongoing but unfinished integration. Others ponder whether U.S. and European interestsand values have diverged to such an extent as to call into question whether sufficient commonalitystill exists to make the broad transatlantic partnership desirable and beneficial for both sides. Leadership Issues. Numerous observers attributecurrent transatlantic tensions to European perceptions of the Bush Administration as inclined towardunilateralism and largely uninterested in Europe. It should be noted, however, that such Europeancharges of U.S. unilateralism are not completely new. Many Europeans in the 1990s complained thatCongress and the Clinton Administration often acted unilaterally, citing, for example, the defeat ofthe Comprehensive Test Ban Treaty and U.S. sanctions related to Cuba, Iran, and Libya. Regardless, European governments from the start of the Bush Administration seized on itsrejection of international treaties such as the U.N. Kyoto Protocol and its decision to proceed withmissile defense as evidence of a new, broader U.S. unilateralism. They were also extremely waryabout the new administration's commitment to Europe, given that officials during the campaign hadquestioned the need to keep U.S. troops in the Balkans and seemed to place greater emphasis onother regions of the world, such as Asia. The September 2001 terrorist attacks swept such frictionsunder the rug for a while as European governments, NATO, and the EU condemned the attacks andexpressed complete solidarity with the United States. At the same time, the initial U.S. decision toforego using NATO forces, planning, or logistical resources in the war in Afghanistan began stirringEuropean concerns about NATO's relevance to the Bush Administration and U.S. securityinterests. (6) In 2002-2003, U.S.-European tensions reemerged on a wide range of trade and foreign policyissues. U.S. moves in the first half of 2002 such as rejecting the International Criminal Court andseeking to exempt U.S. soldiers from its jurisdiction, as well as imposing steel tariffs, reignitedEuropean concerns that the Bush Administration was not interested in working with its long-timeallies. Perhaps most unsettling for many Europeans was the emergence in early 2002 of aconfrontational U.S. policy toward Iraq, which culminated in the U.S.-led decision to go to waragainst Saddam Hussein in March 2003. Many Europeans perceived the United States as acting withlittle regard for the views of the international community and without much concern for the need togain U.N. approval for the use of force. As a result of Europe's own bloody history, European alliesplace great emphasis on multilateral institutions as a means for managing international crises andlegitimizing the use of force. This is as true for the UK and other European countries that ultimatelysupported the U.S.-led intervention in Iraq as it is for France, Germany, and others that opposed U.S.policy. By 2004, critics of the Bush Administration began to contend that the U.S. intervention inIraq and its aftermath were seriously damaging U.S. credibility abroad, including in Europe. TheAbu Ghraib prison scandal stunned and dismayed the European allies. Many Europeans viewed theactions of U.S. soldiers at Abu Ghraib as following directly from U.S. policies in the war onterrorism, such as detaining suspected Al Qaeda terrorists at Guantánamo Bay. Some charged thatthese actions violated human rights and sacrificed the long-term battle for Muslim "hearts andminds." Opinion polls in Europe indicate declining trust in U.S. leadership. One poll found that anaverage of 58% of Europeans in nine countries believe that strong U.S. leadership in world affairsis undesirable. (7) Andcritics assert that this loss of trust and credibility has made many European allies even less inclinedto shoulder a bigger financial or security role in Iraq. Some Europeans charge that the Bush Administration's pursuit of its goals in Iraq damagednot only the credibility of the United Nations, but also of NATO. They assert that U.S. pressure inearly 2003 to deploy NATO military assets to help Turkey defend itself against a possible attackfrom Iraq forced an unseemly public confrontation within the alliance. Many Europeans also worriedthat the Bush Administration was keen to keep Europe weak and divided. They feared that U.S.Secretary of Defense Rumsfeld's statement shortly before the U.S. invasion of Iraq that dividedEurope into "old" (countries that opposed the invasion) and "new" (those countries, especially inCentral and Eastern Europe, that supported it) signaled an unofficial shift in U.S. policy away fromcontinued support for further European integration. Most European allies, including those includedin the "new" category, such as Poland, were critical of Rumsfeld's comments because they object toany division of the continent and support building "a Europe whole and free." At the same time, many analysts also blame some European leaders, particularly FrenchPresident Jacques Chirac and then-German Chancellor Gerhard Schroeder, for contributing to thebreakdown in transatlantic relations. Chirac has long espoused the concept of "multipolarity" ininternational affairs, but some Bush Administration officials have interpreted this concept as a meansto thwart U.S. predominance. Many viewed Chirac's opposition to the war in Iraq as an attempt toconstrain U.S. power and influence in spite of the threat posed by Saddam Hussein. (8) Relations between PresidentBush and Chancellor Schroeder over Iraq soured in September 2002 when Schroeder begancondemning U.S. Iraq policy to bolster his re-election campaign. Many observers maintain that bothChirac and Schroeder expressed their opposition to the war in Iraq in an undiplomatic andirresponsible way, without due consideration of the implications for the broader transatlanticpartnership. They note that the failure of France and Germany (and Belgium) to clearly and quicklysupport their fellow NATO ally Turkey as the conflict with Iraq loomed left a damaging impressionof allies unwilling to stand together in a time of need, and has caused some in Washington to loseconfidence in NATO. (9) Europeans have welcomed the Bush Administration's efforts in its second term to improveU.S.-European relations and responded positively to the European trips in February 2005 byPresident Bush and Secretary of State Condoleezza Rice. Many believe they have gone a long waytoward improving the atmospherics of the relationship, but transatlantic tensions have notdisappeared,and resolving differences will require a sustained political commitment from both sides. Some observers note that President Bush's visit to the EU's institutions while in Brussels in February2005 and his statement in support of EU integration have helped alleviate some European anxietiesstemming from Secretary Rumsfeld's comments about "old" and "new" Europe. Many point to therecent U.S.-EU cooperation to curb Iran's nuclear ambitions as a tangible positive development thatdemonstrates the value of the transatlantic partnership. Nevertheless, others point out that manyEuropeans still remain skeptical about the degree to which the Bush Administration views itsEuropean allies and friends as full partners. Structural Drivers. Many analysts argue that thereasons for current U.S.-European frictions are largely structural, stemming from the end of the ColdWar and exacerbated by September 11 and its aftermath. In this view, recent tensions are to somedegree inevitable, and go beyond individual leaders and their personal styles. One key structural change often cited relates to alterations in the U.S. security outlook sinceSeptember 11. Some observers note that diverging U.S.-European threat perceptions are not new,and have been emerging since the end of the Cold War. Throughout the 1990s, U.S. policymakersoften complained that Europe was preoccupied with its own internal transformation, and largelyblind to the new global threats. However, the September 11 attacks on New York, Washington, andover Pennsylvania, as well as the still unsolved anthrax attacks of October 2001, had a profoundeffect on America's national psyche, and further widened the gap in U.S.-European threat perceptionsand policy preferences for managing those threats. Many in Europe have been slow to understand that many U.S. actions in the "war" onterrorism are driven by the conclusion that nothing should be left to chance, especially with regardto the possibility of terrorists acquiring WMD. The Bush Administration's promotion of"pre-emptive action" in the face of security threats has been a source of great concern for Europeanallies and partners, especially if undertaken without U.N. authorization. Some claim this is in partbecause European publics do not feel the same sense of urgency regarding the terrorist threat -- evenafter the terrorist attacks in Madrid in March 2004 and in London in July 2005 -- and in part becausemost European governments continue to view combating terrorism primarily as an issue for lawenforcement and "soft power" diplomatic and economic tools. In the post-September 11 world,however, the United States is likely to be much more activist in confronting potential threats andmore inclined to view multilateral efforts to tackle such problems as only one option, regardless ofwho controls the White House. Europeans, for example, took note of Democratic presidentialcandidate Senator John Kerry's statement at his party's convention in July 2004 that he "would nevergive any nation or international institution a veto over our national security." (10) U.S. analyst Robert Kagan attributes the difference in U.S. and European approaches tomanaging threats and using force to a "power problem." In his view, Europe emphasizes multilateralinstitutions, diplomatic pressure, and foreign aid as the best tools to manage crises because mostEuropean countries, with the possible exceptions of the UK and France, lack the military capabilitiesnecessary to project and sustain power, especially outside of Europe. Kagan asserts that Europe'smilitary weakness has produced a "European interest in inhabiting a world where strength doesn'tmatter, where international law and international institutions predominate." (11) Most Europeans reject Kagan's thesis, arguing that they are not pacifists, and citing their rolesin the 1999 NATO-led war in Kosovo and their presence in Afghanistan. They acknowledge,however, the need to improve their military capabilities in order to better ensure their own securityand to enable European forces to continue to operate with U.S. forces. But many experts assert thatoverall levels of European defense spending remain insufficient, and skeptics say that Europeanpromises to spend existing defense resources more wisely have failed to materialize in anysubstantial way. Thus, the U.S.-European capabilities gap will remain a source of contention in thetransatlantic alliance, especially given that U.S. attention for the foreseeable future will likely befocused on threats well beyond Europe. Some assert that Washington will increasingly measureEurope's "value added" in the years ahead by how willing and able the European allies are to helpthe United States manage the security burden not only within, but also outside of Europe. (12) Another major structural factor affecting U.S.-European relations is the European Union'songoing evolution. Since the end of the Cold War, the EU has pursued further integration throughboth widening and deepening. On May 1, 2004, the EU welcomed 10 new members, mostly fromCentral and Eastern Europe. (13) At the same time, EU members over the last decade have takensteps to enhance their economic integration. Twelve EU members have adopted a single Europeancurrency, the euro, and the 10 new members are committed to doing so in the future. Perhaps most important to the future shape of the U.S.-European strategic partnership are EUefforts to build a Common Foreign and Security Policy (CFSP), backed up by an EU defense armcapable of managing a full spectrum of crisis management tasks. These EU initiatives have comefurther and faster in recent years than many EU skeptics expected, but both remain works inprogress. The EU has established new political and defense decision-making bodies, and hassucceeded in forging consensus on common policies related to the Balkans, the Middle East peaceprocess, Iran, and Colombia, to name a few. In December 2003, the EU released its first-eversecurity strategy, which outlines common threats and policy responses. Critics suggest, however,that the EU is still far from speaking with one voice on contentious foreign policy issues, such asIraq, because of competing national interests, sovereignty concerns, and different foreign policypreferences. They also note that efforts to improve EU military capabilities have lagged behind, andthey doubt that current European defense budgets are sufficient to fund all of the EU defense arm'srequirements. Nevertheless, EU efforts to develop CFSP are contributing to current U.S.-European strains. Some see the emergence of an EU "strategic personality" -- a specifically European way ofinterpreting and acting upon perceived threats and foreign policy opportunities that stressesdiplomacy and multilateral solutions -- as diverging from the U.S. strategic position and outlook,which places greater emphasis on the use of force and decisive action. (14) As the EU's "strategicpersonality" continues to strengthen, EU member states are increasingly and reflexively assessingmajor foreign policy decisions from a European perspective, i.e., with an eye toward meetingEuropean strategic goals and establishing a larger role for Europe on the world stage. EU membersconsult with each other on foreign policy concerns to a greater degree than ever before, and oftenbefore consulting with Washington. As a result, Washington does not hold quite the same influenceover the European allies as it once did, and EU member states are quicker to challenge U.S. policieswith which they do not agree. Some analysts also suggest that the EU's progress to date on CFSP, plus the several smallcivilian and military crisis management missions the EU has led in the Balkans, Africa, andelsewhere, have given the organization and its member states a new self-confidence. This is leadingto a more vocal Europe, which is more assertive about its right to an equal decision-making role inthe alliance. Such demands, however, often frustrate U.S. policymakers, who continue to viewEurope's aspirations as outpacing Europe's abilities. As one analyst remarks, "As an unfinishedunion of states, Europe now stands as a power in the world, which gives it a legitimate voice thatAmerica must hear more and more clearly than has been the case to date; but lacking the capabilitiesrequired for military action when necessary, it is not, or not yet, the world power that it claims to be,and the price of consultation is not always worth the benefits it brings." (15) Regardless, the EU is likely here to stay as an actor in the foreign policy, security, anddefense field. Some contend that a larger, more united, and more confident EU may seek to rivalthe United States and could weaken NATO and the transatlantic link. The Bush Administrationreacted coolly to former German Chancellor Schroeder's statements in February 2005 in which heeffectively proposed a stronger role for the EU in transatlantic policy-making. His remarks wereinterpreted by many as suggesting that the evolving EU, rather than NATO, should be the primaryforum for discussions on international security and political issues such as Iran or China. U.S.officials were concerned that a wide-ranging or formal strategic dialogue with the EU couldultimately erode NATO, where the United States has not only a voice but also a vote. Many experts maintain that most EU members do not support developing the EU tocounterbalance the United States and continue to view NATO as their ultimate security guarantee. In addition, EU momentum in the foreign policy and defense fields may be in for a period ofstagnation following the rejection in the spring of 2005 by French and Dutch voters of the EU'sconstitutional treaty. Some observers expect EU attention in the near to medium term to be focusedon internal reforms rather than external challenges. Others argue that a Europe able to "speak with one voice" on foreign and security policy maybe a more credible and reliable partner for the United States in both maintaining European securityand tackling global challenges. During President Bush's February 2005 trip to Brussels, he assertedthat "the United States wants the European project to succeed" and that a strong Europe is in U.S.interests. (16) At the sametime, a more unified and self-assured EU may reduce U.S. leverage on individual member states,thus complicating U.S. efforts to rally support for its initiatives in NATO or at the United Nations. To a large extent, however, the EU's ability to become a stronger security partner for theUnited States will depend on the degree to which the EU succeeds in improving its defensecapabilities and whether the operational and institutional links established between the EU andNATO continue to function smoothly. The EU's assumption of NATO's mission in Bosnia inDecember 2004 is viewed as an important test of Europe's ability to shoulder a greater degree of thesecurity burden. Moreover, the EU's future evolution as a foreign policy actor will also depend ondomestic politics in individual member states and the political parties in power. For example, UKPrime Minister Tony Blair has been instrumental in forging CFSP and the EU's defense arm, but afuture, euro-skeptic Conservative-led UK government may attempt to put some brakes on further EUpolitical integration. Diverging Interests and Values? Commoninterests and shared values have always been the cornerstone of the transatlantic partnership. In lightof the numerous disagreements of recent years, some analysts and policymakers on both sides of theAtlantic increasingly question whether the United States and a more integrated and assertive Europecontinue to share the same interests and values. The answer, however, depends in part on howinterests and values are defined. On the broadest level, most analysts agree that the United States and its European alliesremain committed to the shared values of democracy, individual liberty, and free market economies. On a policy level, however, whether the United States and the allies share common interests andvalues varies depending on the specific issue in question. On many important issues, such ascountering terrrorism and WMD proliferation, promoting Middle East stability, or fostering moreopen global markets, U.S. and European interests are largely the same, even if tactics or policypreferences diverge. The EU's new security strategy was welcomed by many U.S. officials becauseit seemed to signal a transatlantic consensus on security threats, even if views on the best means tocombat them differed. The EU strategy cited terrorism, weapons proliferation, regional conflicts,failed states, and organized crime as key global threats. Nevertheless, U.S. interests and values do seem to differ on a range of other issues, includingapproaches to international legal regimes, environmental standards, social welfare, andgenetically-modified food. The priority that most European countries place on social spending, forexample, is often cited as a primary reason why European defense budgets remain flat. (17) Many Europeans areincreasingly wary of what they view as a widening transatlantic divide over concepts of justice andU.S. tendencies toward retribution rather than rehabilitation. Some struggle to understand thepractice of capital punishment in the United States, which they associate with undemocratic andauthoritarian societies. A current and key distinction between the two sides of the Atlantic relates to the role ofmultilateral institutions and the use of force. Some analysts assert that the different U.S. andEuropean perspectives on these issues only represent different policy preferences, thereby suggestingthat the positions of the two sides of the Atlantic can be managed by skillful diplomats. Otherssuggest, however, that the divide is deeper and goes to each side's core beliefs and values. Theyclaim that Europe increasingly views multilateralism not only as a policy preference but as aninterest and value to pursue in and of itself because it represents the best way to ensure Europeanpeace, security, and prosperity. In contrast, a number of experts assert that the United States harborsa stronger belief in the value of the use of force as a tool for protecting U.S. interests. As a result, some question whether the diverging views of the United States and Europe onthe value of international institutions and the appropriate role of the use of force can be reconciled,and whether the allies can go forward together in tackling global challenges in a cooperative anddetermined way. Henry Kissinger observes, "The most important event in Europe is the progressiveerosion of the nation-state...European diplomats seek to apply their new domestic experience in theinternational arena. They insist that resorting to military force is legitimate only if sanctioned by theU.N. Security Council.... By contrast, America remains a traditional nation-state, insistent onsovereign freedom of action." He goes on to assert that the EU's resistance to the use of forcewithout U.N. authorization deprives the Atlantic alliance of its "special status" and that "Thechallenge of Atlantic policy is whether the nations of the alliance can regain a sense of commondestiny." (18) Human rights, civil liberty, and rule of law issues related to Guantánamo Bay and AbuGhraib have also led some Europeans to charge that the United States has lost its moral authority. European officials and parliamentarians have also expressed concerns about a November 2005 Washington Post report of alleged "secret" CIA prisons for terrorists in some eastern Europeancountries and the possible use of European airports as transit points for U.S. flights transportingabducted terrorist suspects. While some observers argue that such issues do not rise to the level ofthreatening the broader transatlantic security and economic relationship, others are less sanguine. They believe that these issues are feeding the public perception that the United States and Europeno longer share the same values; in the longer term, they worry that this perception will cause leaderson both sides of the Atlantic to question whether the benefits of the alliance outweigh the constraintsit imposes. Many also fear that as such differences proliferate, younger American and Europeanpolicymakers, farther removed from World War II and the Cold War, will not share the sameconviction as previous generations about the need for a close and intertwined political and strategictransatlantic relationship. Others contend that although Europe may be looking increasingly outward, it does not shareU.S. global concerns to the same extent. The EU is primarily focused on its own "neighborhood": the Middle East and North Africa, as well as Russia and the Caucasus. Developments in Asia,however, remain of lesser concern, in large part because Europe, unlike the United States, does nothave the same military commitments there. And the rise of China, the stability of the KoreanPeninsula, and India-Pakistan relations may increasingly preoccupy Washington. (19) Some analysts also maintain that Europe remains largely preoccupied with its own internaltransformation, and even though European officials claim to recognize the increasing threat posedto European societies by Islamist terrorism or WMD, they still do not perceive the threat to be quiteas severe. They believe such notions contributed, for example, to the French and Germanassessments that Saddam Hussein was a threat that could be managed without resort to the use offorce, and extends to some EU members' strategic myopia with respect to Turkey, and their qualmsabout Turkey's EU aspirations. At the same time, a number of pundits question the U.S.commitment to Europe, especially in light of Bush Administration plans to pull up to a third of U.S.troops out of European bases over the next seven to 10 years. U.S. officials point out, however, thatthese cuts would be part of a global military repositioning scheme aimed at increasing U.S. militaryflexibility and rapid response capabilities. The Future of the Transatlantic Partnership: Possible Options for the United States The constellation of reasons outlined above for current U.S.-European frictions and arelationship in flux are also driving the emerging debate on the future of the transatlantic partnership. The question arises, however, what forces might transform this theoretical debate into a true policydebate, and prompt serious and sustained U.S. consideration about reorganizing or reinvigoratingthe transatlantic relationship. Some suggest that it may simply be a natural evolution, followingfrom the structural changes since the end of the Cold War and the events of September 11. Othersposit that much will depend on the perspective and vision of leaders on both sides of the Atlantic,and the degree to which they are supported by their respective legislatures and publics in embarkingon a new course. The extent to which each side perceives the need for a new course will also likelydepend on future events, in particular, if another catastrophic terrorist event occurs. For example,some suggest that a terrorist attack in Europe similar in scale to the 2001 attacks on the United Statesmight prompt a change in European thinking about the use of force and help bridge certaintransatlantic gaps. Other pundits, including many critics of the Bush Administration, say a drivingforce may be the decline in U.S. influence in the world and the growing realization that the UnitedStates cannot manage all aspects of all conflicts alone. For the purpose of analysis, the following five possible options offer different scenarios forthe future transatlantic partnership; they focus primarily on the political and strategic dimensions ofU.S.-European relations. Despite some trade and economic frictions, it would be nearly impossibleand in neither side's interest to actively pursue less robust trade and investment relations. Thus, theoptions below touch upon the economic aspects of the partnership only to the extent that they haveimplications for transatlantic trade and investment. Additionally, the options are meant to beillustrative guideposts in considering the future direction of U.S.-European relations, rather thandefinitive, exhaustive predictions or stark choices. They should be viewed along a spectrum; thefuture transatlantic relationship, in reality, will likely evolve over time and fall somewhere betweenany two given options, or combine different elements from more than one scenario. Although these selected options are presented as choices for the United States, the futureshape of the U.S.-European relationship is not solely a U.S. decision. Much will also depend onoutside circumstances, European assessments about Europe's new strategic reality and the value ofits partnership with the United States, as well as on the EU's evolution and its future ambitions. Option #1: De-emphasize Europe This option essentially represents an end to the political and strategic transatlantic allianceas it exists today, although the vast trade and investment relationship would remain intact. Thosewho support such a political and strategic distancing do not necessarily advocate a return toAmerican isolationism or a strictly unilateralist U.S. path. Rather, they claim that U.S. interestswould be best served by concentrating U.S. efforts on developing new strategic partnerships withemerging powers such as Russia, China, and India that may be more capable and better suited to helpthe United States confront the new global challenges of terrorism, weapons proliferation, and theproblems of the greater Middle East. Unlike during the Cold War, Europe is not the central frontof such struggles, but currently still constrains the U.S. freedom of action at times. Proponents ofthis option assert that it would not preclude the United States from working closely with Europeanpartners, like the British, whom they view as sharing U.S. goals and who are able to make seriousmilitary contributions. NATO may even remain as an organization but would effectively bedowngraded into a forum for discussion rather than decision-making. (20) Pros. One possible benefit for the United Statesof this option is that it would free Washington from transatlantic decision-making constraints. Thisapplies both to the broad political level and on the NATO military level. Some analysts suggest, forexample, that pressure from the European allies to gain U.N. authorization for the use of force in Iraqneedlessly delayed U.S. intervention there in 2003. In addition, many U.S. officials are increasinglyfrustrated with NATO's cumbersome, often time-consuming decision-making procedures that requireconsensus, and are viewed by some as an impediment to quick action. (21) De-emphasizing theEuropean allies as the automatic first partner of choice would also allow the United States morelatitude in crafting responses to global trouble spots, and potential partners such as Russia or Chinamay have fewer qualms about the use of military force. Others suggest that a U.S. de-emphasis ofEurope may force the European allies to take more responsibility for ensuring their own security andprovide the needed impetus for real European defense capability improvements. (22) Cons. Skeptics argue that the European alliesremain the most feasible partners for the United States in tackling global and regional challenges. The benefits derived from the alliance's institutional architecture and the well-honed habits ofpolitical and military cooperation should not be underestimated and cannot necessarily be duplicatedelsewhere, especially with countries that do not share the same U.S. commitment to freedom,democracy, human rights, and the rule of law. (23) U.S. alignment with states that are not highly regarded for theirrespect of human rights may also further erode U.S. credibility in areas of the world, such as theMiddle East, where it must be reclaimed in order to fulfill U.S. strategic goals. In addition, it isunclear to what extent countries like Russia or China would be reliable or even receptive partners. And if such countries were receptive, they would most likely expect some concessions in return,which could conflict with other U.S. interests. India, for example, might demand a less robustU.S.-Pakistani relationship, even though the United States views Pakistan as an important ally incombating Al Qaeda. Furthermore, critics assert that if the United States were to take steps to distance itselfpolitically and strategically from Europe, this could negatively affect the U.S.-European economicrelationship in the longer term. Over time, a more distant political relationship could infect theeconomic partnership with growing distrust, thereby complicating efforts to resolve U.S.-EU tradedisputes, or to sustain U.S.-EU cooperation in multilateral trade negotiations. Similarly, some fearthis option would also lead to an erosion of close U.S.-European cooperation against terrorism,especially in terms of intelligence-sharing. This option would also likely encourage the EU todevelop as a political counterweight to the United States. (24) Option #2: Maintain the Status Quo In this option, the United States would continue to "muddle through" with the European alliesand maintain an uneasy, tension-filled partnership. Both sides of the Atlantic would continue toproclaim rhetorically that the U.S.-European partnership is irreplaceable, and decision-making byconsensus would remain the norm in NATO. However, disagreements and differences would likelypersist. Pros. By maintaining the essential structures ofthe Atlantic alliance, this option hedges against future strategic uncertainties, particularly a resurgentRussia, and leaves open the possibility of the alliance eventually evolving into a more useful tool tocombat global challenges, thereby relieving the U.S. security burden. Supporters of preserving thestatus quo point out that despite the current difficulties, the transatlantic partnership continues tofunction, and produces tangible benefits. For example, NATO has taken over the InternationalSecurity Assistance Force (ISAF) in Afghanistan, and has been working to extend ISAF beyondKabul and Kunduz to promote stability and reconstruction in other parts of the country. U.S.-European law enforcement efforts against terrorism have remained robust, despite the tensionsover Iraq. And NATO-EU cooperation is enabling the EU to take on a bigger role in ensuring peaceand security in the Balkans. Maintaining the status quo would also provide U.S. policymakers timeto pursue any changes step-by-step, as well as time to assess the EU's development and the degreeto which EU member states are able to bridge the gap between their aspirations and capabilities. (25) Cons. Some analysts assert, however, that blindlypreserving the status quo will inevitably waste policymakers' time and energy as they seek to managethe constant bickering among the allies. On the U.S. side, this may detract from U.S. efforts to tackleother, more immediate challenges that threaten U.S. interests. New disputes could arise at any timethat could further destabilize and erode the relationship. And the effort needed to maintain the statusquo may still constrain U.S. policies as leaders try to accommodate the need within the alliance for consensus, or attempt to avoid U.S.-EU policy confrontations. (26) Option #3: Coalitions of the Willing The "coalitions of the willing" concept for the transatlantic alliance has been debated sinceat least the mid-1990s. The Balkans problem prompted a debate about the use of NATO for so-called"out of area" or "non-Article 5" operations that were not of a collective defense nature. Severalobservers at the time suggested that decision-making unanimity should not be required for suchmissions because of the absence of an overwhelming threat in which the demonstration of alliancesolidarity was crucial. Since then, some argue that even though the alliance has remained weddedto consensus decision-making, this does not obligate every member state to contribute militarily toa given NATO operation, and therefore, "coalitions of the willing" exist in practice. The Bush Administration has contended that NATO military actions should mostly beconducted by "coalitions of the willing," which would enable the United States to pursue action withthose allies that agree upon the threat and have the means to counter it. Formalizing this optionwithin the alliance may entail changing alliance decision-making procedures and moving away fromthe consensus decision-making principle. (27) More broadly for the transatlantic relationship, a "coalitions ofthe willing" approach would essentially mean that the United States and its European partners wouldcooperate where possible and agree to disagree on contentious issues. Pros. Proponents believe this concept would helpminimize transatlantic quarrels and free the United States from European constraints on issues uponwhich agreement proves elusive. Bitterness would be defused by acknowledging that differenceson certain international problems were irreconciable. Cooperation would proceed on thosechallenges in which the United States and the Europeans could agree on the threats posed and thebest ways to address them. On the NATO decision-making level, this option would allow the UnitedStates to avail itself of European assistance from those allies willing and able to provide it, therebyhelping relieve some U.S. security burdens, although not all. Supporters view it as a more realisticand effective option, especially given the U.S.-European military capabilities gap and the lack ofsignificant numbers of rapidly deployable European forces. They claim it might also give individualEuropean partners more freedom of action to join with the United States, and as a result, it mayweaken the development of an "EU caucus" -- pre-negotiated, common EU positions -- withinNATO. (28) Cons. Skeptics assert that this option on thebroader transatlantic partnership level would not produce a coordinated strategy with which tomanage the full spectrum of global challenges, and could result in allies working at cross-purposesor feed U.S.-EU rivalry. Furthermore, they claim that this option may be interpreted by Europeanallies as a U.S. attempt to keep Europe weak and divided because the United States would invariablytry to sway certain EU member states to its point of view. Some observers assert that this is exactlywhat happened with the Iraq issue, which split EU member states between those that supportedWashington's approach and those that opposed it, and was one reason why the transatlantic disputeover Iraq was so divisive. In this view, pursuing "coalitions of the willing" could increase rather thandecrease transatlantic tensions. (29) On the NATO level, U.S. critics and many Europeans believe that this option wouldessentially signal the end of the alliance's consensus decision-making approach. This, in turn, wouldundermine alliance solidarity by weakening the long-held principle that all members have an equalstake in alliance security, and that the sum of the alliance is greater than its parts. In this view,alliance consensus connotes a certain international "legitimization" of a policy, especially if itinvolves the use of military force. Over the longer term, they worry it could weaken the transatlanticlink and decouple North American and European security. In addition, the "coalitions of the willing"approach may not give the European allies sufficient incentives to significantly improve their defensecapabilities because they would be reluctant to be viewed as a "toolbox" that the United States usesas it pleases. Option #4: A Division of Labor Like the "coalitions of the willing" concept, this option has been the subject of considerabledebate on both sides of the Atlantic for some time. This option focuses mostly on themilitary/security dimensions of the transatlantic relationship. Several variations exist, although mostput the NATO-EU relationship at the core of any transatlantic division of labor. Some analysts haveproposed a division based largely on geography: the European allies and/or the EU would essentiallybear the primary burden for maintaining security within Europe and on its periphery, including inthe Balkans, and perhaps for managing small crises in the Maghreb or in Africa; meanwhile, theUnited States would assume responsibility for handling international crises elsewhere in the world,especially in the Persian Gulf and in Asia. In such a geographic division, Europe would most likelydesire, and the United States would most likely insist on, joint responsibility within the NATOcontext for managing crises involving Russia and the Caucasus. The difficulties in drawing such stark geographic dividing lines, however, have led many tofavor instead a functional division. The European allies and/or the EU would concentrate on "lowerend" humanitarian assistance, crisis management, and civilian reconstruction tasks, while the UnitedStates and perhaps more capable allies such as the UK and France would undertake "higher end"combat activities and peace enforcement operations. Additional permutations of the division oflabor approach that combine different geographic and functional elements may also be found in thesecurity literature. For example, one analyst has proposed a construction in which the Europeansprepare to undertake stability operations on their own primarily in or near Europe, but would alsodevelop the capacity to participate in higher-intensity conflicts anywhere in the world with theUnited States. (30) Pros. Supporters argue that a functional divisionof labor already exists in practice. To a large extent, U.S. forces have been assuming the bulk ofhigher-end, war-fighting tasks. EU military missions to date have focused on lower-end stability andhumanitarian operations. Moreover, the EU is much better equipped, given its full range of politicaland economic tools, to undertake peacekeeping and reconstruction tasks than is the U.S. military. By acknowledging that the United States and Europe have different strengths, this option wouldmake better use of these comparative advantages in a more coordinated strategy. Proponents claimthat this is the most feasible option because it would increase European burden-sharing whilelowering unreal U.S. expectations for significant European military capability improvements,especially given the dim prospects for any substantial near-term increases in European defensebudgets and the already wide U.S.-European capability gap. Reducing U.S. expectations of EUcapabilities, particularly for high-intensity conflicts, might also remove a continuous source ofU.S.-European friction. Moreover, this option would preserve the transatlantic partnership. NATOwould likely remain intact, serving as a continued symbol of alliance solidarity and also as an"insurance policy" for Europe; NATO could also be used to manage the division of labor betweenthe European allies and/or the EU and the United States. Cons. Rather than increasing burden-sharingbetween the two sides of the Atlantic, critics argue that a functional division of labor wouldinstitutionalize inequality because American forces would be left with the much more dangerous anddifficult military tasks. They worry it would ultimately undermine alliance solidarity as U.S. soldierswere repeatedly put in harm's way, while European forces handled the relatively easier and lessconflict-intense tasks associated with peace stabilization and reconstruction. Furthermore, thisoption would likely do little to encourage the allies to enhance their defense capabilities. If ageographic division of labor were pursued, in which Europe had primary responsibility formaintaining its own security, opponents say this would only serve to reinforce European inwardnessand encourage an abdication of European responsibility for global security. Finally, critics assert thata U.S.-European military division of labor, be it geographical or functional, does not provide acoordinated strategy to manage global problems. In their view, it would do little to bridge thepolitical and policy gaps between the two sides of the Atlantic on a range of issues, such as theMiddle East peace process or Iran, nor would it adequately address U.S.-European differences overthe use of force. Option #5: A New Bargain As with the previous two options, devising a new strategic bargain for the transatlanticrelationship has been proposed by committed Atlanticists for many years. Initially, such proposalswere made as ways to keep the alliance, and especially NATO, "in business" in light of the demiseof the Soviet threat. With the reemergence of serious U.S.-European frictions, many variations ofthis option have been offered recently to help put the relationship on a better footing. Most of theseproposals place the NATO-EU relationship at the core of a renegotiated partnership, and advocatea more equal sharing of responsibilities both within and outside of Europe. Other common elementsoften include a U.S. commitment to a strong and coherent Europe and a European commitment tobuilding the EU as a partner rather than a rival to the United States; a U.S. pledge to give theEuropean allies a larger decision-making role, in exchange for a European pledge to do more to helpensure peace and security beyond Europe's borders; and an increased European understanding thatmultilateral solutions often require the credible threat of force, in exchange for U.S. recognition ofthe benefits that multilateralism may bring in terms of helping to "legitimize" U.S. policiesinternationally. Politically, for a new bargain to work, advocates believe that new U.S.-European deals, orat least some sort of accommodation, would have to be struck on a host of contentious issues,including, for example: Iraq; the Israeli-Palestinian conflict; efforts to curb radical Islam andtransform the broader Middle East; Iran; and the status of a number of international treaties such asthe U.N. Kyoto Protocol and the International Criminal Court. Militarily, in order to promote a fullersharing of tasks and responsibilities, many believe that a new bargain must also include enhancedEuropean defense capabilities, especially for higher-end tasks, and greater U.S. recognition that crisismanagement and post-conflict reconstruction skills are equally important. One analyst sums up hisview of a new transatlantic security deal as one "in which Americans learn to peacekeep andEuropeans re-equip to fight." (31) An extremely ambitious "new bargain" could also seek to set upnew institutional arrangements for the transatlantic commercial relationship. Some U.S. andEuropean officials might support creating a Transatlantic Free Trade Agreement to both contain tradedisputes and bolster U.S.-European political cooperation. Pros. Supporters assert that this option wouldhelp ensure a stronger and deeper transatlantic partnership that would better serve U.S. globalpolitical and security interests, and protect ongoing close U.S.-European economic relations. Establishing the parameters of such a new bargain would likely entail a comprehensiveU.S.-European strategic dialogue, which would help guarantee greater complementarity, if notcommonality, of policies and decrease transatlantic frictions. Proponents believe this option wouldpromote more equitable burden-sharing, encourage the European allies to build more robust militarycapabilities, and discourage the development of U.S.-EU rivalry. They claim that the European allieswould not be required to match U.S. military capabilities exactly -- which is viewed as anincreasingly impossible task -- but the allies need to be able to do more, both on their own and withU.S. forces. Cons. Critics are skeptical about the realisticprospects for reaching a U.S.-European political agreement on such a new bargain, and about thedegree to which it could be implemented in practice. This option would likely require the UnitedStates to relinquish some decision-making authority within the alliance; furthermore, it would alsoprobably require certain U.S. compromises on issues of particular importance to Europe, such asclimate change or international law, and a U.S. re-commitment to the pursuit of multilateral solutionsand international institutions. Some analysts doubt, however, that the United States would berewarded for such concessions that could constrain U.S. policies and slow decision-making giventhat, in their view, Europe will remain unable to squeeze more money for defense out ofalready-strapped European budgets. They also note that the EU may be skeptical that the UnitedStates would keep up its side of the bargain, and could view it as a U.S. scheme to keep EUambitions on a tight leash. Others note that the chances of reaching an accommodation with"Europe" on issues such as Iraq would be complicated because differences still exist within the EUand among European allies. Assessment of Possible Options As noted earlier, the options discussed are illustrative guideposts meant to facilitateconsideration of the future shape of the transatlantic relationship. Each potential option containsboth pitfalls and promises for the United States. However, the bulk of the analysis suggests thatmaintaining the U.S.-European political and strategic relationship in some form would continue tooffer the United States certain tangible benefits and serve to buttress at least some U.S. foreign andeconomic policies. All of the options, with the possible exception of maintaining the status quo,would require serious and sustained U.S.-European dialogue and consultation; this would also betrue for "de-emphasizing Europe" in order to insulate the trade and investment relationship frombeing negatively affected by any political distancing. The reality of the future shape of the transatlantic relationship may be most likely to surfacesomewhere between any of the two given options and combine different elements. For example, themultitude of security challenges facing both the United States and Europe argue that neither side cando all, and that there is bound to be some sort of division of labor, especially given currentdifferences in U.S. and European military strengths. At the same time, politics and ambitions onboth sides of the Atlantic impede a stark division of labor because neither the United States norEurope would want to relinquish segments of its security interests to the other. (32) Thus, these factors couldprompt a new bargain to be reached at the political level -- entailing perhaps a statement ofU.S.-European solidarity in confronting global and regional challenges, and an elaboration of jointpolicies to address issues such as Iran or the Middle East peace process -- while a division of laboris practiced and managed on a case-by-case basis as the need for a specific mission arises. It is alsopossible that any given option may evolve over time, or that different options may be possible orsuitable depending on the specific issue facing the alliance. Issues for Congress U.S.-European security and economic relations represent areas of long-standingcongressional interest. Many Members of Congress share the overarching goal of successiveAdministrations of a "Europe whole and free." Traditional congressional concerns have focusedmostly on the degree to which the European allies are willing and able to share the security burdenwith the United States. Members of Congress have strongly supported the two most recent roundsof NATO enlargement in 1998 and 2003 as a means to promote European stability and bolsterdemocracy in Central and Eastern Europe; they also welcomed the EU's enlargement on May 1,2004. Congress has been actively engaged in the evolving NATO-EU relationship, and hassupported EU ambitions to build a defense arm as a way to improve European defense capabilities,provided that the EU project remains tied to NATO. Members of Congress have also encouragedEU efforts to enhance its counterterrorism capabilities and to improve cooperation in the police andjudicial fields with the United States since September 11. Issues in the U.S.-EU trade andinvestment relationship -- such as aircraft subsidies, genetically-modified food products, the EU'sCommon Agricultural Policy (CAP), e-commerce and data privacy, and harmonizing regulatory andcompetition policies -- also frequently occupy the attention of U.S. lawmakers. In the aftermath of the transatlantic crisis over Iraq, some Members have also taken aninterest in the broader shape of the future transatlantic relationship. Hearings on this issue were heldin 2003, 2004, and most recently in February 2005. (33) On November 5, 2003, the House passed H.Res. 390 (introduced by Representative Doug Bereuter, October 2, 2003) recognizing the continuedimportance of the transatlantic relationship and reaffirming the need for a continued and meaningfuldialogue between the United States and Europe; on May 11, 2004, the House passed H.Res. 577 (introduced by Representative Doug Bereuter, March 25, 2004) celebratingthe 50th anniversary of U.S.-EU relations and encouraging enhanced U.S.-EU strategic discussionsand international cooperation. In considering any significant reorganization of the transatlantic relationship, ensuringcontinued and close U.S.-European economic relations and counterterrorism cooperation wouldlikely be two areas of concern for Congress. Members would also likely want assurances that anyefforts to enhance the transatlantic partnership, especially those that may entail U.S. politicalcompromises, would result in more robust European military capabilities and a strengthenedEuropean commitment to work with the United States to tackle global challenges. Many Members,in any "new bargain" approach, may desire a European recognition that a transatlantic "consensus"provides sufficient "legitimization" and a U.N. mandate should not be a prerequisite for action;Congress would probably resist any efforts to make U.S. soldiers subject to the InternationalCriminal Court's proceedings. Members of Congress could play a role in shaping the transatlantic debate over the future ofU.S.-European relations through discussions with European counterparts in the existing NATOParliamentary Assembly, the OSCE Parliamentary Assembly, and the U.S. Congress-EuropeanParliament Transatlantic Legislator's Dialogue (TLD). On February 9, 2005, Representative Jo AnnDavis introduced H.Res. 77 recognizing the 10th anniversary of the New TransatlanticAgenda, acknowledging the continued importance or the transatlantic partnership, and promotingnew initiatives to strengthen the partnership, including by enhancing the dialogue between the U.S.Congress and the European Parliament through the TLD. In May 2005, Members of Congressestablished a Congressional Caucus on the EU to promote a better understanding of the EU andincrease dialogue and other exchanges with a wide range of EU officials. On June 20, 2005, SenatorRobert Bennett introduced S.Res. 178 on the occasion of the U.S.-EU summithighlighting the importance of U.S.-EU cooperation and calling for expanded political and securitydialogue between the Congress, the European Parliament, and the EU more broadly; S.Res.178 passed the Senate on the same day by unanimous consent. In addition, several congressional caucuses focus on bilateral U.S.-European relations anddifferent aspects of the broader transatlantic relationship; examples include the Congressional FrenchCaucus, the Congressional Caucus on Central and Eastern Europe, and the Congressional Caucuson Turkey and Turkish Americans. Members of the U.S. Senate and House of Representatives arealso active on the Commission on Security and Cooperation in Europe that monitors and encouragescompliance with OSCE political and human rights commitments. Such forums may provide usefulopportunities for enhancing transatlantic dialogue on where the U.S.-European relationship stands,in what ways U.S.-European interests coincide or diverge, and what direction should be pursued inthe future in order to continue to promote security and prosperity on both sides of the Atlantic. Appendix A: Membership in NATO and the EuropeanUnion Appendix B: Spectrum of Possible Options for U.S. Policy Toward Europe

The United States and Europe share a long and intertwined history, replete with many upsand downs. The modern transatlantic relationship was forged in the aftermath of World War II todeter the Soviet threat and to promote security and stability in Europe. NATO and the EuropeanUnion (EU), the latest stage in a process of European integration begun in the 1950s, are the two keypillars upon which the U.S.-European partnership still rests. The U.S. Congress and successive U.S.administrations have supported both organizations as means to nourish democracy, foster reliablemilitary allies, and create strong trading partners. Despite the changed European security environment since the end of the Cold War andcurrent transatlantic frictions, many observers stress that the security and prosperity of the UnitedStates and Europe remain inextricably linked. Both sides of the Atlantic continue to face a commonset of challenges -- from countering terrorism and weapons proliferation to ensuring the stability ofthe global financial markets -- and have few other comparable partners. The United States and theEU also share the largest trade and investment relationship in the world; annual two-way flows ofgoods, services, and foreign direct investment exceed $1.1 trillion, while the total stock of two-waydirect investment is over $1.6 trillion. Nevertheless, the transatlantic partnership has been fundamentally challenged in recent yearsas numerous trade and foreign policy conflicts have emerged. The crisis over Iraq is most notable,but the list of disagreements is wide and varied. It includes the Israeli-Palestinian conflict, the EUarms embargo on China, the role of multilateral institutions and the use of force, the U.S. treatmentof prisoners in Iraq and at Guantánamo Bay, aircraft subsidies, and trade in genetically-modifiedfood. These disputes have been driven partly by leadership frictions and European perceptions ofU.S. unilateralism, and partly by structural issues -- different policy preferences for managing threats,the U.S.-European defense capabilities gap, and the EU's political evolution -- set in motion by theend of the Cold War and September 11. These factors are also prompting some Americans andEuropeans to question whether the two sides of the Atlantic still share the same values and interests,and whether enough commonality remains to make the partnership work. This report assesses the present state of the U.S.-European relationship and the reasons forcurrent frictions. To stimulate debate and for the purposes of analysis, it also offers a spectrum ofpossible options for U.S. policymakers in considering the future shape of the political and strategicdimensions of the transatlantic partnership. These selected options should be viewed as illustrativeguideposts, however, rather than definitive, exhaustive predictions or stark choices. This report willbe updated as needed. For additional information, see CRS Report RL32342 , NATO and theEuropean Union , by [author name scrubbed] and [author name scrubbed]; CRS Report RS21372 , The European Union:Questions and Answers , by [author name scrubbed]; CRS Report RS21864 , The NATO Summit at Istanbul,2004 , by [author name scrubbed]; and CRS Issue Brief IB10087, U.S.-European Union Trade Relations: Issuesand Policy Challenges , by Raymond Ahearn.

Background General and Special Contracting Authorities Federal agencies rely on both their general contracting authorities and the special authorities of the Small Business Act when contracting with small businesses. The general contracting authorities—the Armed Services Procurement Act (ASPA) of 1947 and the Federal Property and Administrative Services Act (FPASA) of 1949—grant defense and civilian agencies, respectively, broad authority to contract with any responsible firm, including small businesses. However, ASPA and FPASA do not authorize agencies to set aside contracts for small businesses, or conduct procurements in which only small businesses, or specific types of small businesses, may compete. Only the Small Business Act does this, authorizing agencies to set aside part or all of certain procurements for 1. small businesses; 2. women-owned small businesses; 3. service-disabled veteran-owned small businesses (SDVOSBs); 4. small businesses located in Historically Underutilized Business Zones (HUBZones) (HUBZone small businesses); and 5. small businesses owned and controlled by socially and economically disadvantaged individuals participating in the Small Business Administration's (SBA's) Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) Program) (8(a) firms). Although ASPA and FPASA do not authorize set-asides for small businesses, agencies may still "favor" small businesses in certain procurements conducted under their authority by using small-business status as an evaluation factor in negotiated procurements. A negotiated procurement is one in which the government awards the contract to the contractor whose offer represents the "best value" for the government in light of various factors established by the government and incorporated into the solicitation for the contract. Cost or price must be among these factors, but it need not be the primary factor or carry any specific weight in the overall award. Other factors may include contractors' past performance, compliance with the solicitation requirements, technical excellence, management capability, personnel qualifications, prior experience, and small-business status. Commentators sometimes call contracts that are awarded using firms' size as an evaluation factor "preference contracts" because they allow agencies to prefer various types of small businesses without setting aside a procurement for them. Not all contracts awarded to small businesses under ASPA and FPASA are preference contracts, however. Some contracts are awarded to small businesses using sealed bidding, with awards made solely on the basis of price and without consideration of firms' size. In other cases, agencies use negotiated procurements without evaluation factors focusing on firms' size. Goals for Contracting and Subcontracting with Small Businesses Contracts awarded under any authority—ASPA, FPASA, or the Small Business Act—count toward the government-wide and agency-specific goals for contracting with small businesses. The Business Opportunity Development Reform Act (BODRA) of 1988 requires the President to set government-wide goals for the percentage of federal contract and/or subcontract dollars awarded to various categories of small businesses. These goals must be equal to or exceed certain percentages specified in statute, as illustrated in Table 1 . A 1978 amendment to the Small Business Act similarly requires that agency heads, in consultation with the SBA, set agency-specific goals for the percentage of contract dollars awarded to the same categories of small businesses. These goals are to "realistically reflect the potential" of small businesses to perform federal prime contracts and subcontracts and thus vary among agencies. Commentators frequently note the government's failure to meet either government-wide or agency-specific goals, and some Members of Congress have suggested that the current government-wide goals are too low. Limitations on Subcontracting Limitations on subcontracting have applied to contracts set aside for small businesses under the authority of the Small Business Act since 1986. These limitations result from statutory and regulatory provisions prohibiting agencies from awarding prime contracts to small businesses unless the small business performs a certain percentage of the contract work itself, instead of subcontracting it. The percentage that must be performed by the small business varies depending on the nature of the contract, as Table 2 illustrates. Prior to GAO's decision, no judicial or administrative tribunal appears to have addressed whether these limitations apply to preference contracts as well as set-asides. Certain contracts set-aside for "local firms," of any size, in disaster or emergency areas under the authority of the Stafford Act are also subject to limitations on subcontracting. These limitations require that similar percentages of work be performed by the "local firm," as opposed to subcontracted, on the types of contracts listed in Table 2 . However, these limitations are arguably unaffected by the GAO decision discussed here because they are not related to firm size. GAO's Decision in Washington-Harris Group In its November 16, 2009, decision, GAO denied Washington-Harris Group's protest alleging that the Army National Guard Bureau improperly awarded a contract for case management and administrative services to Skyline Ultd Inc. The procurement had not been set aside for SDVOSBs. However, the solicitation had included an evaluation factor focusing on firms' SDVOSB status, as well as a statement that the source selection authority would "favorably view an offeror's Small Business status." Under the solicitation, firms' SDVOSB status and understanding of the requirements carried equal weight, and each was more important than any other evaluation factor. Price was the least important factor. For purposes of the solicitation, offers were considered to come from SDVOSBs if either (1) the prime contractor was an SDVOSB or (2) the offeror was a joint venture involving an SDVOSB firm that would perform more than 50% of the work. There was no dispute that Skyline proposed to perform less than 50% of the contract requirements. Washington-Harris Group argued that the solicitation and the Federal Acquisition Regulation (FAR) required SDVOSB contractors to perform at least 50% of the contract requirements in order to be evaluated favorably as an SDVOSB. Washington-Harris Group's reference to the FAR appears to have been to Part 19.14, which requires, among other things, that a clause containing the limitations on subcontracting discussed in Table 2 (Clause 52.219-27) be incorporated in all solicitations. GAO rejected Washington-Harris Group's arguments regarding the solicitation because the solicitation distinguished between SDVOSB prime contractors and SDVOSB joint venturers and required only the latter to perform more than 50% of the work. It also rejected the argument that the FAR clause containing the limitations on subcontracting applied to this procurement. GAO reached this conclusion because the FAR states that Clause 52.219-27 is required only when "[o]ffers are solicited only from service-disabled veteran-owned small business concerns [and] [o]ffers received from concerns that are not service-disabled veteran-owned small business concerns shall not be considered." Given this language, GAO concluded that the clause did not apply to this procurement because the procurement was not set aside for SDVOSBs. Because Clause 52.219-27 did not apply to the procurement, it found that the agency did not improperly evaluate Skyline favorably as an SDVOSB when awarding the contract even though Skyline proposed to subcontract over 50% of the work on the contract. GAO did not directly address the differences between the general contracting authorities and the Small Business Act in its decision. It also did not address contracting with small businesses that are not SDVOSBs. However, because contracts awarded under the general contracting authorities cannot be set aside for SDVOSBs while those awarded under the authority of the Small Business Act can be, and because the same limitations on subcontracting apply to other types of small businesses as apply to SDVOSBs, GAO's decision can arguably be construed to mean that limitations on subcontracting do not apply to any non-disaster and non-emergency "preference contract" awarded to any type of small business under the general contracting authorities. Effects of GAO's Decision Some commentators have suggested that GAO's decision could result in agencies using more preference contracts and fewer set-asides . Such a shift from set-asides to preference contracts would not necessarily result in the government paying higher prices. While greater subcontracting generally tends to increase costs because each tier of subcontractors imposes additional overhead costs, recent legislation may help ensure that the government is aware of and does not compensate certain costs. For example, Section 866 of the Duncan Hunter National Defense Authorization Act for FY2009 imposed "limitations on tiering of subcontractors" by requiring that the FAR be amended to "minimize the excessive use … of subcontractors, or of tiers of subcontractors, that add no or negligible value" by non-defense agencies. The amendments to the FAR required by Section 866 took effect on October 14, 2009, and require contractors to "provide information on indirect costs and profit/fee and value added with regard to the subcontract work" when over 70% of the total cost of the work to be performed under the contract will be subcontracted. The amendments also bar contractors from receiving indirect costs or profits/fees on work performed by subcontractors when the contractor "add[ed] no, or negligible value." Similar requirements already applied to defense agencies under Section 852 of the John Warner National Defense Authorization Act for FY2007, and in a memorandum dated December 23, 2009, the Director of Defense Procurement and Acquisition Policy announced that the Department of Defense would delete its agency-specific regulations implementing Section 852 and comply with the government-wide regulations implementing Section 866. Ignoring costs, any shift that might occur could potentially have both benefits and drawbacks. On the one hand, increased use of preference contracts could result in increased contracting with small businesses because agencies could award contracts to firms that would have lacked the capacity to perform the required percentage of the work on a set-aside contract. Increased contracting, in turn, could result in the government, as a whole, and individual agencies performing better on their goals for contracting with small businesses. On the other hand, increased use of preference contracts could limit small businesses' development because they would no longer be effectively required by the limitations on subcontracting to develop the in-house resources to perform certain set-aside contracts. This may be a particular concern with 8(a) firms because the 8(a) Program is, in part, intended to help small businesses owned and controlled by socially and economically disadvantaged individuals develop. Agencies could also potentially use preference contracts to steer work to preferred subcontractors, who are not competitively selected.

This report discusses Washington-Harris Group, a protest filed with the Government Accountability Office (GAO) alleging, among other things, that an agency improperly awarded a "preference contract" to a service-disabled veteran-owned small business that proposed to subcontract a greater percentage of work on the contract than allowed under the Small Business Administration's limitations on subcontracting. GAO denied the protest, in part, because it found that limitations on subcontracting apply only to contracts "set aside" for small business, not to preference contracts. A preference contract is one awarded in an unrestricted competition in which firms' small-business status is an evaluation factor, while a set-aside is a procurement in which only small businesses may compete. Limitations on subcontracting are statutory and regulatory provisions that require small businesses to perform certain percentages of the work on federal prime contracts themselves, rather than subcontract it to other firms. GAO's decision appears to be a case of first impression and can arguably be construed to mean that existing limitations on subcontracting are inapplicable to non-disaster and non-emergency contracts awarded to any type of small business under the general contracting authorities. Commentators have suggested that the decision may result in increased use of preference contracts by federal agencies. The federal government awarded $96.8 billion in prime contracts and subcontracts to small businesses in FY2009 through set-asides and other contracting vehicles.

Introduction The Samoan archipelago, a series of sparsely populated islands in the south Pacific, is located about 2,300 miles southwest of Hawaii. The area is divided into two parts: Western Samoa, formerly British and now independent; and American Samoa, a cluster of about half a dozen islands governed from Pago Pago on the island of Tutuila. The population of the American group, although rising rapidly, is estimated to be about 60,000. Contacts between the Samoan islands and the United States developed late in the 19 th century, but they were infrequent. A coaling station was opened at Pago Pago, but only in the wake of the Spanish-American War (1898) did the American presence become permanent. In 1900, President William McKinley "directed the Navy to assume responsibility for Eastern (thereafter, American) Samoa." His directive remained in effect until 1951, when the naval station was closed and jurisdiction was transferred to the U.S. Department of the Interior. During the middle 1950s, an insular constitutional government was developed; in 1960, a constitution was formally approved. The islands are mountainous, the climate tropical. There is little land suitable for commercial agriculture. Fruits and vegetables, along with various root crops, are grown locally and consumed largely by the families of the growers. More diverse products are imported. The harbor at Pago Pago provided, during earlier periods, a naval base, but now it appears to be especially notable as a tuna port. Although some tourism has developed over the years, the relative isolation of American Samoa has rendered the islands a somewhat exotic destination. Fish processing is Samoa's single primary private-sector industry. Under the Fair Labor Standards Act (FLSA), the insular minimum wage has been fixed by the Secretary of Labor through a Special Industry Committee (SIC). In early 2007, the rate for the tuna canneries was $3.26 per hour; the federal rate, $5.15 per hour. Then, in late May, Congress adopted a new minimum wage standard: to escalate to $7.25 per hour over several years. At the same time, the SIC system was abolished and the insular rate was raised, though in more extended steps, until it might coincide with the federal rate. The FLSA and Insular Coverage In 1938, Congress enacted the Fair Labor Standards Act (FLSA)—a measure designed to provide minimum wages and overtime pay, to limit child labor, and to restrict industrial homework. Although the act would seem to have applied to the states and the territories (to Puerto Rico, the Virgin Islands, etc.), little thought appears to have been given to how that act might be applied to jurisdictions that were, in significant ways, economically different from the U.S. mainland. Shortly after its passage, the act was modified. In response to industry complaints, Puerto Rico and the Virgin Islands were exempted from the full force of the act (1940), being placed under a special industry committee (SIC) structure. Thus, Puerto Rico and the Virgin Islands were set aside for special treatment under the FLSA—a process that would continue, in part, for the next 50 years. Under Section 8 of the original enactment, the Department of Labor (DOL) was required, "from time to time," to convene an industry committee for each industry covered under the act and, through the committee, to "recommend" a rate (or rates) of wages that might be higher than those established by the act. Section 8(b) states: The industry committee shall investigate conditions in the industry and the committee ... may hear such witnesses and receive such evidence as may be necessary or appropriate.... The committee shall recommend to the Administrator the highest minimum wage rates for the industry which it determines, having due regard to economic and competitive conditions, will not substantially curtail employment in the industry . (Emphasis added.) Rates the committee could recommend were not to exceed the statutory standard (40 cents per hour). The Administrator was admonished to "consider among other relevant factors ... competitive conditions as affected by transportation, living, and production costs...." Discretion rested with the Administrator. Application to American Samoa Following World War II, an unrelated circumstance brought American Samoa to governmental attention. The issue was a 1948 decision of the U.S. Supreme Court: Vermilya-Brown Co. v. Connell [335 U.S. 377 (1948)]. It involved application of the FLSA to employees of American contractors building a military facility for the United States in Bermuda (part of Great Britain). In its decision, inter alia , the Court identified a "possession" covered under the act as including "Puerto Rico, Guam, the guano islands, Samoa and the Virgin Islands." Even in dissent, Justice Jackson stated that a U.S. facility in Bermuda was of a character different from that of "our possessions" as specified by the Court's majority—and, thus, covered by the act. In 1953, development of a tuna canning operation commenced in American Samoa, an industry which quickly became the island's primary private-sector employer. With the Supreme Court decision in Vermilya-Brown , Samoan industry became gradually—and increasingly—aware of the likely enforcement of minimum wage and other FLSA standards. The 1955 FLSA Amendments In 1955, William D. Moore, Jr., Foreign Production Manager of the Van Camp Sea Food Co., wrote to Representative Graham Barden (D-NC), chair of the House Committee on Labor and Education, urging that "Samoa should be exempt" from the FLSA. He emphasized that few industries were located in the islands. "This company, at the behest of the Department of Interior, has gone to Pago Pago for the purpose of endeavoring to establish a fishery and a fish processing and canning plant. It is on a trial basis," he suggested. "In the first 12 months of our experiment, it has been found that the American Samoans are adaptable to catching, cleaning, and processing fish and seafood, but it takes 3 to 5 people to do and perform what one American laborer or worker in the States can do." If federal wage/hour standards continue to apply in Samoa, "... there will be no incentive for American concerns to move in and build up the island." Further, Orme Lewis, Assistant Secretary of the Interior (DOI) wrote suggesting "the need for special consideration" for American Samoa. He explained to chairman Barden that Samoans "have clung to their ancient ways of life and their traditional forms of economic and social organization." Thus, "...any justification for protective labor legislation in American Samoa should be cast in entirely different terms." Lewis urged that the Secretary of Labor be allowed to "establish minimum wages for workers in American Samoa" as he may find that "economic conditions warrant." C. S. Thomas, Secretary of the Navy, wrote to House Speaker Sam Rayburn to urge amendment of the FLSA to include a new provision for off-shore jurisdictions. Thomas reviewed the Vermilya-Brown decision and the likely impact if "...wage payments on the part of contractors performing work for the Department of Defense [were] to be made at higher wage scales than those generally prevailing in the area." These wages, Thomas stated, "would obviously distort the local economy and, in some instances, objections have been received from foreign governments." Thomas advised the Speaker: "In addition, such payment would result in higher costs to the United States." But, Representative Barden decided not to act "at this time." The 1956 FLSA Amendments in the House It was with Vermilya-Brown in mind that representatives of Van Camp Sea Foods appeared before the Senate Committee on Labor and Public Welfare, May 1956, seeking FLSA amendment. The Industry's Perspective William Moore spoke for the company. In 1952, DOI had circulated an invitation to bid on an unused facility at Pago Pago. Moore went out to the islands and presented a "discouraging" report, noting that the supply of fish was not apparent and that the local refrigeration plant (government owned) was "in rather poor repair." Further, Moore stated: "We were aware, or soon learned during our survey, that the wage-and-hour laws applied to American Samoa and it was very unlikely, although we had not gotten into any operation at that time, whether or not our company could pay the minimum wages as required in the United States." Nonetheless, Van Camp bid on the operation and was awarded "a 5-year lease with the provision that the first year would be an experimental period." Under the lease signed with the government of American Samoa, the firm agreed "... to provide for improvement of the economy of American Samoa by developing the skills relating to fishing and fish processing among the Samoans, by providing local income through wages, and by insuring a local supply of raw, frozen, and processed fish." Moore explained that, though the company was operating at a loss, the loss was gradually diminishing and that the company was "...the only industry that has come into the island from the outside." In 1956, the company had about 300 employees—reportedly a mixture of British and American Samoan. Their productivity, it was explained, was somewhat less than cannery workers on the mainland. "Climatic conditions are not particularly conducive to energy and activities." The temperature runs about 70 to 90 degrees throughout the year—but there is high humidity: upward of 80%. In terms of turnover, Moore stated, "... I am quite sure that the changeover in personnel there is less than it is stateside." He added: "Most of our employees are women." Moore then turned to the wage/hour law, stating that the cannery paid "from 27 cents an hour to $1 an hour, which is only paid 1 employee." Representative James Roosevelt (D-CA) then suggested: "You come before this committee to establish the fact that you are having difficulty making any profit, and that this [payment of not less than the minimum wage] would seriously impair your profit picture or your chances of making a profit...." The witness, Roosevelt stated, comes as something of "a special pleader" for his company. "Therefore, it seems to me incumbent that you show us what effect it would have, in some relation to your cost of operation, or what it would do to you if you had to pay, let us say, 75 cents an hour, or $1 an hour, or whatever the wage law would require." Roosevelt then turned to another issue: What would happen to regular U.S. workers in canning factories on the West Coast were the wage/hour statute modified for American Samoa? Moore responded that, from January 1954 through January 1956, "the total production was 3 ½ percent of the total production of Van Camp's stateside plants for the same period." Roosevelt was not entirely satisfied. Mr. ROOSEVELT. (...) What I am trying to get at is that I want to make awfully sure that I understand from you that this is not going to be a substantial part of your operation, the plans of your company and you and everybody else are such that they are not aimed at making this a substantial part of your production. Mr. MOORE. That is true, it is not going to be a substantial part of our operations. Moore stated: "There may be some advantages gained on the one hand, but these advantages are definitely offset by additional expenses that we do not normally have stateside." Moore pointed to costs for the "the transportation of cans and cartons, and oil, and salt, and labels, and everything that goes into the product, and everything has to be transported to Samoa." As for wages, Moore observed, "we have a plan in effect now"—a 2 cent an hour raise annually—"that will increase those wages...." Roosevelt further questioned Moore on his statement that closing the cannery would have a deleterious effect on the general economy of the island and would deter other firms from entering insular commerce. Might that be a threat, he reasoned? "By implication," he suggested, "that means to me that if you cannot get this relief that you would feel that it would be impossible for you to continue the operation...." Representative Roosevelt stated: In other words, what you have in essence said is that this is important to the economy there, and which I believe it is, and on the other hand, I have to be shown that without this relief it would not be possible for you to operate. ... I for one, would want—and I think the committee would want—some information to back up the statement that you would not consider this possible of continuation unless the relief which you seek is granted. Moore queried: "Are you asking that we give you a statement that says that unless we get this we will not continue?" Roosevelt suggested that the interpretation had been correct, to which Moore answered: Mr. MOORE. It would put our costs out of line. Mr. ROOSEVELT. And therefore, in order to maintain the operation at approximately the same cost as your west-coast operation, you would have to have this relief in order to stay in the islands. Mr. MOORE. That is right, sir. Support from Officials of Government As the hearing progressed, there was considerable speculation about the impact of the minimum wage for Samoan workers. Phil Landrum (D-GA) asked Wayne Aspinall (D-CO), a witness who had visited Samoa, what in his judgment would happen to Van Camp Seafood Co. if the minimum wage were enforced in the islands. "It would fail," Aspinall stated. "It would close up and these people would be put out of employment." But, Aspinall acknowledged that Samoa has certain "cultural advancements or attributes" which are, "to me ... necessary to have retained among those people. Just how far," he added (in reference to the Samoan way of life, or fa ' asamoa ), "you can go in bringing in industries and uprooting their traditional economy is a question for continuing study." Representative Orvin B. Fjare (R-MT) wondered if people of such "deeply seated customs" might not "[p]erhaps rebel at the so-called curse of civilization moving in on them." Roosevelt, from his understanding of the bill under consideration, stated that "they are not asking for complete exemption from the wage and hour law. We are using the same machinery which is already in effect ... in Puerto Rico, so that the wage scale will be reviewed and established from time to time ." (Italics added.) Roosevelt suggested that "the possibility exists, for instance, that another industry might come into the area, and we certainly would not want to just make a blanket exemption and invite industry to come down and exploit these people." "It will readily be seen," said William Arnold, Assistant Director, Office of Territories, DOI, "... that any application of stateside wage scales to industrial activity in American Samoa would completely disrupt the local economy, impose price inflation upon the people and create serious personnel and financial problems for the territorial government, to say nothing of the impact which such a situation would exert on the prevailing economic conditions of neighboring islands and territories." A letter from Richard Barrett Lowe, Governor of American Samoa, was read into the record. The Governor explained the modest character of economic life in the islands and stated, as his first choice, placing decisions concerning the minimum wage in the hands of the Secretary of Labor. He urged Congress, "at an early date," to enact legislation that will "exempt American Samoa from the Fair Labor Standards Act." The Views of Organized Labor Walter J. Mason, AFL-CIO legislative representative, took a different approach. He pointed to the "first and foremost challenge facing this committee" as the removal of "unnecessary and unjust exemptions now provided in the law." He chose not to support further exemptions. Turning to the islands, Mason stated that a Samoan exemption "would simply feed grist to the mills of the Communist propaganda machine. Our relationship with the peoples in underdeveloped areas," especially those under U.S. administration, "must be exemplary and beyond criticism...." If an exemption were made for American Samoa, he stated, it might "provide the precedent to permit interested parties to request other exemptions from coverage under the act"—that could "precipitate a virtually endless chain of requests" from one group or another. Mason opposed making changes in the FLSA that "would make Samoa ... a refuge for runaway shops." Further, he objected to placing the "entire discretion" within the hands of the Secretary of Labor. Finally, he saw no excuse for condoning past violations of law (non-payment of the minimum wage) by "extending retroactive immunity from prosecution to those who knowingly failed to comply with the act's requirements." Representative Sam Coon (R-OR) asked if Mason would insist on payment of "the minimum wage of 75 cents even though it would put them out of business...." Mason replied: "I want them to stay in business and make money. But I also want to see that the Samoan workers get a fair wage...." Coon referred to the insular temperature as a debilitating force. Mason responded: "What I am saying is that we should take a look at it and consider all aspects of what the repercussions may be...." He affirmed: "...I do not think there is any need for hasty action...." If other options were not sustainable, Roosevelt questioned, what course might be acceptable to labor. Mason, reluctantly, suggested the Virgin Islands formula—with committees set up on "a tripartite basis so that all parties concerned will take a part in arriving at a fair determination of what the minimum wage should be." Again: "If Samoa should be exempted from the statutory minimum, I believe the procedure should follow along the same lines that we have for the Virgin Islands." Others voiced economic concerns. The Seafarers International Union explained that Van Camp tuna canneries located in San Diego and Terminal Island, Calif., "employ approximately 2,000 tuna-cannery workers" and pay $1.65 and $1.85 for women and men respectively. Tuna, from low-wage labor in Samoa, "enter the continental United States duty free and are sold to consumers under the same Van Camp label as tuna canned domestically. This," he suggested, "is unfair competition to the domestic tuna industry and its workers." And, Representative Earl Chudoff (D-PA), suggested as a possibility that "...goods would be manufactured in a possession at very cheap labor rates and would be sent into the United States and sold cheaper than our own people could manufacture them...." Chudoff was open to the establishment of "industry boards or something" to provide for a fair labor scale in Samoa. The Senate Hearings of 1956 Moore, spokesman for Van Camp Sea Foods, returned as lead witness in the Senate. He declared the existing minimum wage (75 cents per hour) "unrealistic" and "unwarranted" and affirmed that it would "unquestionably ... have a deleterious effect upon the economic and social structure of the islands." Moore then reviewed the "substantial losses" of prior years. The difference in labor costs is attributed, he suggested, to efficiency, reiterating: "... it takes from 3 to 5 Samoans to produce what 1 stateside employee can produce." Moore claimed: "If Van Camp is compelled to pay $1 per hour, under these circumstances and not released of its liabilities under the act, it cannot go forward with its plans for developing the fishery and processing plant...." Notwithstanding the House hearings, Moore affirmed: "We know of no objection from organized labor." He stated further that Van Camp " must be relieved from its liabilities under existing law" and from costs that a $1 dollar minimum will impose. Senator Paul Douglas (D-IL) observed: "I never thought of Samoa as an area in which the Fair Labor Standards Act would be applied...." Douglas questioned whether Samoa was actually covered by the act. Linton Collins, counsel for Van Camp, replied: "Samoa is now covered under the definition of 'State' in the bill." Following discussion, including reference to the Vermilya-Brown case, Senator Douglas stated: "This is news to me. I never thought the Fair Labor Standards Act applied to Samoa." Collins replied: "... I don't think the Congress had that in mind when the act of 1938 was passed, but I think in the definition of 'State' it had been left there and there was never been (sic.) any change...." Creating a Special Industry Committee Structure (1956) In May of 1956, Senator H. Alexander Smith (R-NJ), the ranking Member of the Committee on Labor and Public Welfare, introduced S. 3956—a bill to amend the FLSA. On July 11, the bill was called up in the Senate. Senator John Kennedy (D-MA) explained that the measure, which had received unanimous support from the committee, would "provide means for adjusting the minimum wage in Samoa." It further proposed "exemption from liability [for] those employers who ... have not observed the Fair Labor Standards Act." Kennedy explained: "We feel that the provisions of the bill are acceptable, and are essential if the Samoan economy is to continue to operate." There followed a dialogue between Senator Spessard Holland (D-FL) and Senator Kennedy. Mr. HOLLAND. Is it not true that the rate of pay which is maintained in the one industry, which I believe is the sea-food canning industry— Mr. KENNEDY. The Senator is correct. Mr. HOLLAND. Has been fixed by reference to the request of the Department of Defense, which is the largest employer of labor in American Samoa, and which has not wanted to have any level of pay come into the picture which would disturb their ability to continue to operate as they are operating, and the general ability of the little island to preserve its economy on the present level? Is that correct? Mr. KENNEDY. The Senator is correct. As the Senator knows, the company which is engaged in the industry to which he refers has been operating at a loss, even with the present wage scale. I think the statement of the Senator from Florida is correct. And Kennedy explained: "... passage of the bill would also free employers of liability to maintain the minimum wage scale, which I think is a satisfactory situation." Without objection, the Smith amendment (modified by the Humphrey amendment) was adopted by a voice vote—the measure then being dispatched to the House. On July 26, 1956, the Samoan bill was called up in the House. Representative Roosevelt placed a brief statement in the Record and, thereafter, the bill was adopted. The measure was signed by President Dwight Eisenhower (P.L. 84-1023). The Minimum Wage in American Samoa (1956-1986) Taking into account the special economic circumstances existing in American Samoa, Congress opted to follow the Puerto Rican example. On October 1956, the first special industry committee (SIC) notice was published in the Federal Register . The Structure and Functions of the Committee The SIC fell under the Secretary of Labor (and then, the Administrator of the Wage and Hour Division). It was stated: "The wage orders issued by the Administrator must by law give effect to the recommendations of the industry committees." The notice, which would largely apply to subsequent committees, provided the rules for the hearing, the evidentiary requirements, and names (in the first two cases) the various committee members. The committee "will be composed of residents of the island or islands where the employees with respect to whom such committee was appointed are employed" and of other residents of the United States from outside the affected islands. The Secretary will appoint "an equal number of persons representing (a) the public, (b) employees in the industry, and (c) employers in the industry." The public members "shall be disinterested, and the Secretary will designate one as chairman." Further, it was provided: "An industry committee shall cease to perform further functions when it has filed with the Administrator its report containing its findings of fact and recommendations with respect to the matters referred to it...." Each industry committee is to be furnished a lawyer and an economist "to advise and assist the committee at all of its meetings." Any person or association who "in the judgment of the committee has an interest sufficient to justify" participation shall be designated "an interested person." The committee has subpoena powers. The committee was advised: "No classification shall be made ... and no minimum wage rate shall be fixed solely on a regional basis or on the basis of age or sex." Among factors to be considered were the following: [c]ompetitive conditions as affected by transportation, living and production costs the wages established for work of like or comparable character by collective labor agreements negotiated between employers and employees by representatives of their own choosing the wages paid for work of a like or comparable character by employers who voluntarily maintain minimum wage standards in the industry employment and labor conditions and trends ... on the mainland ... including such items as present and past employment, present wage rates and fringe benefits, changes in average hourly earnings or wage structure, provisions of collective bargaining agreements, hours of work, labor turnover, absenteeism, productivity, learning periods, rejection rates, and similar factors comparative production costs ... on the mainland, and in foreign countries, together with the factors responsible for differences financial conditions and trends ... as reflected in profit and loss statements and balance sheets Hardship testimony must be documented. "Testimony on behalf of an employer or group of employers as to inability to absorb wage increases shall be received in evidence only if supported by tangible objective data, such as the pertinent profit and loss statements and balance sheets for a representative period of years...." As noted above, each committee "shall recommend minimum wages which will reach as rapidly as is economically feasible without substantially curtailing employment " the general federal minimum wage. (Emphasis added.) The committee, charged with investigation of the insular economy, had before it "an economic report" prepared by the Department of Labor. Once established, the committee was to operate on it own initiative. Appointment of Industry Committee No. 1 (1957) James Mitchell, Secretary of Labor, appointed the first industry committee for Samoa on March 20, 1957, admonishing them "to reach as rapidly as is economically feasible the objective of the minimum wage of $1.00 an hour" (the standard federal minimum). Where there was variation within an industry, he urged the committee to "recommend such reasonable classifications ... as it determines to be necessary for the purpose of fixing for each classification the highest minimum wage rate" that can be determined for the category. Both DOL and the Congress appear to have been in agreement: that the highest possible rate should be reached as quickly as possible . Samoan industry was divided into four categories—none of which initially came close to meeting the $1.00 federal minimum. Wage/Hour Administrator Newell Brown (May 31, 1957) presented the findings in the Federal Register. Fish Canning and Processing Industry : "This industry shall include the canning, freezing, preserving or other processing of any kind of fish, shellfish, or other aquatic forms of animal life and the manufacture of any by-product thereof." The wage: not less than 38 cents an hour . Shipping and Transportation Industry . "This industry shall include the transportation of passengers and cargo by water or by air, and all activities in connection therewith, including, but not by way of limitation, the operation of air terminals, piers, wharves and docks, including stevedoring, storage, and lighterage operations, and the operation of tourist bureaus and travel and ticket agencies...." The wage : not less than 40 cents an hour. Petroleum Marketing Industry . "This industry shall include the wholesale marketing and distribution of gasoline, kerosene, lubricating oils, diesel and marine fuels, and other petroleum, products, including bunkering operations...." The wage: not less than 45 cents per hour. Miscellaneous Industries. "Miscellaneous industries shall include all operations and activities not included in the shipping and transportation industry, the petroleum marketing industry, or the fish canning and processing industry...." The wage: not less than 35 cents per hour . The Federal Register announcement called for a posting of the results (and minimum wage rates) so that each affected individual would be aware of the wages to which he or she was entitled. Thirty Years of Escalating Wages (ca. 1958-1986) By 1958, the procedure for appointing committees had become standardized. Thereafter, very minor changes were effected in the work of the committees. Some new classifications of employment were added; some were removed. (See Table A-1 in the Appendix for the evolution of minimum wages.) In 1961, a further division was made, separating 'shipping and transportation' into two categories. Category "A" was reserved for seafaring: "all activities engaged in by seamen on American vessels which are defined as those vessels documented or numbered under the laws of the United States." Category "B" would include all persons engaged in shipping, transportation and related crafts "other than those" engaged in seafaring—though such definitions would change from year to year. In 1963, a further category was identified: the construction industry. This would include "... all construction, reconstruction, structural renovations, and demolition, on public or private account, of buildings, housing, highways and streets, catchments, dams, and all other structures...." Other categories gradually came under the act. For example, in 1967, hotels, retail trades, hospitals and educational institutions were added; in 1969, laundry and dry cleaning, the bottling industry, and printing and publishing; in 1971, the wholesaling, warehousing, and finance and insurance. In 1974, Warren D. Landis, then Acting Administrator, Wage and Hour Division at DOL, proposed "revisions" in the general instructions. It would no longer be sufficient for "an employer or group of employers" simply to testify "as to inability to pay the minimum wage rate specified" and, thus, to reduce labor costs. To the now standard "tangible objective data," profit and loss statements, etc., a new section was added under the title "Evidence." It affirmed, "Financial statements filed in accordance with this provision ... shall be certified by an independent public accountant or shall be sworn to conform to and be consistent with the corresponding income tax returns covering the same years." As for persons who could not be present at the hearing, it was possible to submit affidavits. "The committee will give such weight to these statements as it considers appropriate," it was affirmed, "and the fact that such affiants [affirmations] have not been subject to cross-examination may be considered, along with other relevant facts, in assessing the weight to be given such evidence." (It is not clear how seriously the various witnesses took this instruction nor, for that matter, how rigorously the arrangement was carried out.) In appointing Industry Committee No. 11 in 1974, Secretary Peter Brennan expanded the scope of the committees to include government workers and others—reminding the committee that it should recommend the "highest minimum wage rate or rates" that it determines "will not substantially curtail employment in the industry...." In 1975 and forward into 1976, a new complication arose as the National Labor Relations Board investigated a contested election in the canning industry. "It is my concern that the investigations may substantially affect the industry committee process," explained Labor Secretary John Dunlop. Thus, he delayed the meeting of Industry Committee No. 12 through the spring of 1976—though he recognized the "possible adverse effects of the delay." In 1978, when Industry Committee No. 13 reported, another complication arose: namely, the Supreme Court's decision in National League of Cities v. Usery ...." In that case, the Court held that the minimum wage and overtime provisions of the FLSA "are not constitutionally applicable to the integral operations of the States and their political subdivisions in areas of traditional governmental functions." While American Samoa was not directly involved in the case, Xavier M. Vela, for the Department, affirmed that "it is apparent, as a matter of statutory interpretation, that the restrictions imposed by National League of Cities should be the same in American Samoa." But, The League of Cities case would be overturned in Garcia v . San Antonio Metropolitan Transit Authority et al. (469 U.S. 528 (1985). To this point, for nearly 30 years, American Samoa had been under a system of administrated wage rates. Very gradually, the rates had moved up. Special Industry Committee No. 17 (1986) On February 25, 1986, Labor Secretary William Brock appointed a new Special Industry Committee (SIC) No. 17. The instructions to the Committee appear to have been consistent with prior Committees in use since 1956. Appointment of the Committee Members When announcing appointment of Industry Committee No. 17, Secretary Brock advised members that Wage/Hour would "prepare an economic report containing the information which has been assembled pertinent to the matters referred to the committee." Further, he stated: "The committee will take official notice of the facts stated in this report. Parties, however, shall be afforded an opportunity to refute such facts by evidence received at the hearing." The notice was pro forma , similar to those issued with each appointment through the years. In March 1986, the Department produced an economic report, Various Industries in American Samoa . It opened with a 63 page essay to which 138 pages of statistics was added. Guidance from the Department of Labor In the mid-1980s, insular population was about 35,600 persons. The labor force was about 12,000 with female employment increasing steadily. Because of out-migration of workers (especially in the 20-29 age bracket), a large number of skilled craftsmen in the islands were from Western Samoa or Tonga. About 3,660 people (roughly 35 percent) worked for the American Samoan Government. About 6,740 were in the private sector "with the majority of these employed in the tuna canneries." Thus, the government and the canneries were primary employers and held a substantial and continuing interest in employee compensation. Within the tuna industry, about 65% to 70% of cost was attributable to raw fish. "The price of fish is negotiated between the vessel operators and the processors and the contract period varies from several months to several years, depending upon perceived harvesting conditions and anticipated demand...." However, cannery workers, with little organization in a western industrial context, received low wages that kept labor market expenses down. "It is this situation that has enabled imports to capture so much of the U.S. market," the DOL Report stated. "... U.S. producers have had to lower their prices and delay wage increases in order to survive." By the mid-1980s, tuna canneries operated in only three areas within the United States: California (one cannery), Puerto Rico (five canneries), and American Samoa (two canneries). In California, cannery workers are represented by the Seafarers International Union, AFL-CIO. In Puerto Rico, two canneries had collective bargaining agreements: National Packing (Van Camp, with the Congreso de Uniones Industriales de Puerto Rico) and Caribe Tuna (Mitsubishi Foods, apparently with the Seafarers Union, AFL-CIO). In 1985, there seem to have been no collective bargaining agreements among Samoan cannery workers. State and local governmental employees, conversely, had been gradually drawn into coverage under the FLSA—partly growing out of litigation under the National League of Cities (1976) and Garcia (1985) decisions. Commission members were advised: "Once the rates in American Samoa reach the mainland levels, they are subject to the same time schedule for further increases that prevails on the mainland without further industry committee reviews." The Report then walked the parties through the currently existing minimum wage rates—ranging from a low of $1.46 per hour for workers in laundry and dry cleaning to a high $2.82 per hour for fish canning and processing. It was also pointed out that the tuna industry employed 72% of employees in the private sector subject to FLSA coverage. Findings of the Committee Under the chairmanship of Ronald St. Cyr, the SIC met on April 28 through May 2, 1986. It heard from 20 witnesses and received some 30 pieces of testimony "including one exhibit received in confidence under the committee's seal." Before looking at the individual industries, the Committee examined a more basic question. The evidence before them, in the judgment of the dominant group on the Committee, indicated that the minimum wage rate for Samoa could be raised to the mainland level without the risk that it would "substantially curtail employment in the industries" of the island. The Committee then reviewed the industrial rates. "Employee witnesses generally testified concerning the need for increases in [the] applicable minimum wage rates. Employer witnesses," on the other hand, "in some cases opposed any upward adjustment of minimum wage rates and generally opposed reaching a $3.35 per hour minimum rate over any specific future time period." Governmental opinion was mixed—though, for budgetary purposes, it seems to have shared an interest in keeping wages low. One witness argued that an increase to $3.35 per hour would have a deleterious impact for the insular budget. Yet, the director of nursing stated that "nurses and other workers in the government medical center were grossly underpaid with a resultant shortage of qualified help which has adversely affected the quality of health care in American Samoa." Having heard the witnesses, the "... committee concluded that an increase in the minimum wage to $3.35 an hour spread over a two-year period ... would not significantly curtail employment opportunities." Witnesses for the tuna industry pointed to the "precarious position" of the industry, confronted with fish from other low-wage areas, and argued that there "should be no increase in the industry's minimum wage rate." However, there was another side to that equation. Evidence presented to the committee showed that production costs for the AS [American Samoa] tuna canneries between 1983 and 1985 declined substantially while the value of tuna shipments from AS increased very substantially from 1983 to 1984 (the latest available data). Also, the committee heard evidence that the tuna industry in AS enjoyed substantial advantages including: a favorable tariff posture (compared to foreign producers); an exemption which permits raw fish to be landed in AS in foreign vessels (not permitted in Puerto Rico or the mainland) resulting in lower raw fish prices which constitute 60% to 70% of total costs; and minimum wages 46% lower than average lowest regular wages for tuna canning in Puerto Rico and 135% lower than in the mainland U.S. The Committee further pointed to "tax incentives" provided by the Samoan Government, with other similar advantages, that "have further contributed to a highly favorable economic situation" for the canneries. Reluctance of the industry to present evidence, "even under seal" from the Committee, seemed to raise further doubts. The Committee raised the industry standard to $3.35. Gradually, from one industry to the next, the Committee mandated that the minimum wage be raised to the statutory federal rate of $3.35 per hour—at least by April 4, 1988. The thirty-year sub-minimum wage rate for American Samoa, it seemed, would end. However, the Committee produced a mixed review. The Report was signed by the two members representing the public and the two employee members. The two representatives from industry declined to sign the document. Congress v. the Special Industry Committee Under date of June 20, 1986, the findings of the Special Industry Committee were published in the Federal Register . The earliest increases in the insular minimum wage rate, to $3.35, were to take effect after July 7, 1986. In the wake of the SIC's hearings, "several interested groups" commenced litigation to have the findings set aside so that employers might continue to pay rates lower than the national minimum. However, the judicial process was cut short when Congress, calling up the "Insular Areas Regulation Act" (99 th Congress), added language to overturn the findings of Special Industry Committee No. 17: that is, retaining wage rates pre- Committee No. 17 and directing that a new committee be appointed that would recommend minimum wage rates that would be less threatening to the insular economic structure. Representative Morris Udall (D-AZ), chairman, Committee on Interior and Insular Affairs, assessed the situation in Samoa. "A committee that met this year ... failed to adequately comprehend the reasons that Congress had determined that a special minimum wage should apply in the territory." (Italics added.) Udall explained: The rate increases "could cost the territorial government $7 million by FY1988, a cost the Federal Government might have to make up." In addition, there were "clear indications that it would also force the tuna canning industry, which directly and indirectly accounts for half of the private sector employment in the territory, to substantially shift its operations to foreign locations." The new rates, Udall stated, "have already discouraged proposed investment from locating in the islands" and "... would make American Samoa more uncompetitive than it already is as a place of doing business." He continued: "Reasonable increases are warranted and we would favor increases as great as are reasonable. The proposed increases," he stated, "are not reasonable, however." Udall stated that the language of the "Insular Areas Regulation Act" does not amend the FLSA "nor does it modify the statutory system for periodic review and revision of minimum wages in American Samoa." Instead, he stated, "[i]t merely suspends the current wage order and continues the prior minimum wage in effect, pending the recommendations of a new industry committee convened in accordance with existing law." He admonished any further committee to consider "... the extent to which rates facilitate maximum employment; the extent to which they enable American Samoan businesses to be competitive within the region; and the potential impact on the insular and Federal budgets." Udall added: "We also appreciate the statesmanship on this matter of Delegate Sunia, who is concerned both about fair wages and maximum employment in the territory." The House then approved the conference report on H.R. 2478 by a voice vote. In the Senate, James McClure (R-ID) explained the conference report. "It is the intent of the FLSA that the minimum wage in American Samoa shall be increased to the national minimum wage at a rate that 'will not substantially curtail employment.' However," McClure affirmed, "the previous Special Committee's recommendation [No. 17], effective July 7, 1986, have [sic.] already resulted in the loss of 700 jobs." Again, the conference report was accepted by voice vote. On August 27, H.R. 2478 was signed by President Ronald Reagan becoming P.L. 99-396 . Special Industry Committee No. 18 (1987) A new committee was promptly appointed and the process recommenced; but, unspoken, there was a cautionary note. Reasonableness , in terms of a minimum wage, rested with the Congress. The powers of a Special Industry Committee were now limited by what Congress would accept. A New Committee Appointed Secretary of Labor Brock appointed a new committee that arrived in the islands on June 8, 1987, with the mandate to recommend the highest rates of wages that "will not substantially curtail employment" in the insular industries. The Committee stated that it had heard from 16 organizations and companies including DOI, the Government of American Samoa, "the two tuna canning firms and the Chamber of Commerce of American Samoa. Other parties testifying at the Committee hearing consisted of 11 local businesses." It noted: "In addition, there were other witnesses representing both employers and employees." If unions were present, they were not identified by name. At the opening ceremony, Governor A. P. Lutali "recommended no increase in the current FLSA minimum wage rates because of the severe budget situation ... and the pressing need for an expanded employment base at the tuna canneries"—as well as with firms associated with the tuna industry. Delegate Fofo Sunia "also expressed concern" regarding the insular budget and "the economic situation of the tuna firms and other businesses." However, he felt that "some increase in the minimum wage would be warranted at some future time once the budget and economic climate improved." Richard Montoya of Interior was similarly dubious. The Government of American Samoa "... could not sustain any increase in payroll costs at this time." Montoya referred to the plight of "the tuna canneries and other business" and stated that an increase in the minimum wage "would be counter-productive" to efforts "to to expand the employment base in the private sector of the American Samoan economy." Ultimately, Montoya "recommended the Committee grant no increase in any of the minimum wage rates at this time." The Committee was reminded of Representative Udall's comments—"(1) the extent to which rates facilitate maximum employment; (2) the extent to which they enable American Samoa businesses to be competitive within the region; and (3) the potential impact on the insular and Federal Budgets." It was noted that "such considerations could be related to the Committee ' s assessment of the impact of any possible changes in the current FLSA minimum wage...." (Emphasis added.) The New Committee's Recommendations The committee commenced with the two major industries of the islands. Representatives of the government and the tuna canneries presented "a great quantity of economic data." Government witnesses emphasized "budget and fiscal constraints." Spokesmen for the tuna industry suggested the "increasing competition from foreign imports from low-wage countries" and stated that "the various economic advantages of performing their operations in American Samoa were lessening." The committee was unable to agree on whether an increase in the minimum wage "would substantially curtail employment" and, so, "made no recommendations." Thus, the old wage remained in place: government workers and cannery employees would not receive a raise. Similar controversies swirled around other industries. In petroleum marketing, no evidence was presented to the committee. However, "the largest employer" stated that his business was heavily dependent "on business from the fish processing and canning industry." So, they voted 4 to 2 against an increase. In shipping and transportation, testimony suggested that "much of the business activity in this category depended in some way upon the fish processing and canning industry." One segment was given 10 cents the first year and 10 cents the second. In construction, workers would receive 10 cents the first year and 10 cents the next. Other industries experienced similar increases. Minimum Wage in American Samoa (1987-2007) In March of 1990, Labor Secretary Elizabeth Dole announced the appointment of SIC No. 19. But, a new complication arose—and the timing of the Committee's work was deferred. Improving the Quality of Evidence When establishing an SIC for American Samoa in 1956, it was assumed that the committee would operate under the same rules as committees in Puerto Rico and the Virgin Islands. However, in the early 1970s, a group of agricultural workers in Puerto Rico argued that their rates, under the FLSA, should be increased because their employers had not established, beyond a reasonable doubt , that they were not able to pay a higher wage without "substantially curtailing employment." Gradually, the issue led to the courts. Affirming Substantial Documentary Evidence (1974) Regulations of the period suggested that "tangible objective data" must be assembled to show that employers were not able to raise wages to the federal minimum standard. For Puerto Rico, it seems, data may not have been possible to obtain. The farmers were often poorly educated and may not have had "profit and loss statements" or "balance sheets." In such situations, the SIC could make recommendations "on the basis of evidence which is available;" but, the Court argued, those recommendations must be "sustained by the evidence." In the Puerto Rican case, it found the record "devoid of a single subsidiary finding to support the Committee's conclusion." When reporting legislation that would evolve into the 1974 FLSA amendments, the House Committee on Education and Labor referred to the Puerto Rican case and explained that "Congress intended" that findings of the SICs "would be based on record-evidence adequate to reveal the financial and economic condition of the covered employers." In the absence of such evidence, proceedings have sometimes "...degenerated into a process by which a majority of the members work their will knowing that the record is bare of the facts necessary to controvert their argument that higher wages would substantially curtail employment." It proposed language to insure that a future SIC "be in a position to act rationally rather than arbitrarily." The new language was contentious. Senator James Buckley (R-NY) opposed the evidentiary requirements. He stated: "The simple fact is that this requires a level of proof that too few Puerto Rican employers are unable [sic.] to provide." Senator Harrison Williams (D-NJ) disagreed. He argued that the bill reflected "broadly a consensus." Williams pointed to a history of abuse and affirmed that "as long as it is part of the procedure to have these industry committees, let them be required to support their conclusions" with "substantial documented evidence." Thus, in the 1974 FLSA amendments, there appeared an explanation: that there must be "substantial documentary evidence, including pertinent unabridged profit and loss statements and balance sheets for a representative period of years" or, where the employees are of the government "other appropriate information." That documentation must establish that an "industry, or a predominant portion thereof, is unable to pay that wage." Controversy Over the Minimum Wage Rate (1990) Gradually, DOL began to distinguish between Puerto Rico and the Virgin Islands, on the one hand, and American Samoa on the other. In the 1976 report to the Congress, it noted: "If the committee has no objective data establishing the industry's inability to pay the mainland rate, the committee ( except in American Samoa ) is required under the 1974 FLSA Amendments to recommend the mainland rate without regard to the other criteria." (Italics added.) In the late 1980s, American Samoa was, in effect, a company town —or, more precisely, a three company island . It may not be surprising, therefore, that the canneries and the Samoan Government opposed minimum wage increases and, where increases were unavoidable, sought to keep them to the lowest possible level. In so doing, the canneries have been afforded a relatively low wage workforce and the Government (with DOI support) has kept its budget accordingly low. Conversely, there seems to have been little alternative to existing work at whatever the wage rate—given the isolated location of American Samoa. When, in March 1990, Secretary Dole announced appointment of SIC No. 19, no special reference was made to evidentiary requirements. On June 12, 1990, Samoan Governor Peter Tali Coleman wrote to the Department of the Interior on that issue. Governor Coleman stated: The provision requires the Industry Committee to impose the mainland minimum rate unless an industry can establish its inability to pay that rate by "substantial documentary evidence." The term "substantial documentary evidence" is defined to include specific financial statements which many smaller employers do not have. Even those employers who do maintain formal financial records normally consider the information sensitive and confidential. Coleman added that DOL had "specifically ruled that the requirement did not apply to American Samoa" and stated: "...the industry Committee could be forced to promulgate wage rates which are unreasonably high...." An exchange of letters followed—generally expressing concern about a wage increase and objecting to the concept of substantial documentary evidence . If there was confusion over the concept of substantial documentary evidence , it seemed opportune to make whatever changes may have been appropriate. On July 20, Delegate Eni F. H. Faleomavaega of Samoa asked his congressional colleagues to "correct an inadvertent change" made in the 1989 amendments to the FLSA. With Puerto Rico and the Virgin Islands now subject to routine (national) minimum wage standards, only American Samoa remained subject to the SIC proceedings. My district, Faleomavaega noted, "...is unfortunately a one-industry community, and that industry is the canning of tuna." Again: "Should Samoa lose this industry, the economic and social impact on the people in Samoa would be devastating. On August 1, 1990, nine Members of the House wrote to Secretary Dole—requesting a postponement of SIC No. 19. Finally, Stella Guerra, Assistant Secretary for Territorial and International Affairs, DOI, wrote to William C. Brooks, Assistant Secretary for Employment Standards at DOL. She observed that DOL had "already postponed the hearing at the request of the American Samoan Government" but she urged further delay. Ms. Guerra stated that the procedure "created a possibility of wage increases that could bankrupt small businesses, cause the largest businesses (the tuna canneries) to abandon the territory, and force the territorial government to lay off workers...." She sought additional time to allow Congress to "complete action on the amendment that we have proposed." New Legislation (1990) On July 20, 1990, Mr. Faleomavaega introduced H.R. 5329 , a measure that would have stricken the entire section on "substantial documentary evidence." Other bills followed: H.R. 5382 , by Representative Austin Murphy (D-PA) and S. 2930 (at the request of the Department of the Interior) by Senator James McClure (R-ID). On August 4, S. 2930 was called up for floor consideration. The bill, in its original form, was passed by the Senate. In the House, S. 2930 was called up by Mr. Murphy on October 18 who explained that the bill would accommodate "two separate groups of employers. It is very narrowly drafted." He continued: When we originally passed the Fair Labor Standards Act amendments last year, the intent was to continue to provide American Samoa with the right to have their minimum-wage level set by the Commission in the Department of Labor. We did not make that clear, and the Senate bill is addressing that particular matter. Murphy was seconded by Representative Steve Bartlett (R-TX) and, then, by Representative William Goodling (R-PA). At this juncture, Murphy proposed a slightly different amendment. He would insert: "unless there is evidence in the record which establishes that the industry, or a predominant portion thereof, is unable to pay that wage due to such economic and competitive conditions." Murphy explained: This amendment is intended to soften this additional burden for private sector employers in American Samoa. While still requiring proof of economic hardship, the language of the amendment makes it clear that the evidence necessary to justify special wage orders relates to economic and competitive conditions on the island which affect the employment situation for Samoans. Thus, the measure passed the House. The amended version required reconsideration by the Senate, and on October 27, the Senate agreed to the House-passed bill. The measure was signed on November 15, 1990 ( P.L. 101-583 ). Hearings on the Samoan Minimum Wage (1991-1992) On November 26, 1991, Representative Murphy introduced a bill to amend the FLSA and, through a three-year period , "to bring the minimum wage in American Samoa up to the wage in effect in the United States." As chairman of the Labor Standards Subcommittee, Murphy convened a hearing on June 3, 1992, on H.R. 4011 —a bill intended "to stimulate debate and interest in the welfare and well-being of American Samoan workers" whom, he suggested, were "sometimes neglected and overlooked in the crush of other important national issues." Our objective, he noted, is to bring the Samoan wage up to par with the federal rate "as rapidly as possible without curtailing employment." Comments from Public Officials Governor Peter Tali Coleman's testimony, submitted for the record, began: "The American Samoa Government vigorously opposes this bill." It would "raise artificially the minimum wage of American Samoa" without taking into account the status of its "economic development." Coleman urged an appreciation of "the uniqueness of our culture and its impact in the workplace ... " Describing Samoa as "a group of very small islands with few natural and human resources," he stated: "We are heavily dependent on ... the economic strength of our largest private sector employers, the tuna canneries. These two companies, StarKist and Van Camp, are responsible for much of our economic growth...." Coleman added that he was "... especially troubled by the potential for substantial increases in unemployment." (Emphasis in the original.) He continued: We lack the diversity, capital, raw materials, skill levels, market or transportation systems of the United States. Geographically, the Territory is remote and isolated. Our natural resources are severely limited. (...) Tuna canning continues as our primary private sector employer. (...) Rather than improving the income levels of our people, thousands may be thrown out of work with no present job alternatives. The SIC system "works well in American Samoa." Under that system, "...statistical data and economic conditions are examined to determine whether the Territory's minimum wages can be increased without substantially curtailing employment...." Coleman concluded: "This is simply an ill conceived piece of legislation. It fails to take into account how the present system is working or the tremendous adverse consequences that could result from enactment." Delegate Faleomavaega's testimony, now, provided something of a contrast. "Since entering office, many of my constituents have related to me tales of woe about the rapidly increasing cost of living in American Samoa, which has far outstripped salary increases of average wage earners." These "cries for help" are "growing in number." "Perhaps," Faleomavaega suggested, the hearings will provide the answer to why American Samoa, unlike people in other US territories, "are told they must be satisfied with the substandard wages set by the Department of Labor's industry committees." It may be, Faleomavaega suggested, that StarKist and Van Camp, "invaluable mainstays of our territory's economy, are overly sensitive." From "media reports," one hears of highly compensated executives whose corporate income is many times more than "the combined annual salaries of the 2,500 cannery laborers gutting tuna in Pago Pago." Such reports may be "wrong or outright lies" but "... perhaps the canneries should open their books and let their financial records speak for themselves." He observed: "Continuing to fail to divulge relevant financial information while pleading lack of funds for wage increases ... will only be seen as a sign of bad faith." Still, he suggested that it was a "... delicate economic balance that must be struck to keep our canneries in the territory." John R. Fraser, Deputy Wage/Hour Administrator, resisted any increase. "There was concern that the industry might respond to a larger increase by shifting production to lower-cost areas, possibly resulting in very significant reductions in employment in the American Samoan canneries." This was of special concern "...in an economy dominated by only two major employers and where there is scant evidence that the territory can significantly expand its employment base in other areas to provide additional job opportunities." Donald Senese, Deputy Assistant Secretary for Territorial and International Affairs, DOI, was equally candid. He recalled the abortive SIC No. 17 and suggested that H.R. 4011 was essentially "the same proposal." Detailed economic studies suggested, he stated, that "any large increase in minimum wages would encourage the tuna canneries to move at least some of their operations from American Samoa." In our view, he concluded, "... the artificial setting of wage rates at the U.S. minimum would be very likely to eliminate the tuna canning industry and, in turn, threaten to destroy the entire private sector economy of American Samoa." Comments from the Industrial Sector In over 30 years as an executive with StarKist, Robert W. Hetzler stated: "... I have seen the tuna industry change from a homebred domestic industry ... to the foreign-dominated business it is today." He added: As this shift has occurred, the industry has suffered massive job losses, first in California and more recently in Puerto Rico, as tuna processors have moved to lower labor cost areas such as Thailand, Indonesia, and the Philippines. As costs to U.S. producers rise, compounding the cost advantages of foreign producers, the elimination of domestic production will continue and even quicken, to the detriment of U.S. producers, their workers, and the communities in which they live. With factories in Mayaguez, Puerto Rico, and Pago Pago, "the canneries provide the majority of private employment as well as create many additional jobs in service and support industries." The current bill would have "a devastating effect on tuna operations in American Samoa" and StarKist "must emphatically oppose H.R. 4011 ." Hetzler pointed to the alleged differences between American Samoa and elsewhere: the costs of environmental protection, the absence of routine living costs. "Most cannery workers do not pay rent, there is no property tax, clothing costs are minimal due to the single-season climate, and medical costs are covered nearly 100 percent by the government." Some workers were not American: a "large majority of cannery workers in American Samoa are from Western Samoa...." The government, Hetzler stated, "continues to add costs to U.S. industry through labor regulations, environmental controls, and numerous other measures." There is "simply no replacement industry" and "...no way to recover the cost increases in the market-place." Further: "If government desires to place such wage and other controls on industry ... job and business transfers to foreign low cost areas will result...." Jose Munoz, president and CEO of Van Camp, argued that the "...typical tuna consumer is a very budget conscious homemaker, raising a family." Although his firm had experimented with off-setting pricing, he had found "The consumer is unwilling to pay more for canned tuna to protect or to save U.S. jobs." Munoz reviewed various initiatives and affirmed: "We all ultimately report to somebody, and in the tuna industry, we report to the consumer." Even in the best of times, he suggested, the consumer "had been unwilling to pay an increase." As the hearing closed, Representative Murphy announced that "we had two witnesses representing organized labor, both of whom have served on the special industry committees, who were unable to make today's hearing. The record of this particular hearing," he stated, "will be kept open in order to give them an opportunity ... to submit a written statement." No statement from labor appears. Rejecting the Special Industry Committee System (2007) The Murphy proposal of 1992 was not adopted, and instead, the SIC system continued through the next several years with missions being sent to Samoa at two-year intervals. On May 10, 2007, Secretary of Labor Elaine Chao appointed a new commission. The instructions were routine. An economic report on labor conditions in Samoa, traditionally the responsibility of the Department of Labor, had been prepared and was circulated. In the 110 th Congress, George Miller became chair of the Committee on Education and Labor. Targeted for immediate action was H.R. 2 , the "Fair Minimum Wage Act of 2007." The bill (with some 222 cosponsors) had two provisions: (1) to raise the federal minimum wage, in steps, to $7.25 per hour, and (2) to render the federal minimum wage applicable to the Commonwealth of the Northern Mariana Islands—to take place in steps through the next several years. No mention was made of American Samoa: its Special Industry Committee was, by this point, an established institution. On January 10, 2007, H.R. 2 was called up in the House and, as a clean minimum wage bill, was adopted on a vote of 315 yeas to 116 nays. The measure was promptly referred to the Senate where it was also adopted: 94 yeas to 3 nays. But, in the Senate, several revenue-oriented proposals were added, posing a procedural problem. The result was a variety of votes and new bills until, in late May 2007, H.R. 2206 ( P.L. 110-28 ) was adopted and signed by the President. The final bill was a compromise. Minimum wage constituted only a very small part of the composite bill—the rest being concessions to industry in exchange for support of the wage measure. In addition, American Samoa had been added to the bill on final passage. No immediate hearings had been held on application of the minimum wage to American Samoa. Some concern had been voiced, however, about not having Samoa included in a bill that included the Commonwealth of the Northern Mariana Islands. And, some suggested that a 'special exemption' had been instituted for the vested interests of the Samoan islands. Rather than contest the issue, Samoa was added, but with a slightly different procedure. Of the several classifications of industry in Samoa (now numbering about 18), each would be given a 50 cent increase in the minimum wage to take effect on July 25, 2007. Thereafter, a 50 cent increase by industry classification would be affected each year until the collective minimum wage of Samoa reached the standard national minimum wage: namely, $7.25 per hour or whatever new wage might be imposed. Then, the insular minimum would rise (or fall) in tandem with the national rate. Further, within eight months after enactment of P.L. 110-28 , the Department of Labor was asked—under mandate from Congress (Section 8104)—to produce a study of the impact of the minimum wage for Samoa and for the CNMI. No action was associated with the report, which was purely advisory. On June 13, 2007, with P.L. 110-28 in place, Secretary Chao "discharged the Industry Committee" that had recently been appointed and closed that aspect of the case of American Samoa. Meanwhile, Representative Faleomavaega introduced H.R. 5154 , an amendment to the 'U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007." The bill would allow the several minimum wage increases to go into effect if, in the case of American Samoa, "the Secretary of Labor determines, based on the study required under section 8104 [the DOL study] and in consultation with the Secretary of the Interior and the government of American Samoa, that an increase under this subparagraph will not have an adverse impact on the economy of American Samoa...." New studies would be conducted at each two-year interval. The bill adds: "The Secretary of Labor shall make the determinations required ... each year at least 60 days before the scheduled increase in the minimum wage" and publish such determinations in the Federal Register . H.R. 5154 has been referred to the Committee on Education and Labor. No action has been reported. Concluding Summary Throughout most of the United States, the minimum wage is a floor—the lowest wage that can legally be paid to covered workers. In American Samoa, the minimum wage tends to represent both a floor and a ceiling—though some rates do go up a few cents beyond the minimum. It appears that most fish processing workers in Samoa are paid at or near the minimum wage. Through now fifty years (1956-2007), American Samoa had been under the Special Industry Committee structure. During the early years, that option included Puerto Rico and the Virgin Islands. However, during the late 1980s and into the 1990s, Puerto Rico and the Virgin Islands graduated to a full minimum wage leaving only American Samoa under the SIC umbrella. Where the two Caribbean territories have special characteristics that have allowed for the gradual elevation to a full minimum wage, American Samoa is in a somewhat different position. Samoa evidences no serious or sustained movement into an industrial world with a diversified economy. American Samoa is isolated: 2,300 miles southwest of Hawaii. The population, though modest by mainland standards, has been expanding: perhaps, now, to about 60,000 or a little above. Distances render major tourism unlikely. There may be some market for handicrafts, but hardly enough to sustain even native/resident workers under current marketing arrangements. In spite of a relatively high level of Samoan unemployment (somewhere in the teens during recent years), workers often arrive from Western Samoa (a former British colony, now independent) to engage in fish canning and to replace those workers who migrate to the States. There would seem to be little interest in trade unionization and, it appears, the territory offers little reward for national labor federations. In the early 1950s, the Department of the Interior sought a tenant for a vacant fish processing plant at Pago Pago. The search seems to have been difficult—but Van Camp Sea Foods took up the challenge. Soon, the firm was confronted with payment of a federal minimum wage. In order to sustain its insular existence, Van Camp sought two concessions from the Congress. First, the minimum wage for the island should be overturned, placing responsibility in the hands of a special industry committee under the Secretary of Labor (as had been done for Puerto Rico and the Virgin Islands). Second , it sought immunity from past underpayment of the minimum wage in Samoa. In each case, Congress concurred. Gradually, the tuna industry has come to dominate the island's private sector as the primary employer. For workers in the canneries, there would seem little option but to take jobs at whatever wages the companies chose to pay (assuming that the SIC and the Congress would agree). A second option, less desirable by insular standards, would have been to migrate to the States or elsewhere. With the first dispatch of a SIC to the islands in 1957, the native economy was assessed and a minimum wage was assigned—to be updated every year or two. At first, cannery workers were to be paid 38 cents an hour. Petroleum workers earned 45 cents an hour; shipping, 40 cents; and miscellaneous workers, 35 cents. The upward movement was slow until, in 1986, SIC No. 17 determined that the federal minimum wage ($3.35 per hour) could be instituted without endangering employment. However, under pressure from the canneries and the insular government, the judgment of SIC No. 17 was overturned and Congress urged reestablishment of a lower rate. What some may have seen as a further setback occurred in 1990 when Congress enacted legislation reducing the level of evidence required in order for an employer to affirm his or her inability to meet a minimum wage payroll. Further, in 1992, legislation was introduced that would have increased the insular minimum, over time, to the full federal minimum rate. But, with industry in full opposition, the bill was not adopted. Since that time, little new has developed. In 2001, SIC No. 24 visited the islands and raised the wage for fish cannery workers from $3.20 to $3.26. No further increases in that category of work, it seems, have been instituted, though Committees were dispatched in 2003 and 2005 and would have met in 2007. Other rates of pay for insular workers have remained similarly low. In 1992, John R. Fraser of DOL explained that there is "concern that the industry [tuna] might respond to a large increase [in the minimum wage] by shifting production to lower-cost areas" and, for that reason, "the department opposed" legislation to provide equality with the general federal rate. Robert W. Hetzler of StarKist was more blunt. Were the tuna industry to disappear, "the entire Samoan economy will collapse, resulting in massive social welfare costs to the government of American Samoa and the United States." There is, he stated, "simply no replacement industry" and "...no way to recover the cost increases in the market-place." That rationale, however justified by insular economic conditions, may not satisfy the workers in tuna and in other industries. "[M]y district," observed Delegate Faleomavaega during hearings in 1992, "is the only jurisdiction where the American flag flies and Federal minimum wage law applies, yet our people ... are told they must be satisfied with the substandard wages set by the Department of Labor's industry committees." On May 15, 2007, Labor Secretary Elaine Chao announced appointment of a new Special Industry Committee to meet in Pago Pago in mid-June. But, the work of the committee was interrupted by congressional action. In late May 2007, Congress adopted (and the President signed) the "U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act" ( H.R. 2206 , P.L. 110-28 ). Under the act, the SIC system was abolished and a new insular minimum wage was mandated—to be raised each year in fifty-cent increments until the new federal minimum rate, however specified, might be reached. Appendix.

In 1938, when the Fair Labor Standards Act (FLSA) was adopted, Congress appears to have given little consideration as to how its provisions might affect the various possessions and territories of the United States. The first off-shore jurisdiction to request exception from the FLSA was Puerto Rico, which, in 1940, along with the Virgin Islands, was given an exception under the act. Special industry committees were appointed to visit the Caribbean islands and to recommend minimum wage rates consistent with the insular economies. In the wake of World War II, new attention was focused upon the Pacific islands. American Samoa, basically, had no industry other than harvesting of copra, the dried meat of the coconut, and an economy very different from the mainland. In the early 1950s, the Department of the Interior contracted with the Van Camp Sea Food Company to move onto the island and develop a fish processing plant. However, the FLSA minimum wage was regarded as too high to be competitive and, in 1956, Van Camp appealed to Congress to extend the Puerto Rican special industry committee (SIC) model to American Samoa. Thereafter, the Secretary of Labor would review economic conditions and establish minimum rates. The SICs were admonished to reach "as rapidly as is economically feasible without substantially curtailing employment" the American standard under the FLSA. While the rates established by the committees were lower than those prevailing on the mainland, the device was regarded as temporary. During the 1980s and 1990s, special treatment of Puerto Rico and the Virgin Islands was phased out, and those islands came fully under the FLSA. Of the three jurisdictions, only American Samoa remained under the SIC structure. Fish processing has become Samoa's primary private-sector industry. In early 2007, the minimum wage for the industry was $3.26 per hour: the federal minimum wage was $5.15 per hour. However, in late May 2007, Congress adopted H.R. 2206 (P.L. 110-28) which, through a series of step increases over several years, would raise the federal minimum wage to $7.25 per hour. At the same time, the SIC for American Samoa was abolished and the insular minimum wage was raised (through a more prolonged series of step increases) until the federal minimum level, whatever that may ultimately become, might be reached. At least since the 1950s, the companies involved in fish processing have suggested that, were the minimum wage to be raised to the national rate, they might consider leaving the island and operating out of a country where wage rates were more favorable. Now, with the new wage rate for American Samoa in effect, what will be the reaction of the tuna canning companies? Will they improve technology to raise labor productivity, change the type of production done in Samoa, absorb the new rates—or migrate? And, if they were to migrate, what alternative employment might be available for the people of American Samoa? This report will be updated as warranted.

Recent Developments In mid-November 2010, during parliamentary consideration of a proposed petroleum revenue management bill being considered by parliament just prior to Ghana's expected initiation of large-scale oil production, traditional chiefs in Ghana's western region presented a petition calling for 10% of national oil revenues to be placed into a development fund for the west. In early October 2010, Ghana's president, John Atta Mills appointed a National Gas Development Task Force "to manage and help expedite the ongoing gas commercialization project," which is a Ghanaian government priority closely linked to the country's commencement of large-scale oil and natural gas production in late 2010. The initiation of gas production is a keystone of ongoing government efforts to boost electrical power generation. In late 2010, the Ghanaian parliament was considering passage of two oil sector bills, entitled the Petroleum Revenue Management Act, 2010 , and the Petroleum (Exploration and Production) Act, 2010 , both drafted by the executive branch after public and private sector consultations. The government has fast-tracked passage of the bills, which are designed to govern the development of Ghana's new and rapidly growing oil and gas sector, and ensure public benefit, transparency, and efficacy regarding the receipt and use of what is expected to be a large influx of energy revenues. The revenue management bill, however, is the subject of internal parliamentary disagreement, and may not pass as quickly as the government had projected. In October 2010, former Ghanaian president Jerry Rawlings was appointed as the African Union (AU) envoy for Somalia. In early August 2010, President Obama hosted a group of over 115 civil society leaders, activists and entrepreneurs from 40 sub-Saharan Africa countries in an event dubbed the "President's Forum with Young African Leaders," including several Ghanaian participants. It echoed policy themes that President Obama had emphasized during his trip to Ghana in July 2009. In June 2010, United Airlines (UAL) became the second U.S. airline, after Delta Airlines, to provide direct flight service from the United States to Ghana. Overview: Ghana and the United States U.S.-Ghanaian relations are warm, as signaled by President Barack Obama travel to Ghana from July 10 to 11, 2009 (see " President Obama's Trip to Ghana "). His trip followed an early 2008 trip by former President George W. Bush to Ghana, which in 2006 signed a $547 million U.S. Millennium Challenge Corporation (MCC) Compact. Apart from development cooperation, Ghana is widely seen as a key U.S. partner in the region and as an African "success story" in light of its successful transition to democracy and attainment of substantial economic gains in recent years, albeit in the face of continuing widespread poverty rates. It is seen as a model for many of the outcomes that U.S. development assistance programs in Africa have sought to achieve over multiple Congresses and presidential administrations. It is also a stable country in an often volatile sub-region and, along with the United States, has helped to mediate several political and/or military conflicts in West Africa over the last quarter century. These conflicts have caused widespread displacement and humanitarian suffering, which the United States has repeatedly sought to mitigate through the provision of often large amounts of humanitarian assistance. Ghana is also praised for its steady contribution of troops to international peacekeeping operations in Africa and elsewhere and is a recipient of U.S. training aimed at supporting such deployments. Ghana has also drawn attention because of its recent discovery of sizable reserves of crude oil, and its possible role in contributing to global and U.S. energy security. Its reserves promises to boost Ghana's national income and development prospects, but ― based on the experience of many other oil-rich developing countries—may also pose substantial good governance and resource management challenges. Ghana, like the United States, also faces challenges with respect to illicit narcotics trafficking, notably with respect to a rise in recent years of cocaine being transported from South America to Europe via West Africa. Shared interest in countering such trafficking is a growing area of U.S.-Ghanaian cooperation. President Obama's Trip to Ghana President Barack Obama traveled to Ghana from July 10 to 11, 2009 following the president's attendance at the G-8 Summit in L'Aquila, Italy, in what the White House reported was "the earliest visit to sub-Saharan Africa by any President in his first year in office." Key purposes of the trip were to: highlight Ghana as one of the United States' "most trusted partners in sub-Saharan Africa" and as "a shining example" in Africa "of the importance of free and fair elections"; underscore "the critical role that sound governance and civil society play in promoting lasting development" in Africa; stress the continuing commitment of the United States to invest in such development; and highlight "Africa as a fundamental part of our interconnected world" while simultaneously recognizing the "that Africa's future is up to Africans." President Obama stated that the trip signaled that "we have a continuing interest in Africa's security, in Africa's economy, in Africa's social and political development because we live in an interrelated world and what happens here has an impact everywhere." He also stated that the trip was meant to highlight Ghana's successes relative to much of Africa, asserting there are a set of institutions here that are sustaining democracy and openness and participation. You have an economy that has been well managed. […and] there's been a greater level of transparency and openness, the growth strategy here in Ghana have been ones that are actually delivering improved standards of living for the people. So we think that Ghana can be an extraordinary model for success throughout the continent and we are very much looking forward to strengthening what is already a strong friendship between the United States and Ghana for many years to come. President Obama also used the trip to highlight U.S. investments in maternal health in Africa, and to highlight the personal connection of himself and his family to Africa. He touched upon his own personal family heritage and familial roots in Africa while addressing Ghana's parliament and, along with his family, toured Cape Coast Castle, a major former hub trans-Atlantic slave trade. Of the latter experience, in the first commentary in Africa on the effects of the trans-Atlantic slave trade by a sitting U.S. president of African descent, he stated: It is reminiscent of the trip I took to Buchenwald because it reminds us of the capacity of human beings to commit great evil. [...] I think, as Americans, and as African Americans, obviously there's a special sense that on the one hand this place [Cape Coast Castle] was a place of profound sadness; on the other hand, it is here where the journey of much of the African American experience began. And symbolically, to be able to come back with my family, with Michelle and our children, and see the portal through which the diaspora began, but also to be able to come back here in celebration with the people of Ghana of the extraordinary progress that we've made because of the courage of so many, black and white, to abolish slavery and ultimately win civil rights for all people, I think is a source of hope. It reminds us that as bad as history can be, it's also possible to overcome. Policy Motivations for Trip President Obama's trip to Ghana came almost exactly six months after the inauguration of President Mills, following presidential and parliamentary elections in December 2008. President Obama characterized these elections—which he had previously praised —as demonstrating "the Ghanaian people's commitment to democratic governance" and as an exemplar of Ghana's "democratic leadership in Africa, particularly in light of the troubling coups in Mauritania, Guinea, and Madagascar." The elections had drawn widespread international attention because they marked Ghana's fifth consecutive democratic national election, preceded its second democratic transfer of power from one political party to another and, at the presidential level, were reportedly among the closest ever in post-colonial Africa. The resulting transfer of state power from one political party to another, a historically uncommon occurrence in post-independence sub-Saharan Africa, signified Ghana's further maturation as a democracy following a transition from "no-party" rule that began in 1992, and provided a sharp contrast to recent counter-democratic developments in Africa. Ghana was chosen for the trip, presidential African affairs aide Michelle Gavin stated, because the election had demonstrated that "Ghana is a truly admirable example of a place where governance is getting stronger, a thriving democracy," in contrast to multiple other African countries. The keystone of the president's trip to Ghana was a speech to the Ghanaian parliament. It was cast as the last of a four-part thematic series of major overseas speeches laying out some of President Obama's key foreign policy views. The speech centered on the integral relationship between democracy, good governance, and development in Africa and in the wider developing world. The overarching theme of the speech was on the need, in Africa particularly, for "strong institutions and a strong will" in order to ensure "democracy, opportunity, health, and the peaceful resolution of conflict." The speech focused, in particular, on the importance of good governance and the need to institutionalize of a vibrant and collaborative interplay between elected officials, the three main branches of government, voters, the press, civil society and private sector businesses in achieving such ends. The speech also highlighted the importance of anti-corruption efforts and transparency, and focused on the key role played by national self determination and achievement in attaining socio-economic and political development, in contrast to donor-led development. President Obama also referred to the need for careful management of Ghana's energy revenues, and the "undeniable peril and extraordinary promise" of oil and other energy resources for development. He also highlighted his Administration's emphasis on U.S. assistance to Africa in such areas as education, healthcare, and trade capacity-building, and its commitment to "public-private partnerships that invest in better roads and electricity; capacity-building that trains people to grow a business; financial services that reach not just the cities but also the poor and rural areas." In contextualizing the Africa portion of President Obama's trip in relation to his preceding visit to Russia and Italy, Ms. Gavin characterized the Ghana visit as "quite intentional." She said it was meant to underscore "the point that Africa is integrated broadly into" the Administration's foreign policy strategy and that "African voices are an important part of global discussions on key global issues." She and other briefers highlighted African governments' participation in a number of meetings at the G8 summit that immediately preceded the President's trip to Ghana. Gavin also drew a correlation between the issue themes discussed at the summit and policy challenges faced by African countries, such as a need for economic resilience, a capacity to weather the current economic downturn, achieve socio-economic development goals, as well as global issues, such as climate change—and what she characterized as the underlying importance of good governance in successfully addressing them. Mills Administration President Mills took office on January 7, 2009, succeeding former President Kufuor at the end of his second term in office. The new government's first priority reportedly centered on gaining control over economic policy administration and the government's administrative apparatus from the departing New Patriotic Party (NPP) government. In particular, it reportedly sought to stabilize the declining exchange rate of the national currency, the cedi ; halt a rapid rise in fiscal spending, leading to a rising current account deficit; and check inflation. These challenges were compounded by the subsequent global recession, a slowing economy, due in part to weakening commodity prices, and a contraction of access to international and local credit, but were aided by a simultaneous decline in imports and growth in exports. Policy Agenda Mills, in his first state of the nation address to parliament, in 2009, pledged to fulfill the goals outlined in the party election platform of his party, the National Democratic Congress (NDC). Key policy goals set out in the manifesto and in his parliamentary address include: good governance and anti-corruption efforts, including passage of a Right to Information Bill—which the national parliament was considering in late 2010, security force capacity building, the appointment of a greater percentage of females in key government posts, and efforts to increase representative and decentralized governance and accountability at the local level; economic growth and investment, notably through policies to be pursued by an "activist and enabling state" focused on boosting business growth by increasing credit access, enact business-friendly regulatory reform, reducing selected taxes, and by promoting Ghanaian exports and local industrial and agricultural production; investment in people, especially in the health and education sectors, and in poverty reduction programs; and investments in infrastructure for growth, including through publicly funded housing construction, water and sanitation improvements, transport regulation reforms and road investments, and electricity reforms and investment. He re-emphasized many of these themes in his 2010 state of the nation address to the parliament. 2008 Election Ghana held presidential and parliamentary elections on December 7, 2008, which resulted in a slight parliamentary majority for the NDC, and a presidential runoff election on December 28, which resulted in a narrow runoff presidential victory for the opposition presidential candidate, John Atta Mills of the NDC party. Mills's election was viewed by some as a test of the depth of democratization in Africa, following highly contested, volatile elections in Kenya, Zimbabwe, and Nigeria, and a range of other democratic challenges elsewhere on the continent. The election signified Ghana's further maturation as a democracy following a transition from "no-party" rule, beginning in 1992, by a government that initially came to power in a coup d'état. Mills, who took office on January 7, 2009, succeeded President Kufuor of the New Patriotic Party (NPP), who stepped down after having served his second term in office and was ineligible to run for the presidency in 2008 due to constitutional term limits. Kufuor first won the presidency in 2000, having bested Atta Mills in a poll that led to Ghana's widely praised, first-ever democratic presidential and political party succession. In 2004, he again triumphed over Atta Mills, winning 52% of votes in a poll that was generally calm, peaceful, and transparent, though marred by limited violence. The 2008 election campaign was contested vigorously but was reportedly largely peaceful, with a few highly localized exceptions. While ethnic tensions occur in Ghana, regional rivalries and disparities are sometimes viewed in ethnic terms, and voting tends to occur in ethnic blocs, Ghana generally enjoys inter-ethnic harmony, and overt ethnic antagonism does not appear to have played a key role in the election. Focal electoral issues included public dissatisfaction over electricity and water shortages, rising food, fuel, and utility prices, and reports of corruption. Recent economic expansion and prospective oil revenue-fueled growth, however, were seen as benefitting the NPP, as were divisions in the NDC, from which a dissenting faction broke away to form a new splinter party. While Mills was selected as the NDC presidential candidate without facing opposition—despite his two earlier losses as NDC flag bearer—18 NPP candidates fiercely vied for the NPP nomination prior to the NPP party congress in late 2007. Former Foreign Affairs Minister Nana Addo Dankwa Akufo-Addo won the NPP nomination in the first round of voting, surprising some observers, given that President Kufuor had reportedly favored another candidate. The NPP nomination process drew some criticism because the $25,000 party nomination fee, in a country with an average income of about $520, was seen as barring contenders who lacked wealth or could not raise large amounts of cash to rally support. With some minor, mostly technical exceptions, voting on December 7 was free, open, and transparent, according to reports by national and international observers who monitored the vote, along with a large number of national political party observers, and the election elicited widespread praise internationally. Key problems highlighted at the time of the vote reportedly included temporary shortages of voting materials at some polling places, along with limited, minor allegations of irregularities, mainly in two constituencies, Asutifi South and Akwatia. Some observers analyzing the election over the longer term, however, have contended that there were also other, potentially more serious, problems. These included lack of sufficient investigation of possible anomalies, such as an alleged "inflated voters' register" linked to "implausibly high turnout" in some areas, among other possible indications of limited but "serious malpractices and electoral fraud," and some reports of intimidation of party poll observers in constituencies dominated by their rival party. There was also a possibly politically motivated effort to disenfranchise selected voters as a result of a selective closure of Ghana's borders. Despite such problems, many observers attribute the election's overall success to adherence to the rule of law regarding the electoral process, in large part as a result of widespread public support for that end, which politicians by and large appear to have heeded, albeit sometimes under pressure from party or national leaders. Efforts to legally challenge selected polling processes or results after the first round, which could have prompted a drawn out, potentially volatile contestation of the vote, were ultimately abandoned—reportedly, in part, in response to a call by then-incumbent President Kufuor for all candidates to respect the results of the voting process. In the initial presidential vote, John Mills of the opposition National Democratic Congress (NDC) party won almost 48% of votes. His main rival, former Foreign Affairs Minister Nana Addo Dankwa Akufo-Addo of the NPP, President Kufuor's party and the then-majority party, won just over 49% of votes. Since neither leading candidate attained a 50% vote share, a requirement for electoral victory, a runoff vote was held on December 28. The runoff, between Mills and Akufo-Addo, was held on December 28, resulting in a 50.1% initial vote share for Mills, with Akufo-Addo winning 49.9% of the vote, with 23,050 votes fewer than Mills. These results failed to decide the election, however, because incorrect allocations of voting materials were delivered to one constituency, Tain District, potentially disenfranchising voters. This discrepancy prompted the Electoral Commission to order a repeat of runoff balloting in Tain, an outcome that conferred on the district's 53,000 or so voters the potential power to decide the outcome of the race. The Tain vote garnered international attention, given the closeness of the election and because it prolonged the vote and the potential that the outcome would be contested and potentially lead to political volatility. After Tain was added to the national runoff totals, Mills garnered a winning 50.23% share of votes cast against a 49.77% vote share for Akufo-Addo. Kufuor Record Kufuor, a former veteran opposition figure and Oxford-trained lawyer, businessman, and former deputy foreign minister and parliamentarian, was ineligible to run for the presidency in 2008 due to constitutional term limits. He first won the presidency in 2000, having bested Mills in a poll that led to Ghana's widely praised, first-ever democratic presidential and political party succession. In 2004, he again triumphed over Mills, winning 52% of votes in a poll that was generally calm, peaceful, and transparent, though marred by limited violence. In simultaneous parliamentary elections, Kufuor's New Patriotic Party (NPP) increased its legislative margin by 26%, winning 128 seats, while the NDC won 94. Two smaller parties and an independent won all other seats. Kufuor used the slogan "So far, so good" to claim a solid record of economic stability, market-based reforms and growth, and broad quality of life improvements after a period of economic stagnation under the NDC. Kufuor's reelection in 2004 marked Ghana's fourth consecutive democratic election. Ghana appeared to have durably consolidated a transition to democratic rule that began in 1992, when the then-military leader, Jerry Rawlings, retired from the military to run as a civilian presidential candidate in multiparty elections. Rawlings had first come to power in a 1979 military coup, after which elections were held. He led a second military coup in 1981, establishing a populist, reform-oriented ruling civil-military entity, the Provisional National Defense Council (PNDC). The PNDC coup followed 15 years of coups d'état and a string of military-dominated, often corrupt governments that ruled after the military ousted Kwame Nkrumah, Ghana's first elected Prime Minister, in 1966. He was toppled shortly after he transformed Ghana into a one-party state. Nkrumah, famous advocate of African unity and socialism, led Ghana to independence from Britain in 1957. Ghana celebrated its 50 th year of independence in 2007. Kufuor's first-term agenda emphasized efforts to bolster national unity and social equity after the 2000 election; to fight reportedly widespread corruption; to reassert the rule of law; and to revive a flagging economy. Upon taking office, he faced diverse poor economic indicators: flat growth; currency deflation; poor or declining prices for key commodity exports (gold and cocoa); high inflation, interest, and unemployment; and dependence on foreign aid. Kufuor vowed to tackle these problems aggressively, but faced a roughly evenly party-divided legislature and a NDC-dominated bureaucracy. He met these challenges by taking steps to privatize state firms, diversify the economy, increase Ghana's world market access, and pursue politically difficult fiscal austerity policies, measures which he pursued in his second term in office. Ghana continued to face multiple economic challenges at the end of President Kufuor's tenure, but his administration achieved many of its initial goals, including substantial utility deregulation, an increase in hard currency reserves, and increased private sector-led economic growth rates. Economy and Development Prospects Ghana's economy has grown steadily in recent years, albeit with a global recession-linked dip in 2009; gross domestic product (GDP) totaled $16.65 billion in 2008, $15.62 billion in 2009, and is projected to rise to $17.88 billion in 2010 and $22.77 billion in 2011. Export earnings have also grown in recent years; they stood at $5.3 billion in 2008, are estimated at $7.3 billion in 2010, and are projected to rise to $10.5 billion in 2011. Rising commodity prices, notably for key exports like cocoa and gold, as well as growth in tourism, have played key roles in spurring economic growth. The discovery of a significant offshore light crude oil reserves—most notably the Jubilee field, in 2007 and several other discoveries, along with positive prospects for additional ones—have boosted future export earning and state revenue prospects. The large anticipated rise in exports and national product in 2011 are attributable to the initiation of oil production, earnings from which are currently projected to be highest from 2011 to 2016. The economy grew at an estimated annual rate of 7.3% in 2008 but fell to 4.1% in 2009, according to the Economist Intelligence Unit, which forecasts a slightly higher rate of growth of 4.7% in 2010 and a sharp rise, to 14%, in 2011, spurred by investment in the oil sector and the initiation of large-scale oil production. Domestic savings rates are rising, and a large influx of expatriate remittances has boosted growth, notably in construction. The small Ghana Stock Exchange has boomed in recent years, and in 2003 Ghana received its first sovereign credit rating. It was subsequently upgraded, but was recently downgraded moderately by at least one major sovereign credit rating agency, Standard & Poor's Ratings Services—although days later another credit rating agency, Fitches, raised it slightly. In September 2007, Ghana successfully and for the first time raised $750 million in international Eurobond issues. Agriculture remains important, especially for the domestic economy—even though about 51% of the population is urban, a demographically high rate by regional standards—although services and extractive industries (mining, and, prospectively, the oil and gas sector) are rapidly growing. Agriculture employs somewhat under 60% of workers, and contributes about 33% of annual gross domestic product (GDP), although its contribution to GDP has been dropping marginally in recent years. Services, notably the information technology and financial sectors, have expanded rapidly and have eclipsed agriculture; services contributed 42% of GDP in 2009, according to World Bank estimates. Ghana has established a small offshore call and information processing industry, and several new banks have been created. Industry, notably the gold mining sector, has also grown substantially; it provides around 25% of GDP. Gold exports contributed nearly 45% of annual GDP in 2008; high global gold prices spurred by the global economic downturn and financial system weaknesses in recent years have made it an important source of hard currency during the downturn. The government supports the extensive small-scale and informal sectors through the use of micro-loans and small business-friendly policies. Ghana cooperates closely with the international financial institutions. It fulfilled its World Bank and International Monetary Fund (IMF)-backed Ghana Poverty Reduction Strategy (GPRS, 2003 - 2005). In part due to this, Ghana received debt relief under the Heavily Indebted Poor Countries Initiative ($3.5 billion) and the Multilateral Debt Relief Initiative ($3.86 billion). This has led to additional international financial institution assistance, and has resulted in a series of actual or planned debt write-offs by bilateral creditors totaling about $3.5 billion. The World Bank currently supports Ghana's Growth and Poverty Reduction Strategy (GPRS II) under its Country Assistance Strategy (CAS) for Ghana , 2008-2011. The World Bank's 2006/07 Doing Business report ranked Ghana third among 10 global "Top Reformers" based on gains in public service provision, contract mediation, import operations, and reductions in red tape for property and business start-ups, and while Ghana faces many economic and private sector growth challenges, its Doing Business scores continue to improve. It jumped from being ranked in the bank's Doing Business 201 0 report as the 77 th easiest place to do business world-wide to the 67 th -ranked country in the Doing Business 2011 assessment. Economic Challenges Despite much economic success, poverty remains widespread, notably among the rural majority and compared to the global population, although Ghanaians have better access to public goods and services than citizens of many surrounding countries. In 2006, according to the World Bank, 39.2% of rural Ghanaians lived below the national poverty line, compared to 10.8% of urbanites, and in the same year, nearly 54% of Ghanaians lived on $2 or less a day. Poverty rates are slowly declining, however, and the average annual income of $700 in 2009 has grown markedly from the 2003 level of $310. Social indicators have steadily improved, although there are mixed assessments regarding the extent to which Ghana may attain its U.N. Millennium Development Goal (MDGs) commitments. Electricity Supplies Electricity is widely viewed as a necessary for Ghana's future economic development and growth, and for its aspiration to attain middle income country status. Insufficient electricity supplies and periodic outages have been a recurrent problem during the past decade. This was notably the case in 2007, as a result of low water levels in the Lake Volta reservoir, which supplies hydroelectric generation power to the large Akosombo Hydroelectric Project. The Kufuor government, however, pursued several national and international regional power generation or distribution projects, along with efforts to liberalize the electricity sector, and the Mills government has followed suit. Several new electrical generation projects, involving hydroelectric, gas-fired, and wind-generated technologies, are underway or planned. While demand continues to rise sharply, with estimates ranging from 7% to 12% a year, Ghana produces more power than it consumes. Construction of six additional thermal projects was expected to begin by late 2010, adding an additional 1,225 MW by 2015. Ghana's increasing power generation capacity and exports are slated to enable it to increase domestic supplies and make it a major regional electricity exporter. There are several power distribution projects under way, including the construction of a major transmission line to Burkina Faso and a Chinese-backed project to extend power to under-served areas in northern Ghana. One regional public-private energy effort, the U.S.-backed West African Gas Pipeline (WAGP), designed to bring natural gas from Nigeria to Ghana and it eastern neighbors, had faced repeated delays and slower than projected progress. The first gas reached Ghana in late 2008, and some gas had subsequently been exported, but regular, large volume commercial gas deliveries did not begin until August 2010. Efforts to increase electrical production capacity have been accompanied by periodic sectoral reforms. In late May 2010, public electrical and water rate pricing structures were sharply increased, by an average of 89% and 36%, respectively, although different types of consumers faced different rates hikes, with the highest increases on industrial consumers. This action prompted public protest, and a government committee later reduced the level of increase by 10% across the board. Refined Oil Supplies In addition to facing electricity sector challenges, Ghana has also faced difficulties in refining adequate amounts of oil for domestic use, primarily due to chronic and large debt of the Tema Oil Refinery (TOR) Ltd, which is often unable to marshal adequate credit to ensure uninterrupted crude supplies. To deal with such challenges, Ghana has reportedly entered into short term oil credit supply arrangements with Libya, Nigeria, and Equatorial Guinea. Problematic refinery operations have prompted worker protests, as well as the firing of the former head of TOR in 2009. Ghana is currently negotiating the possible construction of a new refinery; see " Production ,"below). Comparative Socio-Economic Policy Orientations In addition to factors discussed above, the Kufuor administration attributed Ghana's economic success under President Kufuor's tenure to fiscal discipline, improved revenue collection, and to the government's policy agenda, although its critics labeled it wasteful, notably during the last two or so years of President Kufuor's tenure, when growing electoral pressure reportedly spurred rises in public spending. The Kufuor Administration also emphasized liberal, private sector-focused economic reform goals and efforts to promote good governance and improve living standards. The Kufuor government also reportedly boosted investment in education, healthcare delivery, communications, and infrastructure. The latter is fairly developed by regional standards but in many cases is aging or inadequate to meet future demands. The Kufuor government also sought to address possible socio-economic and regulatory challenges arising from a forecast rise in oil earnings, although it was criticized for not committing more strongly to public transparency commitments regarding oil revenues, and failed to enact certain proposed energy sector legal reforms. The Kufuor Administration established a state task force to study ways to ensure that such funds are used for socially equitable economic diversification projects and to develop the nascent oil sector. The Kufuor Administration also planned to create a national stabilization fund to minimize economic growth shocks and revenue volatility associated with its dependence on cocoa, gold, timber and oil exports. The Mills Administration has supported many economic and policy goals that are similar to many of the objectives sought by its predecessor. Compared to former President Kufuor, however, he has espoused a more state-centric growth strategy revolving around an energy sector-funded industrial policy focused on investments in "human resource development, in key infrastructure, in the development of the oil and gas sectors, and above all, in the modernisation of agriculture and related processing activities." In addition to a range of social-economic investments being proposed under emergent petroleum revenue management legislation, fast-tracked "flagship" investments include "a Deep Sea Port with a dedicated oil services facility and the rehabilitation of the Western railway corridor," roads, and new gas-fired turbine capacities. The Mills administration also plans to use oil and gas revenues and supplies to build: an integrated aluminum industry based on bauxite; a petrol-chemical industry based on salt and natural gas; a fertilizer industry to give impetus to agro development; a salt-based industrial chemical industry for caustic soda; and allied consumer products and exports based on oil and gas. Establishment of "an integrated iron and steel industry" using domestic iron ore deposits is also planned. Part of the impetus for such plans is a desire by President Mills to diversify the economy by 2016, so that Ghana's "dependence on traditional raw material exports of cocoa, gold and timber will be a thing of the past." Measures to increase food security and technical assistance to fishermen are also key policy goals, among other agricultural goals, which also include a proposed Agricultural Development and Investment Fund (ADIF), which would fund businesses in the agricultural sector. His strategy seeks to establish "a solid foundation for accelerated job creation," provide Ghanaians access to "better incomes and a much higher standard of living, and attain middle-income status. Education, health, water, and housing investments—the latter through a decentralized system of investments by local governments—are other key current policy goals of the Mills government. Ghana: Oil Ghana has significant oil and gas reserves, and production from one field alone is projected to place Ghana among the top 50 oil producing countries worldwide once full production of 120,000 barrels per day is attained. Production, which is expected to commence in late 2010, will initially start at less than full production, but output could eventually flow at significantly higher rates, depending on how and when additional known oil fields are developed. Reserves Ghana's total oil and gas reserves (i.e., identified deposits for which production is technically feasible and economically viable) are difficult to estimate, because most of its oil and gas deposits have been discovered relatively recently. While size and other quality estimates have been calculated for some fields, additional drilling, seismic and other surveys are regularly changing these assessments, and new discoveries continue to be made. Ghana's largest oil reserve is contained in the Jubilee field, which straddles two key offshore oil licensing blocks known as Deepwater Tano and West Cape Three Points. Discovered in 2007, it has "certified proven reserves" of 278 million barrels of oil (MMBO), but is widely believed contain significantly larger amounts of oil. A Ghana National Petroleum Corporation (GNPC) mid-point (P50) estimate set the Jubilee reserve at 490 MMBO. A more recent, July 2010 statement by Tullow Oil  the operator of and a 49.5% /partner in Deepwater Tano and a 22.9% partner in the West Cape Three Points portion, to be operated by Kosmos Energy  indicated with a greater degree of certainty that the Jubilee reserve is larger than these prior estimates. Tullow estimated  at a high, P90 level of confidence  that Jubilee holds 600 MMBO, with significant "upside" (larger-sized) potential, while at a lower, P10 level of probability, it estimated that the field would contain 1,500 MMBO. On probability estimates and methods of assessing oil reserves, see "Estimating Oil Reserves" (text box). Another field in the Deepwater Tano block, Tweneboa, could contain between 100 MMBO (P90) and 1,400 (P10) MMBO, while several others in the two fields could contain an additional 1,400 MMBO (P10). Multiple other blocks are currently under exploration by a variety of operators and partners, and there have been some potentially large discoveries. According to Tullow, Ghana's gross resource potential could total 4.5 billion barrels, while according to a press report, estimates to date suggest that there exist at least 3 billion barrels of reserves. Kosmos Energy, one of the main partners in Jubilee, has published even more optimistic claims, stating that its finds "in the vicinity of Jubilee" show a "field P50 estimate" of one billion barrels of recoverable oil and potential, though unconfirmed additional prospects that may exceed 10 billion barrels. Most of Ghana's oil fields contain natural gas condensate as well as oil, and there have been several predominantly gas finds as well. Jubilee has an estimated gas-to-oil ratio of 1,100 to 1,200 standard cubic feet per barrel of oil. Production Production at Jubilee—initially under a $3.3-3.4 billion "Phase 1 Development Plan" focusing on extraction from a core area where reserves are best documented—is slated to commence in late 2010. The Phase plan covers a special cross-block production zone called the Jubilee Unit Area, the first portion of the Jubilee field to be commercially tapped. A dedicated Floating Production Storage and Offtake (FPSO) vessel, which will technically control and process the output of multiple wells, has been constructed and, according to a GNPC official, 92% of field production infrastructure is in place. About 120,000 barrels of oil per day is projected to be produced once full rates of oil production are attained during Phase 1. This amount could rise, as oil production could double to 240,000 barrels per day once Phase 2 production commences in 2014, and could even reach 500,000 barrels of oil a day. Between 120 and 140 million standard cubic feet per day (MMSCFD) of gas is expected to be produced during peak production at the Jubilee field. Plans for how gas from Jubilee will be used initially will depend on oil extraction from the field. Some gas is slated to be reinjected into the field to boost oil pressure and production, and for retention pending the construction of gas pipelines and market structures. The GNPC intends to produce liquid natural gas for international and domestic sale and deliver "dry" gas to domestic electricity plants for purposes including commercial gain, achievement of at least partial national energy self-sufficiency, and in order to avoid gas flaring, which is a source of pollution and lost revenue potential. The GNPC plans the phased construction gas pipe and processing infrastructure capable of transporting and delivering an eventual 300 MMSCFD of gas. In October 2010, the Ghanaian government was also negotiating a memorandum of understanding with China Tianchen Chemical Engineering Corporation (known as TCC) to construct a $1.8 billion oil refinery with a daily processing capacity of 120,000 barrels a day. This capacity would allow Ghana to produce nearly twice the 65,000 barrels that it reportedly consumes each day, and increase its current 45,000 barrels per day refining capacity by about 265%. Oil Sector Issues and Controversies Development of Jubilee has been controversial and has at times threatened to become an impediment in U.S.-Ghanaian relations, primarily in relation to the nature of Kosmos Energy's entry into the Ghanaian oil sector, and in relation to efforts by the U.S.-owned firm to sell its stake in Jubilee. Attention to these issues, along with various investigations into aspects of them and the activities of the E.O. Group, which reportedly helped Kosmos enter Ghana, have been driven, in part, by alleged political fears by the current NDC government regarding the earnings, role, and motivations of the E.O. Group. The principals of the E.O. Group, which moved to the Cayman Islands and registered under a new name shortly before Ghana's 2008 election, are viewed by some as being close to the NPP. The NDC is said to fear that the E.O. Group might channel the proceeds from its oil assets to the NPP for use in the next election in 2012. These various issues have engendered sometimes acrimonious relations between Kosmos and various elements of the Ghanaian government, notably the GNPC. Kosmos Energy LLC, a Dallas, Texas-based company, is the mother company of Kosmos Energy Holdings, a holding company based in the Cayman Islands, which owns a Ghana-based affiliate, Kosmos Energy Ghana HC. Most equity in Kosmos Energy is owned by two large U.S.-based private equity companies, Warburg Pincus and Blackstone Capital Partners, a private equity fund affiliate of the Blackstone Group, although Kosmos Energy's activities in Ghana are also backed by loans from the International Finance Corporation and the Africa Finance Corporation. Although an attempt by Kosmos Energy LLC ("Kosmos" hereafter) to sell its Ghanaian oil rights failed in August 2010 and Kosmos may yet sell its stake to another buyer, shortly after the termination of the agreement the firm announced that it planned to remain active in Ghana, both in as a developer if the Jubilee field and regarding further exploration and field appraisal activities. It announced that it had received an additional $350 million in debt from an international bank consortium to fund these activities. Controversy over the development of Jubilee has revolved around several issues. There have been allegations that E.O. Group, a small Ghanaian partner in the West Cape Three Points block, beginning in 2004, "used its political connections to top officials in the former [NPP] government" to facilitate Kosmos's entry into the Ghanaian oil sector and interactions with Ghanaian oil officials and to "win more favourable terms both for themselves and Kosmos," after entering into an agreement with Kosmos. Under a reported E.O. Group-Kosmos deal, Kosmos would finance some of the E.O. Group's "share of exploration and development costs up to the [initiation of] production of first oil" on a reimbursable basis, thus allowing the E.O. Group to secure a 3.5% share of the block that is estimated to be worth $200 million or more. The two principals of the E.O. Group are George Yaw Owusu, an oil sector businessman with NPP ties who served as the Kosmos representative in Ghana for a time, and Dr. Kwame Bawuah-Edusei, a medical doctor. Bawuah-Edusei reportedly maintained close ties to former President Kufuor. He was appointed ambassador to Switzerland 2004 and later served as Ghana's ambassador to the United States. How the E.O. Group gained its block share and its relationship with Kosmos have been the focus of several probes. One, by Ghana's the Attorney-General and Minister of Justice relates to possible violations by the E.O. Group of corporate and anti-corruption laws relating to "financial loss to the state, money laundering, and making false declarations to public agencies." One of the questions reportedly at issue is "why Kosmos was able to secure fiscal terms that were $3.8 bn. better on its West Cape Three Points field in 2004 than the terms secured a year later by its counterpart, Ireland's Tullow Oil, on Deepwater Tano, an adjacent field of similar prospectivity." Members of the current GNPC board are reportedly "concerned at the way in which Kosmos and … the] EO Group… secured what they regard as preferential terms." Another probe reportedly involved a 1,200-page due diligence report by the UK-based Risk Advisory Group, an "intelligence, investigations and security company," commissioned by U.S.-based Anadarko Petroleum Corporation into Kosmos's operations in Ghana and the E.O. Group in order to determine whether relations between a U.S. firm and the E.O. Group would violate the U.S. Foreign Corrupt Practices Act (FCPA). Anadarko is a partner, along with Kosmos in the West Cape Three Points and Deepwater Tano blocks and the Jubilee Unit Area consortium. The due diligence report was reportedly forwarded by a Washington-based law firm to the U.S. Department of Justice, which reportedly then undertook its own investigation, and in mid-2010 is said to have "concluded there was no evidence of breaches" of the FCPA. Both Kosmos and the E.O. Group's principals contend their activities in Ghana have always strictly complied with all laws, the E.O. Group has contended that its principals are "innocent men" and that the firm has been the object of "an incomprehensible campaign of character assassination, false allegations of misconduct, and abuse." Several smaller controversies have also dogged the development of the Jubilee field. A fine has been imposed on Kosmos for its alleged responsibility in three oil drilling-related pollution incidents, but has contested the legal basis for the fine and is fighting the case. Another issue revolves around the contracting for the Floating Production Storage and Offtake vessel being used in Jubilee field production operations. The Kosmos Stake Perhaps the most notable controversy between the Ghanaian government and Kosmos was an effort by Kosmos to sell its stake in Ghana to Exxon Mobil for a reported $4.2-$4.3 billion. The deal, which Kosmos had contended was sealed under an "exclusive binding agreement" reportedly signed between Kosmos and Exxon Mobil in September 2009, expired in August 2010 following the GNPC's refusal to recognize the sale agreement, which was necessary for the sale to go forward. Chinese and Other Foreign Interest in Ghana's Oil Sector While the dynamics of the Kosmos-Exxon Mobil deal and implications for parties financially affected by its success or failure attracted much attention, the deal also drew notice because of the role of Chinese investors—among other international firms—as possible alternative partner, with GNPC, in the purchase of the Kosmos's Ghanaian assets. Chinese firms have shown increasing interest in Ghana's oil resources as estimates of their value and size have grown, as have other major oil firms, including Chevron, Total SA, British Petroleum (BP), Shell Oil, Eni of Italy, and India's Oil and Natural Gas Corporation Limited (ONGC), and the China National Offshore Oil Corporation (CNOOC). As among as many as 50 firms in total may be interested in buying stakes in Ghana's oil sector. Prior to the termination of the Kosmos-Exxon Mobil deal, some other bidders were reportedly dissuaded from openly offering rival bids "by ExxonMobil's lawyers, who sent letters threatening action against them in the Texas courts for 'tortious interference' (unlawful interference with trade)" should they make such offers. Despite such warnings, several firms did enter bid talks with the GNPC. In early October 2009, CNOOC was reported to have been "in advanced talks with the Ghana National Petroleum Corp. to make a rival bid challenging ExxonMobil Corp.'s $4 billion offer" for the Kosmos stake, albeit on undisclosed terms that at least one report suggests involved amounts "between U.S. $3 and $5 billion in addition to granting the government a concessionary loan of U.S. $2 billion." The CNOOC talks, of which news leaked in August 2009, were preceded by an agreement under which CNOOC agreed to provide the GNPC with financial and technical assistance. In late October 2009, China Petroleum & Chemical Corp (commonly known as Sinopec, a publicly listed affiliate mostly owned by China Petrochemical Corporation, i.e., the Sinopec Group, a Chinese state-owned enterprise) also reportedly made an offer to jointly bid with GNPC for Kosmos's oil stake under undisclosed terms. The bid, undertaken for Sinopec by Neil Bush, the brother of former President George W. Bush, was not accepted by GNPC. The Sinopec bid was followed, in December 2009, by a financing agreement between the GNPC and the state-owned China Development Bank (CDB) under which the latter agreed to lend the GNPC an initially undisclosed sum—later reported to be $3 billion—to finance its share of Jubilee field development costs. Chinese interest in Ghana's oil sector remains strong; in October 2010, CNOOC joined with the GNPC to submit a $5 billion, all-cash bid to purchase Kosmos's Ghanaian assets. While initial press reports suggested that the bid was a strong one, it was rebuffed by Kosmos, which reiterated that it was committed to staying on as an oil producing firm in Ghana, rather than selling its stakes. It is not clear why the offer was refused, given that it was significantly higher than the Exxon Mobil deal that Kosmos had recently so strongly supported. One possibility has been suggested by press accounts that report that the value of Kosmos's assets may be significantly higher than $5 billion. A September 2010 recent research opinion report regarding Anadarko Petroleum's stake in Jubilee, which is equal to that of Kosmos, is said to indicate that the Anadarko asset—and, by implication, Kosmos's holdings—is worth an estimated $6.75 billion. In addition, ongoing discovery evaluations and finds by Tullow and other firms suggest that the estimated value of Kosmos's assets may rise. Kosmos, which reportedly faces capital gains tax losses if it does not sell its assets before Jubilee production begins and could face a changed earnings environment if Ghanaian laws are altered, may also be attempting to elicit a higher bidding price by negotiating a possible initial public offering with Credit Suisse Group AG and Citigroup. Such a strategy may also be intended "to placate [Kosmos] private equity backers Blackstone and Warburg Pincus, both of which are keen to recover their investments." The GNPC, by contrast, has incentives to see a lower price, both because the "higher the price the new entrant pays […] the more the new owner can claim in costs and so reduce its liabilities for the additional petroleum tax" and because a lower price would make a GNPC buyout less costly to Ghana and/or its financial backers. Other Energy Sector Issues Economic Impact and Revenue Over-Commitment The advent of oil revenue appears to be spurring a growth in Ghanaian public spending. This year, ahead of anticipated oil revenues, the Ghanaian government committed to a large public sector wage hike, and in October 2010, members of parliament awarded themselves a 17% pay raise, retroactive to 2008. In late 2010, the Ghanaian parliament was also considering a reported $1.12 billion in loan deals, some with little-known entities. Foreign debt borrowing by the government has also risen, and following an International Monetary Fund (IMF) lowering of its projection for anticipated future oil earnings, has raised the concern of some in Ghana. In late 2009, Ghana reportedly provisionally agreed to a $10 billion deal with the South Korean government and STX Group of South Korea to build housing, and in September initialed a $15 billion package of loans from Chinese public and private sector enterprises. Some warn that Ghanaian decision makers and the public should not overestimate the value that oil and gas revenues may produce, nor over-commit on credit or spending that is dependent on currently unrealized oil revenue. As the U.S.-based Revenue Watch Institute noted: Revenues from oil are expected to be sizable, being estimated to average US$1 billion per year from 2011 to 2029, or about 5 percent of GDP. Although significant, the impact should not be exaggerated. The oil windfall represents less than the current annual budget deficit and less than US$50 per capita. Even if there are further discoveries, Government revenue from oil and gas cannot be the sole or indeed even the major source of financing for Ghana's public investment strategy. Energy Sector Governance Governance of the energy sector, and in particular transparency, accountability, and efficacy regarding public benefits relating to the receipt and expenditure revenue streams generated, is a key issue facing Ghanaians. Ghana is a signatory of the Extractive Industries Transparency Initiative (EITI), an international effort to foster transparent and accountable governance in resource-rich countries through the public release of verified government revenues from extractive industry company payments. In October 2009, Ghana became the second African EITI signatory—and one of five countries worldwide—to be judged EITI Compliant. Ghana's institutional framework for implementing EITI is called the Ghana Extractive Industries Transparency Initiative (GHEITI). It is overseen by an 11-member National Steering Committee (NSC) comprised of government, private sector firms, and civil society representatives. Initially, Ghana's EITI program, which it pursued beginning in 2003, was limited to the mining sector. Critics questioned this arrangement, however, since the term 'extractive industries' most commonly refers to the oil/gas and mining sectors—although some countries include other natural resource sectors, such as forestry, within their EITI implementing frameworks. Some positive reforms in the mining sector had also reportedly resulted from the implementation of EITI. Advocates of expanding the initiative to cover the oil and gas sectors used the achievement of such reforms as a rationale for pursuing their goal, which the Mills administration vowed to implement. As a result of consultations between multiple stakeholders in 2009 and 2010, in August 2010 the GHEITI NSC was restructured to include representatives of the oil and gas sectors—in addition to the mining sector—and the new NSC was inaugurated in September 2010. Legal Reforms The Ghanaian parliament is currently considering passage of two oil sector bills, entitled the Petroleum Revenue Management Act, 2010 and the Petroleum (Exploration and Production) Act, 2010 , both drafted by the executive branch after public and private sector consultations. The government has fast-tracked passage of the bills, but they may not pass as quickly as the government had anticipated. The Majority Leader in Parliament had stated that the laws would be passed before the 2011 budget is considered. This roadmap, however, has raised concerns that the laws may not receive adequate consideration and scrutiny, and an amendment of the revenue management may delay passage of that bill. Environmental Capacity There are concerns that Ghana does not have an adequate environmental oversight and oil sector spill or pollution response capacity in place to deal with the advent of oil production, and will not have them in place prior to 2012, well after the projected start of large-scale oil production. The government denies such contentions, and asserts that it has such capabilities in place. Concern over oil-related environmental threats was underlined by the recent massive BP spill in the United States and by alleged violations of Ghanaian regulations by Ghana's Environmental Protection Agency and Kosmos, charges that the firm denies. Other concerns have included allegedly technically inappropriate or weak regulatory behavior by authorities. Corruption Public sector bribery in Ghana is reportedly common, and there have been several high profile corruption cases involving top officials. Some critics contend that anti-corruption law enforcement is often weak. Transparency International's (TI) Global Corruption Barometer 2009 , 38% of Ghanaian respondents reported that public or civil servants were corrupt, and 42% reported that they or someone in their household had paid a bribe in the last year, although 58% viewed their government's anti-corruption efforts as effective. Another 34% reported them as ineffective. According to the TI 2010 Corruption Perceptions Index , Ghana was the 62nd most corrupt country among 178 surveyed, and the 7th least corrupt of 47 countries in sub-Saharan Africa. According to the U.S. State Department, "petty corruption in the police force is widespread. A 2005 study by the Commonwealth Human Rights Initiative found that over 90 percent of Ghanaians reported being asked to pay a bribe to a police officer, sometimes to receive police services, such as to submit an accident report." President Mills has pledged to reduce corruption "to the barest minimum and make the penalty for corruption so high that it will become something to avoid at all cost." His primary tactics for doing so include efforts to improve the capabilities of anti-corruption government agencies, to "rigorously" enforce Ghana's Whistleblower's Act, and to "vigorously" prosecute official corruption. The government also plans "a massive education campaign against corruption" involving state anti-corruption institutions and civil society anti-corruption agencies and organizations (e.g., the Ghana Anti-Corruption Coalition and the Ghana Integrity Initiative). Transparency and accountability were also key goals of the Kufuor administration. The Kufuor administration backed passage of several anti-corruption and public sector transparency laws, made Ghana a participant in the Extractive Industries Transparency Initiative, and signed and ratified the African Union convention on corruption, among other actions. Corruption, nevertheless, has remained a problem. Notwithstanding the Kufuor government's private sector orientation and diverse achievements, the State Department's FY2008 Congressional Budget Justification, mirroring the views of some other observers, noted that Ghana remained "a difficult place to do business; contract sanctity, clear land title, and expeditious licensing regimes present daunting challenges. Schools are inadequate, and quality health care is unavailable for many, particularly, for the poor and the disenfranchised." Illicit Drugs Ghana, among multiple other West African countries, has faced a growing drug threat over the past decade, primarily as a result of its use as a transshipment point for the trafficking of cocaine from Latin America to Europe. When he traveled to Ghana in mid-2009, President Barack Obama highlighted the challenge posed by drug trafficking in Africa, which a White House release stated "threatens stability throughout West Africa." Several large cocaine shipments have been intercepted in Ghana since 2003, most in the mid years of the past decade, although there was at least one large seizure in 2009 and there continue to be periodic small-scale smuggling cases (e.g., via airline flights). A decline in seizures in Ghana in recent years, as in several other coastal West African countries, may indicate a possible reduction of the threat of drug trafficking, although whether there has in fact been a decline—and, if so, what may explain it—is not clear. Some postulate that cocaine shipments are now being trafficked by long-haul aircraft from Latin America to the Sahel for onward shipment to Europe, bypassing coastal West Africa. Other possibilities are that traffickers have formed networks that allow them to transship undetected, or have been deterred by stepped-up law enforcement efforts. Apart from cocaine seizures in Ghana, there have been other indications of Ghanaian ties to international drug trafficking, as indicated by periodic arrests of Ghanaians in other countries, including in the United States, West Africa, and Europe. Another incident indicative of Ghanaian involvement in cocaine smuggling internationally involved the death of two suspected Ghanaian smugglers in Benin prior to an August 2007 seizure of 350 kilograms of cocaine. In the mid-2000s there were other possible indications of international cocaine smuggling, such as anecdotal reports of an increasing influx into Ghana of apparently wealthy Latin Americans suspected to have drug ties. According to the State Department, "Ghana's interest in attracting investment provides good cover for foreign drug barons to enter the country under the guise of doing legitimate business. However, South American traffickers limit their personal involvement in Ghana by relying on local partners, thus insulating themselves from possible arrest by local authorities." Several years ago, there were also several high-profile cocaine-corruption cases involving government officials. There were several cases in which suspected large-scale cocaine shipments that were seized or targeted in drug operations disappeared prior to or after being confiscated, with alleged with official connivance. Ghana has also served as a departure point for human drug couriers, known as mules, who either swallow their shipments (a procedure known as "body packing") or transport them on their persons or in their luggage while traveling on commercial air passenger flights. While Ghana may continue to serve as a courier transit point, there have been fewer reports of drug arrests, and airport screening has reportedly improved, in part as a result of U.S. and United Kingdom (UK) technical assistance. In February 2010, President Mills acknowledged both the threat posed by drug trafficking and an apparent decline in the phenomenon. Cooperation Ghana engages in counternarcotics cooperation with multiple members of the international community, including the United States. However, according to the State Department, corruption and a lack of resources continue to seriously impede interdiction efforts. While law enforcement authorities arrested low level narcotics traffickers, Ghana has had less success pursuing the so-called drug barons. Ghana-U.S. law enforcement cooperation was strong in 2009, and the Drug Enforcement Administration (DEA) opened an office in Accra in January. Interagency coordination among Ghanaian law enforcement entities remains a challenge. The United States has supplied airport scanners aimed particularly at intercepting air courier smugglers, trace itemizers (trace narcotic and explosive substance identifying machines), and other surveillance equipment. The U.S. military's Africa Command has funded the construction of small physical facilities, such as a police drugs evidence storage and training facility and a dedicated airport scanner room. The State Department assistance is used to train law enforcement officers and prosecutors, and to provide customs technical assistance and training. In January 2009, the U.S. Drug Enforcement Administration (DEA) opened a permanent regional cooperation office in Ghana. In August 2010, a DEA-backed, U.S.-vetted Ghanaian police unit, the first such unit on the sub-continent, was put into operation. Under the program, selected Ghanaian personnel were vetted by DEA officers to undergo extra training, as well as background checks, including polygraphs. The unit consists of 20 counter-narcotics police personnel. The program has reportedly received strong support from the Mills government, and DEA is said to enjoy an excellent working relationship with Ghana's Narcotics Control Board (NACOB). Vetted units are designed to improve U.S. capacity to coordinate with host nations regarding counternarcotics matters and to minimize the risk of joint law enforcement operations from being compromised through official corruption. U.S.-Ghanaian cooperation also resulted in the December 2009 the extradition from Ghana and by the U.S. Drug Enforcement Administration (DEA) of three West Africans on narco-terrorism charges. The indictees, reportedly self-described associates of Al Qaeda, allegedly agreed to transport cocaine from Mali through North Africa into Spain on behalf of purported representatives of the Colombian drug trafficking and terrorist organization, the Revolutionary Armed Forces of Colombia (FARC) with the assistance and protection of Al Qaeda. A key charge in the indictment is the allegation that the indictees' actions would have provided pecuniary benefits to Al Qaeda and AQIM, which, like the FARC, are designated as foreign terrorist organizations (FTOs) by the State Department. The indictment is believed to be the first publicly known use of U.S. Statute 21 U.S.C. 960a to prosecute crimes related to drug trafficking in support of terrorism alleged to have been committed in sub-Saharan Africa. It also marks the first prosecution of associates of Al Qaeda for narco-terrorism offenses. According to the State Department, Nigerian and Ghanaian trafficking organizations are involved in smuggling heroin from Afghanistan and Pakistan to several parts of the United States, including Ohio and the New York area. In 2006 and 2007, a DEA investigation also disrupted an Afghanistan-based drug trafficking organization's heroin smuggling route through West Africa en route to the United States, which resulted in the expulsion from Ghana and subsequent conviction in the United States on the drug trafficking charges of two of the targets of the investigation. Ghana also assisted in the June 2009 extradition from neighboring Togo of a DEA cocaine trafficking suspect who was part of a large, internationally dispersed criminal organization. At least one Ghanaian, who was allegedly part of the organization, was arrested in relation to the case. International Relations Ghana's government is an active participant in continental affairs (e.g., activities of the African Union), and sub-regional affairs, notably the activities of the Economic Community of West African States (ECOWAS), a regional multilateral group of governments. In October 2010, former Ghanaian president Jerry Rawlings was appointed as the African Union (AU) envoy for Somalia. His mandate, laid out by the 15th Ordinary Session of the AU Assembly held in late July 2010, is to "mobilize increased support for efforts to promote peace and reconciliation in Somalia and generate greater attention from the international community." A retired Ghanaian diplomat and politician, James Victor Gbeho, assumed the post of Economic Community of West African States (ECOWAS) Commission President after the former incumbent of that post, Dr. Mohamed Ibn Chambas, also a Ghanaian, was appointed General Secretary of the African, Caribbean and Pacific Group of States (ACP). Ghana was elected to chair the African Union in 2007 and hosted the ninth African Union Summit in July 2007. It also served as a U.N. Security Council member, 2006-2007. Like many African countries, Ghana is pursuing greater economic cooperation and trade ties with China, and has increased its exports to China, notably manganese and cocoa. Ghana also maintains close bilateral cooperation and trade ties with a number of European countries, and is also building ties to Korea and Brazil. Ghana is reportedly securing three naval vessels from China, Germany and Korea. Ghana has actively mediated in crises in Liberia, Cote d'Ivoire, and Togo, and periodically contributed regional peacekeeping and intervention military missions. Strained relations between Ghana and Gambia eased after Gambia agreed in mid-2010 to pay compensation the families of Ghanaian victims allegedly killed in 2005 by rogue Gambian security force elements involved in an illegal migration scheme. Some observers believe that its close relations with the late Gnassingbe Eyadema, former president of Togo, may have caused it to take a moderate stance vis-à-vis Togo's 2005 leadership succession and electoral crisis, which led about 12,000 Togolese to enter Ghana as refugees. Some human rights advocates also criticized Ghana's decision to facilitate the return of Charles Taylor, former president of Liberia, to his country from peace talks in 2003 in Ghana after he was indicted for war crimes by the U.S.-backed Special Court for Sierra Leone. Ghana contributes a considerable number of troops to U.N. peacekeeping operations, notably within Africa. It is seen as having an increasingly professional military, following repeated military interventions in state politics during the twenty-five years following independence in 1957. Ghana is also active in helping to develop African peacekeeping capacities; it hosts the Kofi Annan International Peacekeeping Training Centre, an internationally supported regional peacekeeping capacity-building institution. The United States has provided training and equipment to the center. U.S. Relations U.S.-Ghanaian relations are close, and a small population of Americans, many of African-American descent, has settled permanently in Ghana. The Obama Administration has characterized Ghana as "a model for good governance and development in Africa" and as among the "most trusted partners" of the United States in Africa," sentiments that reflect broad continuity with the Bush Administration's view of Ghana. In part, this strong partnership is due to the Obama Administration's view of Ghana's status as "a leader in promoting peaceful conflict resolution in Africa" and as a major troop contributor to international peacekeeping missions. In its FY2011 Congressional Budget Justification, the Obama Administration stated that Ghana "benefits from stable democracy, an active civil society, an apolitical military, and a good human rights record." The United States and Ghana have signed three bilateral trade and investment agreements, which include an Overseas Private Investment Corporation (OPIC) Investment Incentive Agreement, a Trade and Investment Framework Agreement (TIFA), and an Open Skies aviation agreement. Ghana is a leading African buyer of U.S. goods, but bilateral trade, while growing, is relatively small in comparative global terms. Ghana is eligible for all trade benefits under the U.S. African Growth and Opportunity Act (AGOA) and in mid-2007 hosted the 6 th AGOA Forum. AGOA exports, however, have made up a declining portion of Ghana's exports to the United States; the value of such exports declined from nearly 32% of the total in 2005 to just 1% in 2010, as of early November. Furthermore, the bulk of the value of these exports was made up of fuel or oil and ores; absent these products, the AGOA portion has declined from 3.3% to 0.4% in 2010 (to date). Major U.S. investors in Ghana include Chevron West Africa Gas Ltd. (the West Africa Gas Pipeline); Kosmos Energy, Anadarko, Hess, and Vanco (oil and gas sector); Newmont Mining (gold mining); Archer Daniels Midland, Cargill (cocoa processing sector); and Affiliated Computer Services (data processing). Bilateral Assistance145 While the Obama Administration views Ghana as an important regional ally, it also sees it as facing a number of substantial development and other challenges. According to the State Department's FY2010 Congressional Budget Justification for Foreign Operations , Ghana faces numerous challenges, including weak institutions, over-centralization of authority, corruption, and a growing narcotics trafficking problem. In addition, the Ghanaian health system is struggling, while Ghanaians suffer from a heavy burden of disease, especially malaria. In the past decade, there has been no improvement in maternal and infant morality rates. HIV infects almost 20,000 people each year. Access to education has improved, but quality remains poor and only about a quarter of primary school students can read at grade level. U.S. assistance is targeted at helping Ghana to address these challenges. Governance U.S. assistance helped ensure that the 2008 election was transparent and successful, as discussed preciously; see "U.S. Elections Assistance" text box under "2008 Election" section, above. Other recent U.S. Agency for International Development (USAID)-administered democratization assistance to Ghana has supported decentralization efforts and greater citizen participation in governance, notably at the local and regional level; improved parliamentary law-making and oversight skills; better local government service capacity; and efforts to build civil society capacities to influence government policy making. It has also supported anti-corruption reform, in particular efforts to strengthen public official assets declaration requirements, bolster public support for the creation of public official conflict of interest guidelines, and to expand information sharing among accountability institutions. Although Ghana's has achieved many good governance outcomes, according to an August 2009 USAID policy analysis significant governance challenges remain, including weak central and local level governance institutions, power that is centralized and excessively concentrated in the executive, and corruption. On the local level, three interlocking governance challenges are likely to dominate Ghana's immediate future: improving service delivery to citizens; expanding public participation in governance; and managing Ghana's natural resources accountably and transparently. That the regional and local government officials are appointed by the president exacerbates accountability challenges. Although these are nationwide challenges, they play out most starkly in the villages, towns and urban areas where Ghana's people continue to earn an average of just $2 a day. U.S. assistance planned by the Obama Administration in FY2011 calls for USAID to continue to support goals broadly akin to those it has pursued in recent years: [to] advance the decentralization process, strengthen social service delivery at the local government level, combat corruption through fiscal decentralization, and build the capacity of civil society organizations and parliamentary committees in oversight functions, in particular with respect to extractive industries. Investing in People Recent U.S. USAID-administered health sector assistance to Ghana focuses on preventing HIV/AIDS, malaria, and tuberculosis (TB); increasing health services delivery, particularly focused on maternal health and child survival and malnutrition; and improving state healthcare planning, management, and accountability capabilities. Ghana became a President's Malaria Initiative (PMI) country in FY2008. The Obama Administration's FY2011 CBJ assistance plan for Ghana calls for continued USAID support in these areas, particularly with respect to TB, for which it notes "fatality remains disturbingly high at 9 percent"; prevention and improved quality health services, including increased access to voluntary family planning services ; and Ghana Ministry of Health efforts to promote results-based management and performance-based financing in the health sector. Despite a recently reported large (28%) decrease in reducing infant and child mortality, attributed in large part to maternal and child health donors, including the United States, FY2011 USAID assistance will continue to target "technical and direct project support" toward improved "maternal and child health care through provider training and supportive supervision, while building local management capacity and accountability among the health authorities in the most underserved areas." Maternal health was highlighted by President Obama during his July 2009 visit. Other key health-related assistance focuses on capacity building support for financial, pharmaceutical, and human resource health systems management; public health education, especially focusing on preventative measures, home-based care and building knowledge about and demand for "quality health services." Parental child nutrition training and other efforts to fight malnourishment are other key program foci, as are efforts to ensure access by about a third of Ghana's population to family planning information and services and subsidized contraceptives. PMI assistance is slated to focus on scaling up "proven preventive and treatment interventions toward achievement of 85 percent coverage among vulnerable groups to support the PMI goal of reducing malaria-related morbidity by 50 percent" particularly centering on increasing access to insecticide-treated bed-nets. The Obama Administration also plans to provide Ghana with "significant support to build partnerships" in coordination with the President's Emergency Plan for AIDS Relief (PEPFAR) focused on strengthening integrated prevention, care and treatment programs across Ghana and supporting orphans and vulnerable children. U.S. basic education assistance is slated to boost junior secondary school enrollment and retention; increase English language instruction; literacy education; and improve education system management through a system of district incentive grants. Health and education investments in water and sanitation are planned as an activity that cross-cuts U.S. health and education program support; FY2011 plans call for the targeting of assistance to improve access to "safe and adequate water supply and basic sanitation facilities for schools, clinics, and households," to be accompanied by behavior change efforts and "complementary hygiene practices to maximize the health impact of improved infrastructure." Economic Growth According to a USAID analysis, key challenges to economic growth in Ghana include: limited access to agricultural markets, inefficient and low rates of farm production, and limited availability of credit for farming and agribusiness; inadequate physical infrastructure, notably regarding the road network; lack of agro-processing industry competitiveness of agro-processing due to "deficient infrastructure, small-scale, fragmented production, lack of technology and erratic supplies of farm products"; insecurity to land tenure and property rights due to extensive control over land allocations by local chiefs and in the executive branch, along with restrictions on property sales or transfers; lack of technical and management graduates, notably in the agro-industrial sector; and over-exploitation of fishery resources. In recent years, USAID Development Assistance programs have focused on boosting agricultural marketing and export potential, small business capacity building, and market liberalization reforms, in general in order to strengthen private sector performance and link small producers with markets, including international ones. It has also supported policy reforms aimed at supporting macro-economic stability, liberalizing agricultural input markets, and supporting policy-making capacities related to finance, labor and land regulation, energy, natural resource management, and information and communication technology. FY2011 Development Assistance plans call for a major emphasis on increasing agricultural productivity and utility, in large part under a new development effort called the Global Hunger and Food Security Initiative (GHFSI). Key methods for achieving this goal include efforts to improve trade and transport networks, notably through farm feeder road investments; promote market-based agricultural practices and markets, especially for staple foods; increase the participation of the very poor in rural growth; and improve nutrition. USAID will also support efforts to enhance the "enabling environment for the financial sector" in order to boost access to credit by agro-enterprises. GHFSI activities are projected to be intensely collaborative. The initiative is designed to ensure close coordination between Ghana's implementation of the African Union's Comprehensive Africa Agriculture Development Program, a continent-wide food security and agricultural growth scheme, and U.S. government planning and analysis, and is slated to involve African and international private companies, along with local and international non-governmental organizations, foundations, farmer organizations, and national and regional agricultural research and trade organizations to increase agricultural productivity and production. It is aimed both at ensuring domestic food security and even domestic food access and supplying markets in nearby food insecure countries in the region. Other foci of support include assistance for "integrated coastal and fisheries resource management [to] protect coastal ecosystems and biodiversity resources" and freshwater fish aquaculture development, as well as resources to aid Ghana's global climate-change adaptation efforts and access to alternative energy. USAID is also involved in joint projects with other major donors to build business association and trade unions advocacy capabilities; build the capacity of the Food and Agriculture Ministry; expand the Ghanaian horticultural export industry; and aid land tenure reform. Ghanaians also benefit from trade and export-related technical assistance under the regional USAID African Global Competitiveness Initiative (AGCI). A sub-regional AGCI Trade Hub is located in Ghana. It provides trade, investment, and business information and technical assistance to African and U.S. public and private sector business, trade, and policy entities. Peace, Security, and Counternarcotics Limited Foreign Military Financing (FMF), International Military Education and Training (IMET), International Narcotics Control and Law Enforcement (INCLE) funds support peace and security and law enforcement capacity-building. Military and police assistance centers on helping Ghana to counter its growing use as a key cocaine transshipment point in the region, in large part by increasing its ability to control its borders and key entry and trade points, in part to ensure that, as the FY2010 CBJ stated, "Ghana does not serve as a base or transit point for illicit shipments of people, goods, and narcotics to the United States." In addition to capacity building assistance administered by the State Department's Bureau of International Narcotics and Law Enforcement Affairs (INL), U.S. counternarcotics assistance to Ghana is being pursued by the Drug Enforcement Administration (DEA). In FY2011, INCLE assistance is slated to support "expanded counternarcotics efforts and judicial cooperation between the United States and Ghana," to include the assignment of a State Department Bureau of International Narcotics and Law Enforcement Affairs (INL) regional officer to the U.S. embassy in Accra. FY2010 funds sought to support skills-building, mentoring advice, and training focused on evidence collection and case presentation in order to facilitate successful prosecutions in complex criminal cases, such as drug trafficking and money laundering cases. On the DEA's role and other U.S. efforts to help counter drug trafficking in Ghana, see Illicit Drugs" section, above. An International Military Education and Training (IMET) program supports military professionalism, particularly with respect to maritime security and peacekeeping operations, and in FY2011 is also slated to aid "the continued development of efficient defense resource management." Ghana was among the first recipients of peacekeeper training under the African Contingency Operations Training and Assistance program, a component of the State Department' Global Peace Operations Initiative (GPOI), and has received GPOI training assistance in recent years. In FY2010, FMF assistance is slated to provide continued support to "Ghana's efforts to support regional stability and expand its peacekeeping role in the region" through the purchase of equipment, spare parts, and maintenance assistance. The FY2011 CBJ calls for FMF funds to be used to aid "Ghana's ongoing effort to consolidate and modernize its individual rifles, moving away from the Soviet-era AK47 to the U.S. M16A4" so that all members of Ghana's military "will train and deploy to peacekeeping missions with the same weapon, thereby standardizing training maintenance and reducing the need to maintain several different types of ammunition and repair parts." In recent years, the Department of Defense (DoD) has also provided Automated Identification System (AIS, a ship identifying system) equipment and fast patrol boats to Ghana. DoD has also engaged the Ghanaian military and civilian groups through its Africa Partnership Station, a DOD-sponsored effort to improve maritime security in West Africa that includes participation from U.S. civilian agencies and non-governmental actors. Ghana also acts as a base for periodic regional U.S military activities, such as crisis response actions or exercises. It also participates in the National Guard State Partnership Program, which links U.S. states (North Dakota in the case of Ghana) with partner nations in support of U.S security cooperation and broad bilateral goals. In August 2010, it hosted Africa Endeavor , a two-week communications exercise during which multiple African, U.S., and European participants jointly worked on standard tactics, techniques and procedures for use in humanitarian assistance, disaster relief, and peace support missions in Africa. Other Bilateral Assistance and Cooperation A roughly 150-person member U.S. Peace Corps volunteer program pursues diverse projects, mostly in education, small business development, environment, and public health. The country program is funded at $3.57 million in FY2010 and at a requested level of $3.50 million in FY2011. In addition to USAID bilateral development support, Ghana has received small amounts of emergency humanitarian aid or related preparatory support from USAID's Office of U.S. Foreign Disaster Assistance in recent years. The Treasury Department has also provided technical assistance to Ghana to help it issue Eurobonds, which were issued in 2007. Millennium Challenge Corporation In August 2006, Ghana signed a $547 million, five-year MCC Compact, which "was modified to better respond to farmer demand for services and increased project costs" in early 2009. It supports investments in agriculture, production, business, and income growth (e.g., increasing exports and value-added business capacity, and improving irrigation and land tenure systems); in transportation; and programs to support rural government, social, and financial services. The MCC-Ghana partnership is intended to support the role of sound and institutionalized good governance and strong civil society engagement in sustainable development. Examples of current and recently completed achievements include the opening of a Land Registry Office in February 2010 and registration of selected land parcels; ongoing efforts to leverage Compact funds to obtain commercial bank credit for use in extending agricultural credit to farmer organizations, agribusinesses and individuals; and the construction of 30 schools in the Northern region; contracts for the construction of multiple more schools, boreholes, and local water systems in selected areas have also been signed. Work on upgrading of the key N-1 Highway, which connects a key port to farm production areas, is also ongoing, and a rural bank payment clearing network system, which is aimed at reducing bank transaction times, is operational. In Ghana, the MCC programs are closely coordinated with those of USAID. State Department and USAID Assistance Summary Appendix A. Ghana: Proposed Energy Bills Two key energy sector regulatory bills, the Petroleum Revenue Management Act, 2010 and the Petroleum (Exploration and Production) Act, 2010 , both drafted by the executive branch after public and private sector consultations, were under consideration by the Ghanaian parliament in late 2010. References to the entire text of each of the bills—as submitted by the government to parliament—are provided below, along with a discussion of views of the texts by analysts and critics. Petroleum Revenue Management Act The Mills government won plaudits from some civil society actors when, following criticism, it released a draft of the revenue management proposal prior to public consultations on it. In part as a result of such consultations, the Petroleum Revenue Management bill was subsequently amended. It currently incorporates: a detailed and robust system of oil revenue controls covering their receipt, allocation to the budget and to a revenue stabilization/market volatility fund and a future generations savings fund; a dispersed and detailed system of authorities and controls over revenue management and investments thereof; and strong measures regarding oversight, public information disclosures regarding revenue, and other transparency measures. These provisions have won praise from civil society observers, but some maintain that the bill could be strengthened in several ways, such as by including measures to: Require "certain additional disclosures, including of the [stabilization and future generations saving] funds' holdings at a fully disaggregated level [to] further enhance the transparency of Ghana's revenue management strategy. Mandate public dissemination of oil and gas agreements. Establish a detailed and long-term development plan "aligned with a medium term fiscal framework and annual budgets to ensure that oil proceeds are in fact channeled towards productive domestic investment." A Ghanaian civil society coalition also has concerns about the bill's accountability management framework, notably "proposed amendments to and deletion of some sections of the provisions" of the Act, during parliamentary consideration, that are "critical for effective public oversight" by the Public Interest and Accountability Committee (PIAC). A Ghana's public policy-focused Danquah Institute also reports that an amendment to the bill has been offered that would allow the government to use "proven petroleum reserves" to guarantee loans for infrastructure development. That proposed amendment has proven controversial; the parliament's Joint Committee of Energy and Finance has not reached consensus on whether to agree to the amendment, which would allow 70% of energy revenue to be used as national loan collateral. Petroleum (Exploration and Production) Act In contrast to the Petroleum Revenue Management bill, the Petroleum (Exploration and Production) Act, 2010 has received substantial negative criticism. Civil society groups have criticized an alleged: "absence of transparency provisions" in the bill lack of "open and competitive bidding process for oil blocks lack of mandatory disclosure of petroleum agreements a delegation of strong powers to the Minister of Energy "at the expense of" a proposed independent Petroleum Regulatory Authority a failure to designate "no exploration zones to protect livelihoods of fishermen and farmers"; and the absence in the bill of provisions for an oil spill response fund. The Civil Society Platform on Oil and Gas has also called for a moratorium new oil exploration licenses prior to enactment of the new petroleum exploration act, asserting that "if we find PNDC Law 84 [the existing 1984 oil law] problematic" it should not be used as the basis for signing new license agreements prior to enactment of the new law. The U.S.-based Revenue Watch Institute (RWI), which along with Oxfam USA is offering technical advice to Ghanaian natural resource NGOs, has also authored an analysis, which includes a set of recommendations, that finds that the exploration and production bill "deviates from international practice in several crucial ways that threaten to undermine the management of the sector, limit the long-term benefits from petroleum, and hinder good governance and accountability." In particular, it "does not establish clear rules governing the relationship between" governmental institutions regarding policy-making, "managing the Government's commercial operations," and "regulating/monitoring enforcement." It "gives the Ministry of Energy broad regulatory powers" and "does not provide any clear guidance on the relationship between the Ministry" and the GNPC, key functions of which would shift to the Ministry, or the Petroleum Regulatory Authority. This, RWI states, "would expose Ghana to several risks," such as Weak oversight of the activities of private companies; Confusion in reporting; Delays in approvals and inefficient sector development; and Opacity and corruption. RWI also found problematic a delegation to the Minister of Energy of "broad discretion in the award of contracts." Under the law, RWI states, the Minister "may make an award based on a simple application, with no requirement for competition, disclosure of bids, any standard for company qualification, or any showing on why a particular award was made"—although there is a provision for the Minister to voluntarily "make regulations in respect of 'competitive bidding procedures for petroleum agreements'." RWI calls for a "a system that requires competition in all awards of petroleum contracts" and "at a minimum, a requirement that clear criteria be announced publicly before the bid rounds and that winning and losing bids, and the justification, be disclosed once an award is made." RWI also criticizes the bill for doing "virtually nothing to enhance transparency in the petroleum sector" and by in some instances hindering it by "granting broad discretion to the Ministry without any required reporting to Parliament or the public." It asserts that Ghana's emergent "strong international reputation for transparency and good governance" may be undermined if such provisions are not amended. It suggests that the bill be altered to require Public release and publication of extractive industry contracts, as is required in multiple other developing countries for the purpose of advancing transparency, stemming corruption, public distrust of government or business, and economic efficacy Publication of revenue flows, in line with Ghana's EITI commitments; it states that "in the absence of enshrinement in law, EITI remains subservient to political cycles and lacks guarantees of reliability, predictability, and regularity. Future regimes with weaker commitments to transparency of public revenues could retrench on the commitment to revenue reporting in the absence of a firm legal requirement." "Reporting to parliament on activities of the ministry, GNPC, and regulatory bodies" to enable "strong Parliamentary oversight." The analysis notes that "besides reaffirming the Constitutional requirement that agreements are subject to legislative approval, the word 'Parliament' does not appear once in the Bill." The RWI assessment also contends that the bill allows "key fiscal terms [e.g., royalties, acreage fees, additional oil entitlements, income taxes, and other taxes, to vary...] from one contract to the next." This, it contends, may decrease prospects for stability for and uniform treatment of investors and increase "opportunities for gaming and side-dealing" and the risk of weak "enforcement of fiscal obligations" and "of having company negotiators drive the agenda, which often results in sub-optimal long-term deals for the state." It suggests that such payments be specified in law, and that the number and types of payment and contract variables that may be negotiated by minimized.

This report provides information on current developments in Ghana and Ghanaian-U.S. relations, which are close. Warm bilateral relations were signaled by President Barack Obama's July 2009 trip to Ghana. Ghana was chosen for his first travel as president to Africa because of its democratic and economic development successes. In Ghana, President Obama made the last of a four-part thematic series of major overseas speeches on key foreign policy issues. The speech in Ghana, to the national parliament, centered on the integral relationship between democracy, good governance, and development in Africa and in the wider developing world. Close ties were also signaled by a trip to Ghana by former President George W. Bush in 2008. While Ghana has not been the focal subject of recent U.S. legislation, hearings, or other major Congressional actions it regularly hosts travel by Members and is widely seen as a key U.S. partner in sub-Saharan Africa. Ghana's national elections in late 2008 drew international attention because they marked Ghana's fifth consecutive democratic national election, preceded its second democratic transfer of power from one political party to another and, at the presidential level, were reportedly among the closest ever in post-colonial Africa. They signified Ghana's further maturation as a democracy following a transition from "no-party" rule that began in 1992, and were seen as a benchmark for democratic consolidation in Africa following a series of highly contested, volatile elections and other democratic setbacks on the sub-continent. Ghana is also a stable country in an often volatile sub-region and, along with the United States, has helped to mediate several political and/or military conflicts in West Africa over the last quarter century. These conflicts have caused widespread displacement and humanitarian suffering, which the United States has helped to mitigate through the provision of large amounts of humanitarian assistance. Ghana is also praised for its steady contribution of troops to international peacekeeping operations in Africa and elsewhere and is a recipient of U.S. training aimed at supporting such deployments. Ghana is often seen as a model for many of the outcomes that U.S. development assistance programs in Africa have long sought to achieve, and hosts bilateral and regional U.S. Agency for International Development (USAID) missions. It is a recipient of U.S. assistance under the Obama Administration's new Global Hunger and Food Security Initiative (GHFSI) as well as a President's Malaria Initiative (PMI) country. In 2006, Ghana signed a $547 million U.S. Millennium Challenge Corporation (MCC) Compact. Ghana is currently drawing attention because of its recent discovery of sizable reserves of crude oil, and its possible role in contributing to global and U.S. energy security. Oil promises to boost national income and development prospects, but, based on the experience of other oil-rich developing countries, may also pose substantial good governance and resource management challenges, which Ghana is taking measures to address. Oil sector development has caused bilateral commercial friction, principally regarding an attempt by a U.S. oil firm, Kosmos Energy, to sell its stakes in two Ghanaian oil fields. Oil sector issues are discussed at length in this report. Ghana, like the United States, faces an illicit drugs trafficking threat, notably relating to a rise in cocaine being transported from South America to Europe via West Africa. Shared interest in countering such trafficking is a growing area of U.S.-Ghanaian cooperation. The U.S. embassy in Accra hosts a DEA regional cooperation office, and has established a vetted counternarcotics unit, the first in sub-Saharan Africa, in cooperation with the DEA.